<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998 Commission file number 0-22056
Rural/Metro Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 86-0746929
-------- ----------
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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 22, 1998, 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
$125,536,749. 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 22, 1998, there were 14,465,621 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the
registrant's 1998 Annual Meeting of Stockholders are incorporated by reference
in Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS....... i
PART I............................................................... 1
ITEM 1. BUSINESS.......................................... 1
ITEM 2. PROPERTIES........................................ 26
ITEM 3. LEGAL PROCEEDINGS................................. 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS........................................... 26
PART II.............................................................. 27
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS....................... 27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.............. 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....... 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............... 64
PART III............................................................. 64
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT........................................ 64
ITEM 11. EXECUTIVE COMPENSATION............................ 64
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................... 64
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.... 64
PART IV.............................................................. 65
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K......................... 65
SIGNATURES........................................................... 69
</TABLE>
<PAGE> 3
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS
Forward Looking Statements. Statements in this Report that are not
historical facts are hereby identified as "forward looking statements" for the
purpose of the safe harbor provided by Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rural/Metro Corporation
(the "Company") cautions readers that such "forward looking statements,"
including those relating to the Company's future business prospects, revenue,
working capital, accounts receivable, liquidity, and capital needs, wherever
they appear in this Report or in other statements attributable to the Company,
are necessarily estimates reflecting the best judgment of the Company's senior
management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the "forward looking
statements." Such "forward looking statements" should, therefore, be considered
in light of various important factors, including those set forth below and
others set forth from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
These "forward looking statements" are found at various places throughout
this Report. Additionally, the discussions herein under the captions
"Business -- Strategy", "Business -- Management Systems", "Business -- Billings
and Collections", "Business -- Governmental Regulation",
"Business -- Reimbursement", "Legal Proceedings", and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are susceptible
to the risks and uncertainties discussed below and under the caption
"Business -- Special Considerations.". Moreover, the Company, through its senior
management, may from time to time make "forward looking statements" about
matters described herein or other matters concerning the Company. The Company
disclaims any intent or obligation to update "forward looking statements."
Factors That May Affect Future Results. The health care industry in
general and the ambulance industry in particular are in a state of significant
change. This makes the Company susceptible to various factors that may affect
future results such as the following: no assurance of successful integration and
operation of acquired service providers; growth strategy and difficulty in
maintaining growth; risks of leverage; dependence on certain business
relationships; risks related to intangible assets; dependence on government and
third-party payors; risks related to fee-for-service contracts; possible adverse
changes in reimbursement rates; impact of rate structures; possible negative
effects of prospective health care reform; competitive market forces;
fluctuation in quarterly results; volatility of stock price; dependence on key
personnel; and anti-takeover effect of certain of the Company's charter
provisions.
For a more detailed discussion of these factors and their potential impact
on future results, see the applicable discussions herein.
i
<PAGE> 4
PART I
ITEM 1. BUSINESS
INTRODUCTION
The Company is a leading provider of health and safety services, which
include "911" emergency ambulance and general transport 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 and fire protection services in the world.
The Company currently serves over 450 communities in 26 states, the District of
Columbia, Canada, and Latin America. Ambulance services and fire protection
services accounted for approximately 81% and 10%, respectively, of the Company's
revenue for the fiscal year ended June 30, 1998.
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 key
business competencies in communications and logistics management position it to
continue its growth internally as well as through business alliances,
acquisitions, and joint ventures and enable it to operate profitably in both
large and small communities. The Company completed 18 acquisitions in fiscal
1996, 19 acquisitions in fiscal 1997, and 11 acquisitions in fiscal 1998. The
Company also entered into a joint venture in the greater Baltimore, Maryland and
District of Columbia area and a public/private alliance in the San Diego,
California area during fiscal 1998.
For a discussion of certain risks associated with the Company's business,
including potential limitations on the future growth of the Company's business,
see "Special Considerations" contained in Item 1 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of this Report.
INDUSTRY OVERVIEW
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. 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 transport 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 and approximately 1,000 of which are hospital-owned. 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 in the United States 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 transport 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
1
<PAGE> 5
transport have increased as a result of the additional costs to meet these
requirements. These requirements, combined with the fragmented nature of the
industry, have contributed 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 relationships to managed care organizations. Managed
care organizations 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 or to the facility designated by the applicable medical protocol,
managed care organizations 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 that encourage plan members to call the provider. Under this
program, a nurse answers the call, analyzes the medical situation, and
determines the best course of action and mode of transport. In an emergency
situation, an advanced life support ambulance will generally be dispatched. In
certain cases, patients could receive the required treatment level with a less
costly basic life support ambulance or other transportation alternative. In
Latin America, the business model also encompasses mobile health care utilizing
call centers, telephone triage, and house calls by doctors and nurses. To manage
such a system, the managed care organization 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 that can provide call
center services.
The Company believes the trend toward managed care benefits larger
ambulance service providers, which can service a larger portion of a managed
care organization's needs. This allows the managed care provider to reduce its
number of suppliers, cutting administrative costs and allowing it to negotiate
more favorable rates.
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 leverage its experience and competencies in
communications and logistics management to enhance its position as a leading
provider of health and safety services in the United States and in other
countries. Key elements of this strategy include the acquisition of ambulance
service providers and strategic alliances. Having established a regional
presence in many geographic locations, the Company currently is focusing on
increased marketing efforts to serve the health and safety needs of the public
and private sector, including services for health care providers, expansion of
fire protection and community safety services, integration of health and safety
operations, public/private partnering, and outsourcing of other health and
safety related services. The Company seeks to improve productivity, expand
service offerings to customers, and attract new customers through key business
alliances, joint ventures, or other cooperative business arrangements, both
domestically and internationally.
Expansion of Services to Meet the Evolving Needs of the Public Sector and
Health Care Providers
The Company plans to expand its general transport services through
increased marketing efforts to hospitals, health maintenance organizations, and
other health care providers and its emergency ambulance
2
<PAGE> 6
services through the pursuit of new contracts and alliances with municipalities
and fire districts. Based on its public/private alliance with San Diego Fire &
Life Safety Services and the recently awarded ambulance service contract in
Aurora, Colorado, the Company believes that, in certain circumstances,
contracting and partnering may provide a cost-effective approach to expanding
into large urban markets. The Company will continue to seek to enter into
public/private alliances and municipal contracts to compete for new business.
The Company intends to respond to the needs of health care and managed care
providers by delivering high quality, efficient, cost-effective services and by
transporting patients to the most appropriate treatment facility, particularly
in those geographic areas in which it has been able to achieve market
leadership. The Company is exploring innovative value-added services to health
care providers, such as access to a medical call center, to better serve the
demand management, telephone triage, 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
establishment of service contracts, through the development of business
relationships, and through strategic acquisitions of health care and
safety-related providers, which would provide opportunities for the Company to
integrate its services with such other service providers.
Expansion and Integration of Health and Safety Services
The Company plans to continue its efforts to expand its community safety
services by providing fire protection and other safety-related services. In
seeking to expand its fire protection services, the Company emphasizes 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, fire prevention initiatives, management and operational
systems, and utilization of full-time fire fighters and part-time reservists.
The Company responds to the economic pressures on the public sector to reduce
taxes and expenditures for emergency services, including fire protection and
other safety-related services, by establishing public/private alliances with
fire districts and municipalities. The Company also pursues opportunities to
provide fire protection and safety services to large industrial complexes,
including airports, large industrial and petrochemical plants, power plants, and
other large self-contained facilities. The Company currently offers other
safety-related services on a limited basis, including its security monitoring
and personal emergency response systems. The Company intends to continue to
leverage its communications and logistics expertise to develop and offer
safety-related services. The Company also intends to leverage its superior
systems and substantial experience with third-party payors to provide fire
districts and municipalities with business services, such as billings and
collections services.
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. Building
upon the Company's successful delivery of integrated ambulance and fire services
under its contracts with the City of Scottsdale and with Knox County, Tennessee
and through its public/private alliance with San Diego Fire & Life Safety
Services, 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 health and safety services can provide operating economies,
coordination of the delivery of services, efficiencies in the use of personnel
and equipment, and enhanced levels of service, especially in lower-utilization
communities.
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, provides the
Company with the opportunity to acquire additional ambulance service providers,
including hospital-owned providers, that would benefit from its management and
operational systems, resulting in productivity gains and enhanced levels of
service.
3
<PAGE> 7
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, the competition to be encountered in such market, and the impact of the
candidate's operations on the Company's earnings. 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 ambulance and general transport
services, and by integrating ambulance services with fire protection services.
The Company continues to build its regional operations to better position it to
serve the developing managed care customer base. The Company's ability to
complete acquisitions depends upon the availability of cash from operations or
additional debt or equity financing, the Company's capitalization, and the
market price of the Company's Common Stock. A continuation of the depressed
market price of the Company's Common Stock as of the date of this Report may
result in a slower pace of acquisitions. See "Special
Considerations -- Significant Leverage", "-- Risks Associated with Rapid Growth,
Integration, and Acquisitions", and "-- Volatility of Stock" contained in Item 1
of this Report.
Productivity Improvement and Enhancement
The Company utilizes its management and operational systems to enhance
productivity and profitability in its existing operations and in acquired
operations and to enhance its opportunities with joint venture and business
alliance partners. The standardization of certain functions and the
centralization of certain key management and operating systems development
permit the Company to achieve economies of scale at both the regional and
corporate levels. The Company believes that establishing market leadership in
its various service areas enables it to more efficiently utilize its equipment
and personnel, to better serve large regional health care providers, and to more
effectively market its services, thereby continuing to improve its productivity.
See "Special Considerations -- Risks Associated with Rapid Growth, Integration,
and Acquisitions" contained in Item 1 of this Report.
Entrance into International Markets
The Company plans to expand its presence in international health and safety
and other related services markets. The opportunities pursued to date have been
in Canada and Latin America, but other areas are being assessed. The Company
intends to capitalize on the growth opportunities created by the privatization
of health and safety services in markets such as Argentina and Ontario, Canada
and the expansion of health insurance companies and health maintenance
organizations into Latin America. The Company believes select Latin America
markets, including Mexico and the nations of the MERCOSUR, represent a growth
opportunity and provide a model for a capitated health care environment
encompassing both ambulance transport and mobile health care utilizing call
centers, telephone triage, and house calls by doctors and nurses. The Company
evaluates opportunities to enter into international markets through acquisitions
or alliances based on factors such as its ability to establish a strong
strategic local relationship and a solid corporate infrastructure of systems and
management talent, the potential to increase operating margins and returns on
capital, and the opportunity to offer value-added services that broaden its
participation in the health care market. In addition, the Company seeks
opportunities to provide fire protection and safety services to industrial
complexes, including airports and other large self-contained facilities. See
"Special Considerations -- Risks Associated with Rapid Growth, Integration, and
Acquisitions" and "-- Risks Associated with International Operations and Foreign
Currency Fluctuations" contained in Item 1 of this Report.
4
<PAGE> 8
CURRENT SERVICE AREAS
The Company provides its services in over 450 communities in the following
26 states, the District of Columbia, Canada, and Latin America:
<TABLE>
<S> <C> <C>
Alabama Iowa Oregon
Arizona Kentucky Pennsylvania
Arkansas Louisiana South Carolina
California Maryland South Dakota
Colorado Mississippi Tennessee
Florida Nebraska Texas
Georgia New Jersey Virginia
Idaho New York Washington
Indiana Ohio
</TABLE>
The Company provides ambulance services in these states, the District of
Columbia, and Canada primarily under the names Rural/Metro Ambulance and
Rural/Metro Medical Services and in certain areas of Arizona under the name
Southwest Ambulance. The Company provides urgent home medical care and ambulance
transport services under the name Emergencias Cardio Coronarias ("ECCO") in
Latin America. 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.
In certain service areas, the Company is the only provider of both
emergency ambulance and general transport services. In other service areas, the
Company competes for general transport 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 eight states and in Latin America.
AMBULANCE TRANSPORT SERVICES AND URGENT HOME MEDICAL CARE
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.
5
<PAGE> 9
General Transport Services
The Company also provides 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 some
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 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 organizations 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.
Urgent Home Medical Care
In Argentina, the Company has approximately 800,000 individual and business
customers that prepay monthly for urgent home medical care and ambulance
services under a capitated service arrangement. Personnel conduct telephone
triage and prioritize the dispatch of services to subscribers. Mobile services
may include the dispatch of physicians to the patient in an ambulance for
serious life threatening situations, or more frequently, in the physician's car,
thus covering a wider scope of service than the traditional U.S. ambulance
service model.
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
6
<PAGE> 10
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.
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 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 40% of the Company's fire protection work
force.
All full-time and reservist firefighters undergo extensive training, which
exceeds 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.
7
<PAGE> 11
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 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
approximately one-third of the national average.
INDUSTRIAL FIRE PROTECTION SERVICES
The Company provides fire protection services to large industrial
complexes, such as airports, large industrial and petrochemical plants, power
plants, and other self-contained facilities. The Company has contracts ranging
up to five years in duration and expiring at various dates up to February 2002
to provide crash/rescue firefighting and hazardous materials response services
at locations in several states and at 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") requirements, 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 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.
8
<PAGE> 12
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
permitted 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 places a high priority on rapidly evaluating the
management and reporting systems of acquired operations and subsequently
integrating or transitioning such systems to improve operating efficiencies.
Upon completion of an acquisition, the Company establishes critical success
factors, including number of transports, ratio of transports to calls, resource
utilization and pricing statistics, which are monitored daily. The Company
focuses on converting acquired businesses onto the Company's technology to
promote consistent and timely reporting, taking over cash management functions,
and integrating acquired businesses into the Company's LAN/WAN communications
infrastructure. 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. For additional information regarding the Company's ability to
successfully integrate acquired companies into its existing management systems,
see "Special Considerations -- Risks Associated with Rapid Growth, Integration
and Acquisitions" contained in Item 1 of this Report.
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 human resources division is
involved in the training and integration of managers from acquired operations.
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.
9
<PAGE> 13
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 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 works with call centers to enable it to implement demand
management strategies for health care providers. Through its business alliance
with HBO&Co. (formerly National Health Enhancement Systems, Inc. prior to its
merger in December 1997), 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 organizations more frequently are encouraging 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 organization
rather than to a non-member facility or a hospital emergency room, thereby
further reducing costs for the provider. A long established version of this
business model is currently being utilized by the Company's Argentine
operations.
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 14 domestic regional billing and payment
processing centers and a centralized 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.
Depending on size and geography, the Company integrates acquired businesses into
existing regional billing and payment centers or creates a stand-alone billing
and payment center. Substantially all of the Company's revenue is billed and
collected through its integrated billing and collection system, except for its
operations in Columbus, Ohio; Rochester, New York;
10
<PAGE> 14
and the Metro New York City/New Jersey area. The Company anticipates these
billing centers will be integrated during 1999.
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 1996, 1997, and 1998
the Company derived approximately 27%, 26%, and 29%, respectively, of its net
ambulance fee collections from Medicare, 11%, 10%, and 11%, respectively, from
Medicaid, 41%, 38%, and 39%, respectively, from private insurers (including
prepaid health plans and other non-government sources), and 21%, 26%, and 21%,
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. See "Special Considerations -- Dependence on Reimbursements
by Third-Party Payors and Individuals" and "-- Possible Adverse Changes in
Reimbursement Rates of Coverage" contained in Item 1 of this Report.
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's integrated billing and
collection system 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 integrated billing and
collection system provides 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. When billing
individuals rather than third-party payors, 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 the integration of acquired businesses into the Company's
integrated billing and collection system standardizes and improves the
efficiency of billings and collections.
The Company has leveraged its systems and experience in processing
third-party payor claims to provide billing and collection services to fire
departments and municipalities in Phoenix, Dallas, Baltimore, and San Diego. The
Company intends to seek opportunities to enter into similar contracts in other
communities.
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 among 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 five-year contract to provide "911" and ambulance services
throughout the City of San Diego.
11
<PAGE> 15
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 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. Subscription fees are collected annually in
advance. 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 also provides fire protection services to newly developed communities
where the subscription fee may be 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, depend in large part
on the nature of the services rendered and performance requirements. The four
largest ambulance contracts accounted for 16%, 13%, and 9% of total revenue for
the fiscal years ended June 30, 1996, 1997, and 1998 respectively, with the
contract with Orange County, Florida accounting for 7%, 5%, and 4%,
respectively, of total revenue for the same periods. Rates 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
Orange County contract was first entered into in 1962 by a provider acquired by
the Company in 1984. Although the Company expects that this contract will be
renewed, no assurance can be given that the Company will retain this contract on
terms as favorable, if at all.
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 4%, 3%, and 2% of total revenue for the fiscal
years ended June 30, 1996, 1997, and 1998 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 51% of its fire
protection service revenue from subscriptions for fiscal 1996, 50% for fiscal
1997, and 49% for fiscal 1998. 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 two to five years,
with several contracts having terms of up to 10 years. The Company attempts to
renegotiate contracts in advance of the expiration date and generally has been
successful in such renegotiations. The Company monitors its performance under
each contract. From time to time, the Company may decide that certain contracts
are no longer favorable and may seek to modify or terminate such contracts. The
following table sets forth certain information regarding the
12
<PAGE> 16
Company's five primary contracts at June 30, 1998 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 October 1999 911/General
Rochester, New York(3)......... 4 October 2000 911
Knox County, Tennessee(4)...... 4 June 2002 911
Tucson, Arizona(5)............. 3 July 2000 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 and
subsequently awarded to an ambulance service provider acquired by the
Company.
(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. See "Special Considerations -- Dependence on Certain
Business Relationships" contained in Item 1 of this Report.
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. There
can be no assurance that counties, municipalities, fire districts, hospitals, or
health care organizations 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 in providing emergency
ambulance service. However, the Company believes that the general transport
services market currently is not attractive to fire departments. Some of the
Company's current competitors and certain potential competitors have greater
capital and other resources than the Company. Ambulance and general transport
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 among 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. The Company
believes that its status as a "911" provider in a service area increases its
visibility and stature and enhances its ability to compete for non-emergency
services within that area. Because smaller ambulance
13
<PAGE> 17
providers do not have the infrastructure to provide "911" services, the Company
believes it can compete favorably with such competitors for general transport
services contracts.
Fire protection services for residential and commercial properties are
provided primarily by tax-supported fire districts, municipal fire departments,
and volunteer departments. Private providers represent a small portion of the
total fire protection market and generally provide fire protection services
where a tax-supported fire district or municipality has decided to contract for
the provision of fire protection services or has not assumed financial
responsibility for fire protection. 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. See "Special Considerations -- Competition" contained in Item 1 of
this Report.
GOVERNMENTAL REGULATION
The Company's business is subject to governmental regulation at the
federal, state, local, and foreign 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 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, local, and foreign 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. See "Special Considerations -- Possible Adverse Change
in Reimbursement Rates of Coverages," "-- Impact of Rate Structures and
Limitations on Rates of Return," "-- Effect of Governmental Regulations," and
"-- Health Care Reforms and Cost Containment" contained in Item 1 of this
Report.
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 co-pays,
deductibles and the remaining balance, if the Company does not accept
assignment, 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
14
<PAGE> 18
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 and could have a
material adverse effect.
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 provided to
Medicare beneficiaries. 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 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 requires that, beginning January 1, 2000, ambulance service
providers accept assignment whereby the Company receives payment directly from
Medicare and accepts such amount, along with the co-pay and deductible paid by
the patient, as payment in full. The Budget Act also applies the Skilled Nursing
Facility Prospective Payment System ("SNFPPS") to a limited number of ambulance
trips to and from nursing homes. The application of SNFPPS could require the
Company to negotiate new contracts or arrangements with skilled nursing
facilities to provide ambulance services.
The Budget Act also stipulates that individual states may now elect not to
provide payment for cost-sharing for coinsurance, or copayments, for
dual-qualified (Medicare and Medicaid) beneficiaries.
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, or other
proposals involving various aspects of Medicare reimbursements will be adopted
or implemented, or the effect on the Company of any such adoption and
implementation. No assurance can be given regarding the impact of a prospective
fee schedule. No assurance can be given that future funding levels for Medicare
and Medicaid programs will be
15
<PAGE> 19
comparable to present levels. Changes in the reimbursement policies, or other
government action, could adversely affect the Company's business, financial
condition, cash flows, and results of operations.
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, subject to certain self insurance retentions up to
$250,000. 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 or that such insurance will continue to be available on commercially
reasonable terms. A successful claim against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. 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 22, 1998, the Company employed approximately 8,000 full-time
and 4,250 part-time employees, including approximately 9,100 involved in
ambulance services, 600 in fire protection services, 550 in integrated ambulance
and fire protection services, and 2,000 in management, administrative, clerical,
and billing activities. Of these employees, 3,050 are paramedics and 4,900 are
EMTs. The Company is a party to collective bargaining agreements 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.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John B. Furman....................... 54 President and Acting Chief Executive Officer
Robert T. Edwards.................... 58 Executive Vice President and Director
Robert E. Ramsey, Jr................. 52 Executive Vice President and Director
Jack E. Brucker...................... 46 Senior Vice President and Chief Operating Officer
William R. Crowell................... 39 Senior Vice President -- Finance and Acquisitions
Mark E. Liebner...................... 46 Senior Vice President -- Chief Financial Officer &
Treasurer
James E. Stenger..................... 55 Senior Vice President -- Executive Assistant to the
President/CEO
Robert B. Hillier.................... 49 Vice President -- Human Resources
Dean P. Hoffman...................... 38 Vice President -- Financial Services
Michel A. Sucher, M.D................ 51 Vice President -- Medical Affairs
Louis G. Jekel....................... 57 Secretary and Director
</TABLE>
JOHN B. FURMAN has served as President and Acting Chief Executive Officer
of the Company since August 1998. Prior to joining the Company, Mr. Furman was a
Senior Member and chairman of the business law and financial services group of
O'Connor, Cavanagh, Anderson, Killingsworth & Beshears, a Professional
Association, a law firm based in Phoenix, Arizona, which he joined in December
1983. As a member of that firm, Mr. Furman served as the Company's primary
outside counsel for more than 10 years, representing the Company in
substantially all of its acquisitions and capital market activities. From April
1978 to December 1983, he was Associate General Counsel for Waste Management,
Inc.
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
served as Senior Vice President -- Fire Protection
16
<PAGE> 20
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.
ROBERT E. RAMSEY, JR. has served as Executive Vice President of the Company
since August 1998. He served as Senior Vice President from June 1997 until
August 1998 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. SW General, Inc. and affiliated
companies were purchased by the Company in June 1997. He is currently President
of the Arizona Ambulance Association.
JACK E. BRUCKER has served as Senior Vice President and Chief Operating
Officer of the Company since December 1997. Mr. Brucker founded and served as
President of Pacific Holdings, a strategic consulting firm, from July 1989 until
December 1997. Mr. Brucker served as President of Pacific Precision Metals, a
consumer products company, from September 1987 until June 1989. Mr. Brucker
served in various senior management positions with Fairchild Industries,
including Chief Financial Officer and Chief Operating Officer of the VSI
subsidiary, from January 1982 to September 1987.
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 is a certified public accountant.
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.
JAMES E. STENGER has served as Senior Vice President -- Executive Assistant
to the President/CEO 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 fire and
ambulance service operational and administrative capacities with the Company
from 1966 to June 1987. Mr. Stenger has announced his retirement from the
Company effective November 15, 1998.
ROBERT B. HILLIER has served as Vice President -- Human Resources of the
Company since October 1997. Mr. Hillier served as Account Manager and Human
Resources Consultant of Watson Wyatt Worldwide from January 1995 to October
1997. From November 1992 to December 1994, he contracted with Bank of America to
organize Caliber Bank of Arizona and later served as Director of Human Resources
of Caliber Bank of Arizona.
DEAN P. HOFFMAN has served as Vice President -- Financial Services of the
Company 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 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.
17
<PAGE> 21
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 a partner in the law firm of Jekel & Howard, Scottsdale, Arizona.
SPECIAL CONSIDERATIONS
Significant Leverage
The Company has significant indebtedness and debt service obligations. As
of June 30, 1998, the Company had a debt-to-equity ratio of 1.4-to-1 with $252.4
million of consolidated indebtedness and $177.8 million of stockholders' equity.
In March 1998, the Company sold $150.0 million of 7 7/8% Senior Notes (the
"Notes") due 2008 (the "Debt Offering"). Coincident with the Debt Offering, the
Company renegotiated its then existing $200.0 million bank revolving credit
facility to create a parity loan with the Notes and to extend the maturity to
March 2003. Proceeds from the Notes were used to pay down the then current
outstanding bank facility. The Notes were issued under an Indenture (the
"Indenture") among the Company, certain of its subsidiaries as guarantors and
the First National Bank of Chicago as trustee. The Indenture permits the Company
to incur additional indebtedness under certain conditions, and the Company
expects that it will incur additional indebtedness during the term of the Notes
pursuant to the Company's revolving credit facility. The Company's ability to
make payments with respect to the Notes and to satisfy its other debt
obligations depends on its future operating performance, which will be affected
by governmental regulations, prevailing economic conditions, financial factors,
and other factors, certain of which are beyond the Company's control. There can
be no assurance that the Company will generate sufficient cash flow to meet its
future debt service obligations.
The Company's leverage and related financial covenants could have a
material adverse effect on its ability to withstand competitive pressures or
adverse economic conditions, make material acquisitions, obtain future
financing, or take advantage of business opportunities that may arise. If the
Company is unable to service the Notes and to meet its debt service obligations
and operating expenses, it will be required to examine alternative means of
repayment that could include restructuring or refinancing some or all of its
indebtedness or raising additional equity. There can be no assurance that any of
these strategies could be effected on satisfactory terms. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 7 of this Report.
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for operating expenses, acquisitions, or general
corporate purposes may be impaired; (ii) a portion of the Company's cash flows
from operations may be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available for operations; (iii) certain
of the Company's indebtedness, including the Company's revolving credit
facility, contain financial covenants, including a total debt leverage ratio, a
total debt to total capitalization ratio, a fixed charge ratio, and other
restrictive covenants, including those restricting the incurrence of additional
indebtedness, the creation of liens, the payment of dividends, and the sale of
assets; and (iv) the Company's leverage may make the Company vulnerable to
industry changes, including government regulations and changing economic
conditions.
Restrictive Covenants Imposed by Terms of the Company's Indebtedness
Subject to certain exceptions, the Indenture governing the terms of the
Notes contains certain covenants limiting the incurrence of certain
indebtedness, the payment of dividends, the redemption of capital stock, the
making of certain investments, the issuance of capital stock of subsidiaries,
the creation of liens and other restrictions affecting the Company's
subsidiaries, the issuance of guarantees, transactions with affiliates, the sale
of assets, and the completion of certain mergers and consolidations. A breach of
any of these covenants could result in an event of default under the Indenture.
In addition, the Company's revolving credit facility contains other more
restrictive covenants and requires the Company to satisfy certain financial
tests. The Company's ability to satisfy those tests can be affected by events
beyond its control, and there can be no assurance that the Company will be able
to meet those tests. A breach of any of these covenants could result in a
default under the revolving credit facility and under the Indenture. Upon the
occurrence of an event of
18
<PAGE> 22
default under the revolving credit facility, depending on actions taken by the
lenders under the revolving credit facility, the Company could experience
difficulties with customers, personnel, or others. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in Item
7 of this Report.
Holding Company Structure
The Company is a holding company and conducts substantially all of its
operations through its subsidiaries. The Company's cash flow and, consequently,
its ability to service its indebtedness, including the Notes, depends on its
ability to gain access to the cash flow of its subsidiaries (whether through
loans, dividends, distributions, or otherwise) and are subject to any legal,
contractual, or other restrictions that could hinder or prevent the Company from
doing so. Each subsidiary is a separate and distinct legal entity from the
Company and, unless it is acting as a guarantor of the Notes, has no obligation,
contingent or otherwise, to pay any amounts due in respect of the Notes or to
make any amounts available for the payment thereof. The holders of any
indebtedness of the Company's subsidiaries will be entitled to payment thereof
from the assets of such subsidiaries prior to the holders of any general,
unsecured obligations of the Company, including the Notes and the guarantees of
certain of its subsidiaries. As of June 30, 1998, the Company's subsidiaries had
$16.6 million of indebtedness.
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 18% and 12% of total revenue for the fiscal years ended June 30,
1997 and 1998, respectively, with one contract accounting for approximately 5%
and 4% 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's business, financial condition, cash flows, and results of operations.
No assurance can be given that the Company will be successful in retaining its
existing contracts or in obtaining new contracts for emergency ambulance
services or for fire protection services. In addition, many of the Company's
contracts are for extended periods ranging from two years to five years. During
such periods, the Company may determine that a contract is no longer favorable
and may pursue options to modify or terminate the contract. Factors contributing
to such a determination could include weaker than expected transport volume,
geographical issues adversely affecting response times, and delays in
implementing technology upgrades. The Company faces certain risks in attempting
to terminate unfavorable contracts prior to their expiration due to the
possibility of forfeiting performance bonds and the potential adverse political
and public relations consequences. The Company's inability to terminate or amend
unfavorable contracts could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. 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," "-- Contracts," and "-- Competition"
contained in Item 1 of this Report.
Risks Associated with Rapid Growth, Integration, and Acquisitions
The Company's strategy with respect to ambulance services depends in large
part on its ability to integrate and successfully operate ambulance service
providers it acquires. The integration of the management, operations,
facilities, and accounting and information systems of acquired businesses
requires continued investment of time and resources and can involve unforeseen
difficulties, which could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. There also
can be no assurance that unforeseen liabilities will not arise in connection
with the operation of businesses acquired by the Company or that any contractual
purchase price adjustments, rights of set-off, or other remedies available to
the Company will be sufficient to compensate the Company in the event unforeseen
liabilities arise. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report.
19
<PAGE> 23
The Company seeks strategic acquisition opportunities in the regular course
of its business. 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. Acquisitions involve numerous
short-term and long-term risks, including diversion of management's attention,
failure to retain key personnel of the acquired company, adverse consequences to
cash flow until accounts receivable of the acquired company are fully
integrated, loss of net revenue of the acquired company, and possible regulatory
issues of the acquired company. In addition, the Company may be required to
comply with laws and regulations of jurisdictions that differ from those in
which the Company currently operates and may face competitors with greater
knowledge of such local markets.
The Company expects to use cash and securities, including its 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
additional debt or equity financings. There can be no assurance that the
Company's operations will generate sufficient cash for acquisitions or that any
additional financings for acquisitions will be available if and when needed or
on terms acceptable to the Company.
The market price of the Company's Common Stock will also impact the ability
of the Company to complete acquisitions. The Company may be unwilling to utilize
or potential acquired companies or their owners may be unwilling to accept the
Company's Common Stock in connection with acquisitions during periods when the
Company's Common Stock experiences substantial declines in market price. In
addition, declines in market price make the raising of funds more difficult and
costly. As a result of a decline in the market price of the Company's Common
Stock in the fourth quarter of fiscal 1998, the pace of acquisitions utilizing
the Company's Common Stock may decline unless and until the Company's Common
Stock increases in price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this Report and
"Business -- Strategy" contained in Item 1 of this Report.
Dependence on Reimbursements by Third-Party Payors and Individuals
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 74% and 79% of its net ambulance fee
collections from such third-party payors during fiscal 1997 and 1998, including
26% and 29% from Medicare, respectively. The reimbursement process is complex
and can involve lengthy delays. Third-party payors are continuing their efforts
to control expenditures for health care, including proposals to revise
reimbursement policies. The Company recognizes revenue when the services are
provided; however, there can be lengthy delays before reimbursement is received.
The Company has from time to time experienced delays in receiving reimbursements
from third-party payors. In addition, third-party payors may disallow, in whole
or in part, requests for reimbursement based on determinations that certain
amounts are not reimbursable or because additional supporting documentation is
necessary. Retroactive adjustments can change amounts realized from third-party
payors. Delays and uncertainties in the reimbursement process adversely affect
the Company's level of accounts receivable, increase overall costs of collection
and may adversely affect the Company's working capital and cause the Company to
incur additional borrowing costs. Under present coverage programs with
third-party payors, the Company also faces the continuing risk of
nonreimbursement to the extent that uninsured individuals require emergency
ambulance service in service areas where an adequate subsidy is not provided.
Amounts not covered by third-party payors are the obligations of individual
patients.
The Company's gross accounts receivable as of June 30, 1997 and June 30,
1998, were $142.8 million and $224.2 million, respectively. The Company's
accounts receivable, net of the allowance for doubtful accounts, were $107.0
million and $154.6 million as of such dates, respectively. The allowance for
doubtful accounts at June 30, 1998, includes a $17.9 million additional
provision for doubtful accounts recorded in the fourth quarter of fiscal year
1998. The Company believes that the increase in accounts receivable is related
significantly to acquisition activity and to recent revenue growth. The Company
also attributes the increase in accounts receivable and the increased age of
receivables to certain factors, including delays in payments from certain
third-party payors, particularly in certain of the Company's regional billing
areas, and a general industry trend towards a lengthening payment cycle of
accounts receivable due from third-party payors. In
20
<PAGE> 24
addition, the Company believes certain transitional aspects of the integration
of acquired companies into the Company's centralized billing and collection
function has resulted in increases in the amount and age of accounts receivable
during the transition period.
The risks associated with third-party payors and individuals and the
Company's failure to monitor and manage accounts receivable successfully could
have a material adverse effect on the Company's business, financial condition,
cash flows, and results of operations. The Company establishes an allowance for
doubtful accounts based on credit risk applicable to certain types of payors,
historical trends, and other relevant information. The Company reviews its
allowance for doubtful accounts on an ongoing basis and may increase such
allowances from time to time, including when it determines that the level of
effort and cost of collection of certain accounts receivable is unacceptable.
However, there can be no assurance that the Company's collection policies and
allowances for doubtful accounts receivable will be adequate. See
"Business -- Billings and Collections" contained in Item 1 of this Report and
"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
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 laws addressing
changes to the reimbursement of ambulance services by Medicare (discussed
below), have not yet been withdrawn. The proposed HCFA rules have not been
finalized. See "Business -- Reimbursement" contained in Item 1 of this Report.
In addition, the "Balanced Budget Act of 1997" (the "Budget Act") became
law in August 1997. 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 business,
financial condition, cash flows, and 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 payments and
reimbursements. A reduction in coverage or reimbursement rates by third-party
payors, or an increase in the Company's cost structure relative to the rate of
increase in the CPI, could have a material adverse effect on the Company's
business, financial condition, cash flows, and results of operations. See
"Business -- Billings and Collections," "-- Governmental Regulation," and
"-- Reimbursement" contained in Item 1 of this Report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 7 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 ambulance services 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 9% and 13% of total revenue for the
fiscal years ended June 30, 1997 and 1998, 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. See
"Business -- Billings and Collections" and "-- 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
21
<PAGE> 25
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.
Risks Associated with International Operations and Foreign Currency Fluctuations
The Company plans to expand its presence in international health and safety
and other related services markets. Although the Company maintains operations in
Canada and in Latin America, there can be no assurance that the Company will be
successful in expanding its international operations. As the Company expands its
international operations, it increasingly will be subject to risks associated
with international operations, including management of a multi-national
organization, fluctuations in currency exchange rates, compliance with local
laws and other regulatory requirements and changes in such laws and
requirements, restrictions on the repatriation of funds, inflationary
conditions, employment and severance issues, political and economic instability,
war or other hostilities, expropriation or nationalization of assets, overlap of
tax structures, and renegotiation or nullification of contracts. The inability
to effectively manage these and other risks could have a material adverse effect
on the Company's business, financial condition, cash flows, and results of
operations.
The Company's revenue from international operations is denominated
primarily in the currency of the country in which it is operating. A decrease in
the value of such foreign currencies relative to the U.S. dollar could result in
losses from currency exchange rate fluctuations. The Company does not currently
engage in foreign currency hedging transactions. However, as the Company
continues to expand its international operations, exposures to gains and losses
on foreign currency transactions may increase. The Company may choose to limit
such exposure by entering into forward-foreign exchange contracts or engaging in
similar hedging strategies. There can be no assurance that any currency exchange
strategy would be successful in avoiding exchange-related losses, or that the
failure to manage currency risks effectively would not have a material adverse
effect on the Company's business, financial condition, cash flows, and results
of operations. In addition, revenues of the Company earned in foreign countries
may be subject to taxation by more than one jurisdiction, thereby adversely
affecting the Company's earnings.
Effect of Governmental Regulations
Numerous federal, state, local, and foreign 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 that traditionally have applied
only to governmental bodies or which they are otherwise immune. There can be no
assurance that federal, state, local, or foreign governments will not change
existing laws or regulations, adopt new laws or regulations that increase the
Company's cost of doing business, lower reimbursement levels, or otherwise
adversely affect the Company's business, financial condition, cash flows, and
results of operations. Additionally, there can be no assurance that the Company
or businesses acquired by the Company will be able to comply with all applicable
laws and regulations. See "Business -- Governmental Regulation" and
"-- Reimbursement" contained in Item 1 of this Report.
Health Care Reforms and Cost Containment
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's business, financial condition, cash flows, accounts
receivable realization, and results of operations. See "Business -- Governmental
Regulation" contained in Item 1 of this Report.
23
<PAGE> 26
Competition
The ambulance service industry is highly competitive. Ambulance and general
transport 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 among the most important factors in awarding a
contract. Other factors, such as customer service, financial stability, and
personnel policies and practices, also may be considered.
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. 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 in providing 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 business 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
key 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. Low unemployment in certain
market areas currently makes the recruitment, training, and retention of
full-time and part-time personnel more difficult and costly, including the cost
of overtime wages.
The Company's internal growth and its expansion into new geographic areas,
including international markets, 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 has entered into
employment agreements with certain of its executive officers and certain other
key personnel. 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 Company's directors, executive officers, and their affiliates own
beneficially approximately 13%, and the Company's Employee Stock Ownership Plan
(the "ESOP") holds approximately 6%, of the outstanding shares of the Company's
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.
23
<PAGE> 27
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).
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to each holder of Notes to repurchase all or any part of such
holder's Notes at a repurchase price equal to 101%, or in certain instances
105%, of the principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the repurchase date. There can be no
assurance that the Company would have sufficient resources to repurchase the
Notes upon the occurrence of a Change of Control. The failure to repurchase all
of the Notes tendered to the Company would constitute an Event of Default under
the Indenture. Furthermore, the repurchase of the Notes by the Company upon a
Change of Control might result in a default on the part of the Company in
respect of the revolving credit facility or other future indebtedness of the
Company, as a result of the financial effect of such repurchase on the Company
or otherwise.
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 (a "Stock Acquisition Date") or commences a tender or
exchange offer that would result in the offeror beneficially owning 15% or more
of the Common Stock. If a Stock Acquisition Date has occurred, 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 a Stock Acquisition Date.
Volatility of Stock
The market price of the Company's Common Stock has been volatile 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 initially marked by generally rising stock prices,
favorable industry conditions, and improved operating results by the Company.
The Company experienced a significant decline in its stock price in the fourth
quarter of fiscal 1998 as a result of less favorable industry trends, an
increase in its provision for doubtful accounts, an increase in its operating
expenses, and general stock market conditions. The trading price of the
Company's Common Stock in the future could continue to 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
24
<PAGE> 28
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.
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 22, 1998, there were
14,465,621 shares of Common Stock outstanding, 10,580,502 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
321,072 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 addition, the Company has registered
6,700,000 shares of Common Stock for issuance in connection with acquisitions
(of which 3,564,047 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 6,000,000 shares of
Common Stock that are reserved for issuance pursuant to the Company's stock
option plans. As of September 22, 1998, approximately 800,000 stock options had
been exercised. 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.
Year 2000 Compliance
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's medical equipment, ambulance and fire dispatch
systems, and computer systems and applications will function properly beyond
1999. The Company's assessment of this equipment and systems, both internally
developed and purchased from third party vendors, is nearly complete. The
Company will continue to monitor new medical equipment, ambulance and fire
dispatch systems, and computer systems and applications that the Company adds in
its operations for year 2000 compliance. The results of the assessments
completed to date have indicated that the Company's medical equipment, ambulance
and fire dispatch systems, and computer systems and applications are either year
2000 compliant, can be upgraded, or in the case of certain ambulance and fire
dispatch systems, will be replaced in order to obtain compliance. If the
Company's medical equipment, ambulance and fire dispatch systems, and computer
systems and applications are not year 2000 compliant in a timely manner, the
Company's business operations could be adversely affected and the Company may
incur unanticipated expenses to remedy any problems not addressed by these
compliance efforts.
The Company also depends upon the ability of telephone systems to be year
2000 compliant in order for the Company to receive incoming calls for service to
its ambulance and fire dispatch systems. The failure of telephone service
providers to adequately provide service could impact the Company's ability to
dispatch ambulance and fire protection services in a timely manner. The failure
of third-party payors, such as private insurers, managed care providers, health
care organizations, preferred provider organizations, and federal and state
government agencies that administer Medicare and/or Medicaid, to adequately
address their year 2000 issues could impact their ability to reimburse the
Company for services provided or otherwise adversely affect the Company's
business, financial condition, cash flows, and results of operations.
To date, the Company has not completed its contingency plans in the event
that its medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-
25
<PAGE> 29
party payors, or any other components of its business operations fail to operate
in compliance with the year 2000 date change. The Company expects to develop
contingency plans by the end of fiscal 1999.
The cost of the Company's year 2000 compliance program has not had and is
not expected to have a material impact on the Company's results of operations,
financial condition, or liquidity. There can be no assurance, however, that the
Company will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or that its vendors or
third-party payors are not able to resolve their year 2000 compliance issues in
a timely manner.
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 nine administrative facilities and 13 other facilities within
its service areas. Aggregate rental expense was approximately $6.6 million and
$10.2 million during fiscal 1997 and 1998, respectively. At September 22, 1998,
the Company's fleet included 1,452 owned and 429 leased ambulances, 115 owned
and 27 leased fire vehicles and 294 owned and 25 leased other vehicles. The
Company uses a combination of in-house and outsourced maintenance services to
maintain its fleet, depending on the size of the market and the availability of
quality outside maintenance services.
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. The Company is not engaged in any legal proceedings in the ordinary
course of business that are expected to have a material adverse effect on the
financial condition or results of operations of the Company.
The Company, Warren S. Rustand, former Chairman of the Board and Chief
Executive Officer of the Company, James H. Bolin, Vice Chairman of the Board,
and Robert E. Ramsey, Jr., Executive Vice President and Director, have been
named as defendants in two purported class action lawsuits ("Complaints"):
Haskell v. Rural/Metro Corporation, et. al., Civil Action No. C-328448 filed on
August 25, 1998 in Pima County, Arizona Superior Court and Ruble v. Rural/Metro
Corporation, et al., CIV 98-413-TUC-JMR filed on September 2, 1998 in United
States District Court for the District of Arizona. The two lawsuits, which have
been filed by the same law firms and contain virtually identical allegations,
were brought on behalf of a class of persons who purchased the Company's
publicly traded securities including its common stock between April 28, 1997 and
June 11, 1998. Haskell v. Rural/Metro seeks unspecified damages under the
Arizona Securities Act, the Arizona Consumer Fraud Act, and under Arizona common
law fraud, and also seeks punitive damages, a constructive trust, and other
injunctive relief. Ruble v. Rural/Metro seeks unspecified damages under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934. In summary, both
Complaints allege that between April 28, 1997 and June 11, 1998 the defendants
issued certain false and misleading statements regarding certain aspects of the
financial status of the Company and that these statements allegedly caused the
Company's common stock to be traded at artificially inflated prices. The
Complaints also allege that Mr. Bolin and Mr. Ramsey sold stock during this
period allegedly taking advantage of inside information that the stock prices
were artificially inflated. Both cases are at the earliest stages of litigation.
The Company and the individual defendants intend to vigorously defend the
Complaints. The Company is unable to predict the ultimate outcome of this
litigation. If the lawsuits were ultimately determined adversely to the Company,
it could have a material effect on the Company's results of operations and
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
26
<PAGE> 30
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. 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, 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>
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED JUNE 30, 1998
First quarter.............................................. $31.50 $25.88
Second quarter............................................. 37.50 29.88
Third quarter.............................................. 35.50 28.31
Fourth quarter............................................. 34.00 10.75
</TABLE>
On September 22, 1998, the closing sale price of the Company's Common Stock
was $9.88 per share. On September 22, 1998, there were approximately 978 holders
of record of the Company's Common Stock.
Pursuant to a private placement under Section 4(2) of the Securities Act,
in April 1998, the Company issued 15,468 shares at $32.33 per share to the
former shareholder of Absolute-Care, Inc. ("Absolute-Care") in connection with
the Company's acquisition of Absolute-Care and issued 7,734 shares at $32.33 per
share to the former shareholder of Absolute Life Support Systems, Inc.
("Absolute Life") in connection with the Company's acquisition of Absolute Life.
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 Notes, 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.
27
<PAGE> 31
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the fiscal years
ended June 30, 1998, 1997, 1996, 1995 and 1994 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,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Revenue
Ambulance services.................................... $387,041 $257,488 $197,201 $127,461 $ 68,942
Fire protection services.............................. 45,971 42,163 38,770 32,274 30,502
Other................................................. 42,546 20,154 14,292 11,848 4,920
-------- -------- -------- -------- --------
Total revenue................................... 475,558 319,805 250,263 171,583 104,364
Operating expenses
Payroll and employee benefits......................... 254,806 170,833 135,464 90,843 54,750
Provision for doubtful accounts....................... 81,178 43,424 31,036 22,263 13,658
Depreciation.......................................... 19,213 12,136 9,778 6,654 4,369
Amortization of intangibles........................... 7,780 4,660 3,569 2,074 584
Other operating expenses.............................. 80,216 54,922 45,752 33,809 21,613
Loss contract/restructuring charge.................... 5,000 6,026 -- -- --
-------- -------- -------- -------- --------
Operating income........................................ 27,365 27,804 24,664 15,940 9,390
Interest expense, net................................. 14,082 5,720 5,108 3,059 1,780
Other................................................. (199) -- -- -- --
-------- -------- -------- -------- --------
Income before provision for income taxes and
extraordinary
item.................................................. 13,482 22,084 19,556 12,881 7,610
Provision for income taxes.............................. (5,977) (9,364) (8,044) (5,288) (2,884)
-------- -------- -------- -------- --------
Income before extraordinary item........................ 7,505 12,720 11,512 7,593 4,726
Extraordinary item...................................... -- -- -- (693) --
-------- -------- -------- -------- --------
Net income............................................ $ 7,505 $ 12,720 $ 11,512 $ 6,900 $ 4,726
======== ======== ======== ======== ========
Basic earnings per share(1)
Income before extraordinary item...................... $ .55 $ 1.10 $ 1.20 $ .96 $ .75
Extraordinary item.................................... -- -- -- (.09) --
-------- -------- -------- -------- --------
Net income...................................... $ .55 $ 1.10 $ 1.20 $ .87 $ .75
======== ======== ======== ======== ========
Diluted earnings per share(1)
Income before extraordinary item...................... $ .54 $ 1.04 $ 1.14 $ 0.92 $ 0.71
Extraordinary item.................................... -- -- -- (0.08) --
-------- -------- -------- -------- --------
Net income...................................... $ .54 $ 1.04 $ 1.14 $ .84 $ 0.71
======== ======== ======== ======== ========
Weighted average number of shares outstanding(1)........
Basic................................................. 13,529 11,585 9,570 7,924 6,329
Diluted............................................... 14,002 12,271 10,075 8,249 6,668
JUNE 30,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital....................................... $124,238 $ 94,766 $ 55,402 $ 26,358 $ 23,915
Total assets.......................................... 535,452 364,066 230,114 159,430 88,247
Current portion of long-term debt..................... 8,565 9,814 6,610 8,377 3,590
Long-term debt, net of current portion(2)............. 243,831 144,643 60,731 53,282 13,339
Stockholders' equity.................................. 177,773 159,808 119,966 65,648 47,349
</TABLE>
28
<PAGE> 32
- ---------------
(1) Earnings per share for all periods presented has been restated in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share."
(2) Includes balances outstanding under the Company's revolving credit facility
of $86,000,000, $134,000,000, $49,500,000 and $34,900,000 at June 30, 1998,
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 thereto 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.
Domestic 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. The Company derived approximately 74%
and 79% of its net ambulance fee collections from such third party payors during
1997 and 1998, respectively. The Company establishes an allowance for doubtful
accounts based on credit risk applicable to certain types of payors, historical
trends and other relevant information. 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 the Company's capitated
service arrangements in Argentina and contractual agreements in Canada is
included in ambulance services revenue.
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.
Other revenue primarily consists of fees associated with alternative
transportation, dispatch, fleet, billing and home health care services and is
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.
29
<PAGE> 33
The Company's net income for the year ended June 30, 1998 was $7.5 million
or $.54 per share (diluted). This compares to net income of $12.7 million and
$11.5 million, or $1.04 and $1.14 per share (diluted), for the years ended June
30, 1997 and 1996, respectively. During fiscal 1998, the Company completed the
acquisition of eleven ambulance service providers operating in Alabama, Arizona,
Georgia, Idaho, Maryland, Mississippi, New Jersey, New York, South Carolina,
Tennessee, Washington, and Argentina. During fiscal 1998, the Company also
entered into a joint venture to provide non-emergency ambulance service and
medical transportation in Maryland, Washington D.C., and Northern Virginia and
entered into a public/private alliance to provide emergency and non-emergency
ambulance service in San Diego, California.
RESULTS OF OPERATIONS
The following table sets forth for the years ended June 30, 1998, 1997 and
1996, certain items from the Company's consolidated financial statements
expressed as a percentage of total revenue:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Revenue
Ambulance services........................................ 81.4% 80.5% 78.8%
Fire protection services.................................. 9.7 13.2 15.5
Other..................................................... 8.9 6.3 5.7
----- ----- -----
Total revenue..................................... 100.0 100.0 100.0
Operating expenses
Payroll and employee benefits............................. 53.6 53.4 54.1
Provision for doubtful accounts........................... 17.1 13.6 12.4
Depreciation.............................................. 4.0 3.8 3.9
Amortization of intangibles............................... 1.6 1.5 1.4
Other operating expenses.................................. 16.9 17.1 18.3
Loss contract/restructuring charge........................ 1.0 1.9 --
----- ----- -----
Operating income............................................ 5.8 8.7 9.9
Interest expense, net..................................... 3.0 1.8 2.1
----- ----- -----
Income before income taxes.................................. 2.8 6.9 7.8
Provision for income taxes................................ 1.2 2.9 3.2
----- ----- -----
Net income.................................................. 1.6% 4.0% 4.6%
===== ===== =====
</TABLE>
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1998
Revenue
Total revenue increased $155.8 million, or 48.7%, from $319.8 million for
the year ended June 30, 1997 to $475.6 million for the year ended June 30, 1998.
Approximately $118.2 million of this increase resulted from the acquisition of
ambulance service providers during fiscal 1998. Fire protection services revenue
increased by $3.8 million, and other revenue increased by $22.3 million.
Total ambulance transports increased by approximately 300,000, or 32.8%,
from 915,000 for the year ended June 30, 1997 to 1,215,000 for the year ended
June 30, 1998. The acquisition of eleven ambulance service companies during
fiscal 1998 accounted for 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 revenue generated
from new fire protection contracts awarded to the Company through competitive
bidding.
Other revenue increased primarily from the fees received for billing,
dispatch, and other services pursuant to the Company's agreement with San Diego
Fire and Life Safety Services.
30
<PAGE> 34
Operating Expenses
Payroll and employee benefit expenses increased $84.0 million, or 49.2%,
from $170.8 million for the year ended June 30, 1997 to $254.8 million for the
year ended June 30, 1998. This increase was primarily due to the acquisition of
eleven ambulance service companies during fiscal 1998. Payroll and employee
benefit expenses increased from 53.4% of total revenue during the year ended
June 30, 1997 to 53.6% of total revenue during the year ended June 30, 1998
primarily due to the low unemployment in certain market areas, which made the
recruitment, training, and retention of full and part-time personnel more
difficult and costly.
Provision for doubtful accounts increased $37.8 million, or 86.9%, from
$43.4 million for the year ended June 30, 1997 to $81.2 million for the year
ended June 30, 1998. Provision for doubtful accounts increased from 13.6% of
total revenue for the year ended June 30, 1997 to 17.1% of total revenue for the
year ended June 30, 1998 and increased from 16.9% of domestic ambulance service
revenue for the year ended June 30, 1997 to 22.3% of domestic ambulance service
revenue for the year ended June 30, 1998. The increase in the provision for
doubtful accounts resulted from increased revenue from both acquisitions and
internal growth and, for the reasons described below, an additional provision
for doubtful accounts of $17.9 million recorded in the fourth quarter. As
identified in the Company's third quarter Form 10 Q, the Company began
experiencing delays in payments from certain third party payors and a general
industry trend toward a lengthening payment cycle. During the third and fourth
quarters, the Company and its management assessed the impact this more difficult
medical reimbursement environment was having on the timing and collectability of
the Company's accounts receivable. At the conclusion of management's assessment
process and considering the results of recent collection efforts as well as
other factors, in the fourth quarter management determined that these adverse
changes had increased the level of effort and reasonable cost associated with
obtaining reimbursement and collection of certain accounts receivable to such an
extent that an additional provision for doubtful accounts of $17.9 million was
recorded. In addition, management believes that future write-offs of accounts
receivable will exceed historical levels, thus necessitating a higher provision
for doubtful accounts and greater levels of expenditures to collect the accounts
receivable. This more difficult reimbursement environment has further
complicated the process of integrating new billing offices into the Company's
regional billing centers and has affected the Company's billing and collection
procedures. Net accounts receivable on non-integrated collection systems
currently represent 13.8% of total net accounts receivable at June 30, 1998. The
Company anticipates the remaining three non-integrated billing centers will be
integrated during 1999.
Depreciation increased $7.1 million, or 58.3%, from $12.1 million for the
year ended June 30, 1997 to $19.2 million for the year ended June 30, 1998,
primarily due to increased property and equipment from recent acquisition
activity. Depreciation increased from 3.8% of total revenue for the year ended
June 30, 1997 to 4.0% of total revenue for the year ended June 30, 1998.
Amortization of intangibles increased by $3.1 million, or 67%, from $4.7
million for the year ended June 30, 1997 to $7.8 million for the year ended June
30, 1998. This increase was the result of increased intangible assets resulting
from recent acquisition activity. Amortization of intangibles increased from
1.5% of total revenue for the year ended June 30, 1997 to 1.6% for the year
ended June 30, 1998.
Other operating expenses increased $25.3 million, or 46.1%, from $54.9
million for the year ended June 30, 1997 to $80.2 million for the year ended
June 30, 1998, primarily as a result of increased expenses associated with the
operation of the eleven ambulance service companies acquired during fiscal 1998.
Other operating expenses decreased from 17.1% of total revenue for the year
ended June 30, 1997 to 16.9% of total revenue for the year ended June 30, 1998
as a result of operational efficiencies realized through the integration of
these acquired companies.
During the year ended June 30, 1998, the Company recorded a non-recurring
pre-tax charge of $5.0 million primarily for severance payments. This charge
relates to the Company's reduction of certain administrative personnel at
corporate headquarters and regional offices. Management expects these severance
payments will be substantially completed during fiscal 1999.
31
<PAGE> 35
Interest expense increased by $8.4 million, or 146.2%, from $5.7 million
for the year ended June 30, 1997 to $14.1 million for the year ended June 30,
1998. This increase was caused by higher debt balances and higher interest rates
than historically incurred, primarily because of the issuance of $150.0 million
of 7 7/8% Senior Notes due 2008 during fiscal 1998.
The Company's effective tax rate increased from 42.4% for the year ended
June 30, 1997 to 45.0% for the year ended June 30, 1998, primarily the result of
the effect of nondeductible goodwill amortization applied against earnings that
had been reduced by the additional provision for doubtful accounts and accrual
for severance payments.
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.
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
32
<PAGE> 36
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.
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 borrowing
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.
SEASONALITY AND QUARTERLY RESULTS
The following table reflects certain selected unaudited quarterly operating
results for each quarter of fiscal 1998 and 1997. 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,
1996 1996 1997 1997(2) 1997 1997 1998 1998(1)
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Ambulance service............ $59,028 $62,465 $69,161 $66,834 $77,598 $ 89,769 $107,279 $112,395
Fire protection.............. 10,305 10,349 10,551 10,958 11,212 11,351 11,547 11,861
Other revenue................ 4,661 4,716 5,209 5,568 8,963 10,222 10,957 12,404
------- ------- ------- ------- ------- -------- -------- --------
Total revenue................ 73,994 77,530 84,921 83,360 97,773 111,342 129,783 136,660
Operating income (loss)...... 6,592 7,474 9,500 4,238 10,346 12,199 14,283 (9,463)
Net income (loss)............ 3,299 3,771 4,675 975 4,658 5,424 6,372 (8,949)
Diluted earnings (loss) per
share........................ $ 0.28 $ 0.31 $ 0.38 $ 0.08 $ 0.35 $ 0.38 $ 0.45 $ (0.64)
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
- ---------------
(1) In the fourth quarter of the year ended June 30, 1998, the Company recorded
a pre-tax charge of $5.0 million related to severance payment and an
additional provision for doubtful accounts of $17.9 million.
(2) In the fourth quarter of 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 and a
$2.8 million restructuring charge related to the integration of ambulance
company acquisitions.
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. In the future, the operating results of the Company's Argentine
operations may impact the seasonality of the Company's quarterly 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, issuance of senior notes, the sale of common
stock through an initial public offering in July 1993 and subsequent public
stock offerings in May 1994 and April 1996, and the exercise of stock options.
At June 30, 1998, the Company had working capital of $124.2 million,
including cash of $6.5 million, compared to working capital of $94.8 million,
including cash of $3.4 million at June 30, 1997. During the fiscal year ended
June 30, 1998, the Company's cash flow provided by operations was $12.6 million
resulting primarily from increases in accrued and other liabilities and deferred
income taxes of $9.4 million and
33
<PAGE> 37
$8.8 million, respectively. Cash flow used in operations was $6.2 million for
the fiscal year ended June 30, 1997.
Cash provided by financing activities was $68.3 million for the year ended
June 30, 1998 primarily because of the issuance of senior notes offset by
payments on the revolving credit facility and on other debt and capital lease
obligations.
Cash used in investing activities was $77.7 million for the year ended June
30, 1998 primarily because of cash paid for businesses acquired, capital
expenditures, and increases in other assets.
The Company's gross accounts receivable as of June 30, 1998 and June 30,
1997 were $224.2 million and $142.8 million, respectively. The Company's
accounts receivable, net of the allowance for doubtful accounts, were $154.6
million and $107.0 million as of such dates, respectively. The allowance for
doubtful accounts at June 30, 1998, includes a $17.9 million additional
provision for doubtful accounts recorded in the fourth quarter of fiscal year
1998. The Company believes that the increase in accounts receivable is related
significantly to acquisition activity and to recent revenue growth. The Company
also attributes the increase in accounts receivable and the increased age of
receivables to certain factors, including delays in payments from certain
third-party payors, particularly in certain of the Company's regional billing
areas and a general industry trend towards a lengthening payment cycle of
accounts receivable due from third-party payors. In addition, the Company
believes certain transitional aspects of the integration of acquired companies
into the Company's centralized billing and collection function has resulted in
increases in the amount and age of accounts receivable during the transition
period.
During the fiscal year ended June 30, 1998, the Company increased the
amount of its revolving credit facility from $175.0 million to $200.0 million.
The revolving credit facility was also amended by extending the maturity date to
March 16, 2003 and converting it to an unsecured credit facility of the Company
that is unconditionally guaranteed on a joint and several basis by substantially
all of the Company's domestic wholly-owned current and future subsidiaries. The
revolving credit facility is priced at prime rate, Federal Funds Rate plus 0.5%,
or a LIBOR-base rate. The LIBOR-based rates range from LIBOR plus 0.875% to
LIBOR plus 1.7%. At June 30, 1998, the interest rate was 7.3% on the revolving
credit facility. Interest rates and availability under the revolving credit
facility depend upon the Company meeting certain financial covenants, including
total debt leverage ratios, total debt to capitalization ratios, and fixed
charge ratios. Approximately $86.0 million was outstanding on the revolving
credit facility at June 30, 1998. Because of a financial covenant which
restricts the Company's ratio of debt (including outstanding letters of credit)
to capitalization to .60, availability on the facility was $11.9 million at June
30, 1998.
In November 1997, the Company entered into a $5.0 million term loan (the
Term Loan). The Company used the proceeds from the loan to fund acquisitions,
capital expenditures and for general corporate purposes.
In February 1998, the Company entered into a $5.0 million capital equipment
lease line of credit. The lease line of credit matures at varying dates through
July 2003. The lease line of credit is priced at the higher of LIBOR plus 1.7%
or commercial paper rate plus 1.7%. At June 30, 1998, the interest rate was 7.4%
on the lease line of credit. Approximately $2.6 million was outstanding on this
line of credit at June 30, 1998.
In March 1998 the Company issued $150.0 million of 7 7/8% Senior Notes due
2008 (the Notes) effected under Rule 144A under the Securities Act of 1933, as
amended ("Securities Act"). The net proceeds of the offering, sold through
private placement transactions, was used to repay the Term Loan and a portion of
the balances owed on the revolving credit facility. Interest under the Notes is
payable semi-annually on September 15, and March 15, and the Notes are not
callable until March 2003 subject to the terms of the Indenture. The Company
incurred expenses related to the offering of approximately $5.3 million and will
amortize such costs over the life of the Notes. The Company recorded a $258,000
discount on the Notes and will amortize such discount over the life of the
Notes. Unamortized discount at June 30, 1998 was $250,000 and such amount is
recorded as an offset to long-term debt in the consolidated financial
statements. In April 1998, the Company filed a registration statement under the
Securities Act relating to an exchange offer for the Notes. The registration
became effective on May 14, 1998. The Notes are general unsecured obligations of
the Company and are unconditionally guaranteed on a joint and several basis by
substantially all
34
<PAGE> 38
of the Company's domestic wholly-owned current and future subsidiaries. See Note
4 of Notes to the Company's Consolidated Financial Statements. The Notes contain
certain covenants that, among other things, limit the Company's ability to incur
certain indebtedness, sell assets, or enter into certain mergers or
consolidations.
During the fiscal year ended June 30, 1998, the Company purchased all the
issued and outstanding stock of two ambulance service providers operating in
Arizona and Georgia and substantially all of the assets of five ambulance
service providers operating in Alabama, Maryland, New Jersey, and South
Carolina. Also, during the fiscal year ended June 30, 1998, the Company
purchased all the issued and outstanding stock of four operating companies that
provide urgent home medical care and ambulance transport services in three
cities in Argentina. The combined purchase price of the operations accounted for
as purchases was $84.9 million. The Company paid cash of $36.8 million, issued
notes payable to sellers of $6.5 million, issued to sellers 334,532 shares of
the Company's common stock valued at $9.0 million, and assumed $32.6 million of
liabilities. The Company funded the cash portion of the acquisitions primarily
from the Company's revolving credit facility.
During the fiscal year ended June 30, 1998, subsidiaries of the Company
merged with and into three ambulance service providers operating in Idaho,
Mississippi, New Jersey, New York, Tennessee and Washington. The Company issued
an aggregate of 803,565 shares of its common stock in exchange for all of the
issued and outstanding stock of the acquired companies. These transactions were
accounted for as poolings-of-interest in accordance with Accounting Principles
Board Opinion No. 16. The acquisitions were not considered significant;
accordingly, prior year financial statements have not been restated.
During the fiscal year ended June 30, 1998, the Company entered into a
joint venture to provide non-emergency ambulance service and medical
transportation in Maryland, Washington D.C. and Northern Virginia. For financial
statement purposes, the results of operations and the assets and liabilities of
the joint venture are consolidated and included in the Company's consolidated
financial statements. Minority interest is recorded for the results of
operations and the equity interest attributable to the joint venture partner.
During the fiscal year ended June 30, 1998, the Company entered into a
public/private alliance to provide emergency and non-emergency ambulance service
in San Diego, California. This alliance is not consolidated in the Company's
financial statements. The Company's investment in the alliance is recorded in
other assets and the equity income of the alliance is recorded in other revenue
in the accompanying consolidated financial statements.
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, 1998. The Company's business growth occurs primarily
through new business contracts and acquisitions. The Company intends to finance
any contracts or 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, the
financial condition of the Company and the market price of the Company's common
stock.
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
The results of operations of the Company for the periods discussed have not
been affected significantly by inflation or foreign currency fluctuations. The
Company's revenue from international operations is denominated primarily in the
currency of the country in which it is operating. Although the Company has not
incurred any material exchange gains or losses to date, there can be no
assurance that fluctuations in the currency exchange rates in the future will
not have an adverse effect on the Company's business, financial condition, cash
flows, and results of operations. The Company does not currently engage in
foreign currency hedging transactions. However, as the Company continues to
expand its international operations, exposure to gains and losses on foreign
currency transactions may increase. The Company may choose to limit such
exposure by entering into forward exchange contracts or engaging in similar
hedging strategies. See "Special Considerations -- Risks Associated with
International Operations and Foreign Currency Fluctuations."
35
<PAGE> 39
YEAR 2000 COMPLIANCE
The Company has implemented a Year 2000 compliance program designed to
ensure that the Company's medical equipment, ambulance and fire dispatch
systems, and computer systems and applications will function properly beyond
1999. The Company's assessment of this equipment and systems, both internally
developed and purchased from third-party vendors, is nearly complete. The
Company will continue to monitor new medical equipment, ambulance and fire
dispatch systems, and computer systems and applications that the Company adds in
its operations for year 2000 compliance. The results of the assessments
completed to date have indicated that the Company's medical equipment, ambulance
and fire dispatch systems, and computer systems and applications are either year
2000 compliant, can be upgraded, or in the case of certain ambulance and fire
dispatch systems, will be replaced in order to obtain compliance. If the
Company's medical equipment, ambulance and fire dispatch systems, and computer
systems and applications are not year 2000 compliant in a timely manner, the
Company's operations could be adversely affected and the Company may incur
unanticipated expenses to remedy any problems not addressed by these compliance
efforts.
The Company also depends upon the ability of telephone systems to be year
2000 compliant in order for the Company to receive incoming calls for service to
its ambulance and fire dispatch systems. The failure of telephone service
providers to adequately provide service could impact the Company's ability to
dispatch ambulance and fire protection services in a timely manner. The failure
of third-party payors, such as private insurers, managed care providers, health
care organizations, preferred provider organizations, and federal and state
government agencies that administer Medicare and/or Medicaid, to adequately
address their year 2000 issues could impact their ability to reimburse the
Company for services provided or otherwise adversely affect the Company's
business, financial condition, cash flows, and results of operations.
To date, the Company has not completed its contingency plans in the event
that its medical equipment, ambulance and fire dispatch systems, computer
systems and applications, telephone systems, systems of third-party payors, or
any other components of its business operations fail to operate in compliance
with the year 2000 date change. The Company expects to develop contingency plans
by the end of fiscal 1999.
The cost of the Company's year 2000 compliance program has not had and is
not expected to have a material impact on the Company's results of operations,
financial condition, or liquidity. There can be no assurance, however, that the
Company will not experience material adverse consequences in the event that the
Company's year 2000 compliance program is not successful or that its vendors or
third-party payors are not able to resolve their year 2000 compliance issues in
a timely manner.
36
<PAGE> 40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of the Company as of June 30, 1998 and
for each of the fiscal years in the three-year period ended June 30, 1998,
together with related notes and the report of Arthur Andersen LLP are set forth
on the following pages.
REPORT OF MANAGEMENT
The management of Rural/Metro Corporation is responsible for the integrity
and reliability of the financial information presented in this Annual Report,
including the Company's financial statements. These financial statements have
been prepared in accordance with generally accepted accounting principles and
include, where necessary, informed estimates and judgments by management.
The Company maintains systems of accounting and internal controls designed
to provide reasonable assurance that assets are properly accounted for, as well
as to ensure that the financial records are reliable for preparing financial
statements. The systems are augmented by qualified personnel and are reviewed on
a periodic basis.
The Company maintains high standards when selecting, training and
developing personnel, to ensure that management's objective of maintaining
strong, effective internal accounting controls and unbiased, uniform reporting
standards are attained. The Company believes its policies and procedures provide
reasonable assurance that operations are conducted in conformity with law and
with the Company's commitment to a high standard of business integrity and
conduct.
Our independent public accountants, Arthur Andersen LLP, conduct annual
audits of our financial statements in accordance with generally accepted
auditing standards which include the review of internal controls for the purpose
of establishing their audit scope, and issue an opinion on the fairness of such
financial statements.
The Board of Directors pursues its responsibility for the quality of the
Company's financial reporting primarily through its Audit Committee which is
composed of three outside directors. This committee meets periodically with
management and the independent public accountants to review the manner in which
they are performing their responsibilities and to discuss audit, internal
accounting control and financial reporting matters. The independent public
accountants periodically meet alone with this committee and have full and free
access to this committee at any time.
/s/ JOHN B. FURMAN
- ---------------------------------------------------------
John B. Furman
President and Acting Chief Executive Officer
/s/ MARK E. LIEBNER
- ---------------------------------------------------------
Mark E. Liebner
Senior Vice President, Chief Financial Officer
37
<PAGE> 41
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1998, 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,
September 28, 1998.
38
<PAGE> 42
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 6,511 $ 3,398
Accounts receivable, net of allowance for doubtful
accounts of $69,552 and $35,814, respectively (Note
1)..................................................... 154,603 106,978
Inventories............................................... 13,128 8,645
Prepaid expenses and other................................ 16,402 7,162
-------- --------
Total current assets.............................. 190,644 126,183
PROPERTY AND EQUIPMENT, net (Notes 1, 3 and 4).............. 92,545 70,645
INTANGIBLE ASSETS, net (Notes 1 and 2)...................... 235,456 160,282
OTHER ASSETS................................................ 16,807 6,956
-------- --------
$535,452 $364,066
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.......................................... $ 13,435 $ 4,359
Accrued liabilities (Note 1).............................. 44,406 17,244
Current portion of long-term debt (Notes 3 and 4)......... 8,565 9,814
-------- --------
Total current liabilities......................... 66,406 31,417
LONG-TERM DEBT, net of current portion (Notes 3 and 4)...... 243,831 144,643
NON-REFUNDABLE SUBSCRIPTION INCOME.......................... 13,682 13,367
DEFERRED INCOME TAXES (Note 9).............................. 23,282 10,772
OTHER LIABILITIES........................................... 2,298 4,059
-------- --------
Total liabilities................................. 349,499 204,258
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
MINORITY INTEREST........................................... 8,180 --
-------- --------
STOCKHOLDERS' EQUITY (Notes 2, 6 and 7)
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued at June 30, 1998 and 1997...... -- --
Common stock, $.01 par value, 23,000,000 shares
authorized; 14,099,483 and 12,770,147 shares
outstanding at June 30, 1998 and 1997, respectively.... 144 130
Additional paid-in capital................................ 134,078 121,355
Retained earnings......................................... 45,139 40,334
Deferred compensation..................................... (349) (772)
Treasury stock, at cost, 149,456 shares at June 30, 1998
and 1997............................................... (1,239) (1,239)
-------- --------
Total stockholders' equity........................ 177,773 159,808
-------- --------
$535,452 $364,066
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
39
<PAGE> 43
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUE
Ambulance services....................................... $387,041 $257,488 $197,201
Fire protection services................................. 45,971 42,163 38,770
Other.................................................... 42,546 20,154 14,292
-------- -------- --------
Total revenue.................................... 475,558 319,805 250,263
-------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits............................ 254,806 170,833 135,464
Provision for doubtful accounts.......................... 81,178 43,424 31,036
Depreciation............................................. 19,213 12,136 9,778
Amortization of intangibles.............................. 7,780 4,660 3,569
Other operating expenses................................. 80,216 54,922 45,752
Loss contract/restructuring charge (Note 1).............. 5,000 6,026 --
-------- -------- --------
Total expenses................................... 448,193 292,001 225,599
-------- -------- --------
OPERATING INCOME........................................... 27,365 27,804 24,664
Interest expense, net (Note 4)........................... 14,082 5,720 5,108
Other.................................................... (199) -- --
-------- -------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES................... 13,482 22,084 19,556
PROVISION FOR INCOME TAXES (Note 9)........................ 5,977 9,364 8,044
-------- -------- --------
NET INCOME................................................. $ 7,505 $ 12,720 $ 11,512
======== ======== ========
BASIC EARNINGS PER SHARE................................... $ 0.55 $ 1.10 $ 1.20
======== ======== ========
DILUTED EARNINGS PER SHARE................................. $ 0.54 $ 1.04 $ 1.14
======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -- BASIC..................................... 13,529 11,585 9,570
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -- DILUTED................................... 14,002 12,271 10,075
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE> 44
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED DEFERRED TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION STOCK TOTAL
--------- ------ ---------- -------- ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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 1,675,512 shares of common
stock net of offering costs of
$2,506................................. -- 16 38,795 -- (535) -- 38,276
Tax benefit related to the exercise of
nonqualified stock options and vesting
of 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 of
nonqualified stock options and vesting
of 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
Issuance of 803,565 shares of common
stock for pooling-of-interests (Note
2)..................................... -- 8 946 (2,700) -- -- (1,746)
--- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1997 as restated for
effect of pooling-of-interests........... -- 138 122,301 37,634 (772) (1,239) 158,062
Issuance of 525,771 shares of common
stock.................................. -- 6 10,765 -- (135) -- 10,636
Tax benefit related to the exercise of
nonqualified stock options and vesting
of stock grants........................ -- -- 1,012 -- -- -- 1,012
Amortization of deferred compensation.... -- -- -- -- 558 -- 558
Net income............................... -- -- -- 7,505 -- -- 7,505
--- ---- -------- ------- ------- ------- --------
BALANCE, June 30, 1998..................... $-- $144 $134,078 $45,139 $ (349) $(1,239) $177,773
=== ==== ======== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
41
<PAGE> 45
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 7,505 $ 12,720 $ 11,512
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization........................ 26,993 16,796 13,347
Amortization of deferred compensation................ 558 676 633
Amortization of gain on sale of real estate.......... (103) (103) (103)
Provision for doubtful accounts...................... 81,178 43,424 31,036
Undistributed earnings/(loss) of minority
shareholder........................................ (199) -- --
Changes in assets and liabilities, net of effect of
businesses acquired
Increase in accounts receivable...................... (116,481) (75,352) (52,474)
Increase in inventories.............................. (4,260) (2,651) (1,684)
Increase in prepaid expenses and other............... (2,285) (1,867) (2,937)
Increase (decrease) in accounts payable.............. 1,167 (1,255) (1,653)
Increase in accrued liabilities and other............ 9,418 487 2,316
Increase in non-refundable subscription income....... 305 124 788
Increase in deferred income taxes.................... 8,775 806 1,580
--------- -------- --------
Net cash provided by (used in) operating
activities...................................... 12,571 (6,195) 2,361
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of senior notes................................ 145,805 -- --
(Repayment) borrowings on revolving credit facility,
net.................................................. (50,000) 86,000 15,100
Repayment of debt and capital lease obligations......... (31,887) (21,328) (20,346)
Borrowings under capital lease obligations.............. 2,701 -- 2,016
Issuance of common stock................................ 1,665 5,443 37,066
--------- -------- --------
Net cash provided by financing activities.......... 68,284 70,115 33,836
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for businesses acquired (Note 2).............. (36,848) (35,512) (17,164)
Capital expenditures.................................... (31,043) (23,872) (18,237)
Increase in other assets................................ (9,851) (2,526) (308)
--------- -------- --------
Net cash used in investing activities.............. (77,742) (61,910) (35,709)
--------- -------- --------
INCREASE IN CASH.......................................... 3,113 2,010 488
CASH, beginning of year................................... 3,398 1,388 900
--------- -------- --------
CASH, end of year......................................... $ 6,511 $ 3,398 $ 1,388
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE> 46
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, urgent home medical care, fire
protection and training services, alternative transportation services and home
health care services in 26 states, the District of Columbia, Canada and Latin
America. In the United States, 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. In Latin America, the Company provides
urgent home medical care and ambulance services under capitated service
arrangements. 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 12%, 18% and 22% of total
revenue for the fiscal years ended June 30, 1998, 1997 and 1996, respectively,
with the largest of the five contracts accounting for 4%, 5% and 7%,
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 greater than 50% owned subsidiaries. Investments in affiliates, in which
the Company owns 20% to 50%, are carried on the equity method. 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, 1998, 1997 and 1996, the Company derived approximately 29%,
26% and 27%, respectively, of its net ambulance fee collections from Medicare
and 11%, 10% and 11%, respectively, from Medicaid. The reimbursement process is
complex and can involve lengthy delays. Third-party payors are continuing their
efforts to control expenditures for health care, including proposals to revise
reimbursement policies. Although the Company recognizes revenue when the
services are provided, there can be lengthy delays before reimbursement is
received. The Company has from time to time experienced delays in receiving
reimbursements from third-party payors. In addition, third-party payors may
disallow, in whole or in part, requests for reimbursement based on
determinations that certain amounts are not reimbursable or because additional
supporting documentation is necessary. Retroactive adjustments can change
amounts realized from third-party payors. Delays and uncertainties in the
reimbursement process adversely affect the Company's level of accounts
receivable and may adversely affect the Company's working capital. The Company
establishes an allowance for doubtful accounts based on credit risk applicable
to certain types of payors, historical trends and other relevant information.
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, accounts receivable realization 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.
43
<PAGE> 47
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Budget Act requires that, beginning January 1, 2000, ambulance service
providers accept assignment whereby the Company receives payment directly from
Medicare and accepts such amount, along with the co-pay and deductible paid by
the patient, as payment in full. The Budget Act also applies the Skilled Nursing
Facility Prospective Payment System (SNFPPS) to a limited number of ambulance
trips to and from nursing homes. The application of SNFPPS could require the
Company to negotiate new contracts or arrangements with skilled nursing
facilities to provide ambulance services.
The Act also stipulates that individual states may now elect to no longer
provide payment for cost-sharing for coinsurance, or copayments, for
dual-qualified (Medicare and Medicaid) beneficiaries.
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.
Due to the uncertainty associated with the negotiation and subsequent
outcome of the prospective fee schedule and other aspects of the Act, 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, dispatch, fleet, billing and home health care services and is
recognized when the services are provided.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share." The statement modifies the calculation of primary and fully diluted
earnings per share (EPS) as previously required and replaces them with basic and
diluted EPS. SFAS No. 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997 and as a result, all prior
period EPS data presented has been restated in the consolidated financial
statements.
44
<PAGE> 48
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the numerators and denominators (weighted average
number of shares outstanding) of the basic and diluted EPS computations for the
years ended June 30, 1998, 1997 and 1996 is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------- --------------------------------------- -----------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR)
<S> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............ $7,505 13,529 $0.55 $12,720 11,585 $1.10 $11,512
===== =====
Effect of stock
options............ -- 473 -- 686 --
------ ------ ------- ------ -------
Diluted EPS.......... $7,505 14,002 $0.54 $12,720 12,271 $1.04 $11,512
====== ====== ===== ======= ====== ===== =======
<CAPTION>
1996
-------------------------
SHARES PER SHARE
(DENOMINATOR) AMOUNT
<S> <C> <C>
Basic EPS............ 9,570 $1.20
=====
Effect of stock
options............ 505
------
Diluted EPS.......... 10,075 $1.14
====== =====
</TABLE>
FOREIGN CURRENCY TRANSLATION
Financial information relating to the Company's foreign subsidiaries is
reported in accordance with SFAS No. 52, "Foreign Currency Translation." The
financial statements of non-U.S. subsidiaries are measured using the local
currency as the functional currency. Assets and liabilities of these non-U.S.
subsidiaries are translated at exchange rates in effect as of the end of each
balance sheet date, and related revenues and expenses are translated at average
exchange rates in effect during the period.
INVENTORIES
Inventories, consisting of ambulance and fire 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.
INTANGIBLE ASSETS
Intangible assets include costs in excess of the fair value of net assets
of businesses acquired of $234,205,000 and $159,959,000 and covenants not to
compete of $1,251,000 and $333,000 at June 30, 1998 and 1997, 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 $17,065,000 and $10,318,000 at June 30, 1998 and
1997, respectively.
LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of long-lived assets
in accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Under SFAS No. 121,
long-lived assets and certain identifiable intangible assets to be held and used
in operations are reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be fully recoverable. An
impairment loss is recognized if the sum of the expected long-term undiscounted
cash flows is less than the carrying amount of the long-lived assets being
evaluated.
45
<PAGE> 49
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCRUED LIABILITIES
Included in accrued liabilities is $16,427,000 and $7,556,000 for salaries,
wages and related payroll expenses and $2,823,000 and $1,679,000 for accrued
insurance premiums at June 30, 1998 and 1997, respectively.
LOSS CONTRACT/RESTRUCTURING CHARGE
During the year ended June 30, 1998, the Company recorded a pre-tax charge
of $5.0 million related to severance payments. The $5.0 million charge relates
to the cost of terminating approximately 300 administrative employees throughout
the Company. 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 the entire amount
was utilized during the years ended June 30, 1998 and 1997. Also included was a
pre-tax restructuring charge of $2.8 million relating to the integration of
ambulance company acquisitions. The charge consisted primarily of severance
costs and other costs related to the elimination of redundant functions. The
severance costs related to the cost of terminating approximately 100
administrative employees throughout the Company, all of which have been
terminated as of June 30, 1998. As of June 30, 1998, the balance of the
allowance for restructuring costs and severance payments was $5.4 million. The
allowance is included in accrued liabilities in 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 and accounts
receivable. The Company places its cash 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
In the preparation of financial statements in conformity with generally
accepted accounting principles management of the Company has made estimates and
assumptions that affect the reported amounts of assets and liabilities,
particularly accounts receivable and its effect on revenue, 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 senior note, note payable and capital lease
obligations approximate fair value as rates on these instruments, in the
aggregate, approximate market rates currently available for instruments with
similar terms and remaining maturities.
46
<PAGE> 50
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) BUSINESS DEVELOPMENT ACTIVITIES
ACQUISITIONS
The Company acquired the operations of eleven companies during the year
ended June 30, 1998 and the operations of nineteen companies during the year
ended June 30, 1997. Eight of the acquisitions completed during the year ended
June 30, 1998 were accounted for as purchases in accordance with Accounting
Principles Board (APB) Opinion No. 16 and, accordingly, the purchased assets and
assumed liabilities were recorded at their estimated fair values at each
respective acquisition date. Three acquisitions were accounted for as
poolings-of-interest in accordance with APB Opinion No. 16. The acquisitions
accounted for as poolings-of-interest 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>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Cash..................................................... $36,848 $35,512
Common stock............................................. 8,971 18,699
Notes payable to sellers................................. 6,470 4,477
Assumption of liabilities................................ 24,833 23,915
------- -------
Total.......................................... $77,122 $82,603
======= =======
</TABLE>
The Company issued 334,532 and 873,741 shares of its common stock in
connection with acquisitions accounted for as purchases in the years ended June
30, 1998 and 1997, respectively. The Company issued 803,565 and 361,970 shares
of its common stock in connection with the poolings-of-interest transactions
completed during the years ended June 30, 1998 and 1997, respectively.
The fair value of the assets purchased has been allocated as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment................................... $ 4,381 $ 8,629
Intangible assets........................................ 66,469 67,423
Other assets............................................. 6,272 6,551
------- -------
Total.......................................... $77,122 $82,603
======= =======
</TABLE>
Subsequent to June 30, 1998, the Company purchased all the issued and
outstanding stock of two ambulance service providers with operations in
Argentina. The combined purchase price of the operations accounted for as
purchases was $7.9 million. The Company paid cash of $4.3 million, issued notes
payable to sellers of $0.8 million and assumed $2.8 of liabilities.
JOINT VENTURE
During the fiscal year June 30, 1998, the Company entered into a joint
venture to provide non-emergency ambulance service and medical transportation in
Maryland, Washington D.C. and northern Virginia. The Company is the majority
shareholder, therefore, the results of operations and the assets and liabilities
of the joint venture are consolidated and included in the accompanying
consolidated financial statements. Minority interest is recorded for the results
of operations and the equity interest attributable to the minority joint venture
partner. The minority joint venture partner contributed to the joint venture all
of the issued and
47
<PAGE> 51
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding stock of two ambulance service companies. The Company contributed to
the joint venture a commitment to fund $8.0 million for additional acquisitions
in the greater Baltimore, Maryland and Washington D.C. area. As of June 30,
1998, the Company had completely fulfilled the $8.0 million commitment. The
joint venture agreement allows the minority joint venture partner to exercise an
option to repurchase one share of stock of the joint venture, thereby increasing
the minority joint venture partner's interest to 50%. Should such option be
exercised, the Company would no longer be able to consolidate the joint venture
into its consolidated financial statements and the equity method of accounting
would be applied.
The following consolidated pro forma financial information was prepared
assuming that each acquisition and joint venture completed during the fiscal
years ended June 30, 1998 and 1997 had occurred as of the beginning of each
fiscal year. This pro forma information does not necessarily reflect 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,
----------------------
1998 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue................................................ $532,489 $484,092
Net income............................................. $ 9,564 $ 18,943
Earnings per share -- basic............................ $ 0.68 $ 1.38
Earnings per share -- diluted.......................... $ 0.66 $ 1.31
</TABLE>
PUBLIC/PRIVATE ALLIANCE
During the year ended June 30, 1998, the Company entered into a
public/private alliance with the San Diego Fire and Life Safety Services to
provide all emergency and non-emergency transport services for the City of San
Diego. As part of the alliance, a limited liability corporation (the LLC) was
created with a 50/50 ownership between the Company and the City of San Diego. A
wholly-owned subsidiary of the Company contracts with the LLC to provide
operational and administrative support. Revenue generated under this contract
totaled $6.0 million for the year ended June 30, 1998. Such revenue is included
in other revenue in the accompanying consolidated financial statements. San
Diego Fire and Life Safety Services also contracts with the LLC to provide
emergency response and transportation services. The Company accounts for the
activities of the LLC using the equity method. At June 30, 1998, the Company's
investment in the LLC was $737,000 and such amount is included in other assets
in the accompanying consolidated financial statements. The Company's share of
the undistributed earnings of the LLC was $727,000 for the year ended June 30,
1998. The Company's share of such undistributed earnings is included in other
revenue in the accompanying consolidated financial statements.
48
<PAGE> 52
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment, including equipment held under capital leases,
consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment.............................................. $ 49,900 $ 37,040
Vehicles............................................... 76,783 57,312
Land and buildings..................................... 19,469 13,736
Leasehold improvements................................. 6,367 5,546
-------- --------
152,519 113,634
Less: Accumulated depreciation......................... (59,974) (42,989)
-------- --------
$ 92,545 $ 70,645
======== ========
</TABLE>
The Company acquired equipment of $2,701,000 and $2,698,000 under capital
lease and other financing agreements during the years ended June 30, 1998 and
1996, 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
$10,153,000 and $7,748,000 at June 30, 1998 and 1997, respectively, under
capital lease agreements. Accumulated depreciation on these assets totaled
$9,741,000 and $8,367,000 at June 30, 1998 and 1997, respectively.
(4) CREDIT AGREEMENTS AND BORROWINGS
Notes payable and capital lease obligations consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
7 7/8% Senior Notes due 2008........................... $149,750 $ --
Revolving credit facility.............................. 86,000 134,000
Capital lease obligations and other notes payable,
collateralized by property and equipment, at varying
rates, from 5.08% to 21.01%, due through 2003........ 12,113 13,939
Unsecured promissory notes payable from acquisitions at
varying rates, from 6.0% to 9.0%, due through 2006... 4,533 6,518
-------- --------
252,396 154,457
Less: Current maturities............................... (8,565) (9,814)
-------- --------
$243,831 $144,643
======== ========
</TABLE>
7 7/8% SENIOR NOTES DUE 2008
In March 1998, the Company issued $150.0 million of 7 7/8% Senior Notes due
2008 (the Notes) effected under Rule 144A under the Securities Act of 1933 as
amended (Securities Act). The net proceeds of the offering, sold through private
placement transactions, was used to repay certain indebtedness. Interest under
the Notes is payable semi-annually September 15, and March 15, and the Notes are
not callable until March 2003 subject to the terms of the Note Agreement. The
Company incurred expenses related to the offering of approximately $5.3 million
and will amortize such costs over the life of the Notes. The Company recorded a
$258,000 discount on the Notes and will amortize such discount over the life of
the Notes.
49
<PAGE> 53
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unamortized discount at June 30, 1998 was $250,000 and such amount is recorded
as an offset to long-term debt in the accompanying consolidated financial
statements. In April 1998, the Company filed a registration statement under the
Securities Act relating to an exchange offer for the Notes. Such registration
became effective on May 14, 1998. The Notes are general unsecured obligations of
the Company and are unconditionally guaranteed on a joint and several basis by
substantially all of the Company's domestic wholly-owned current and future
subsidiaries. The Notes contain certain covenants which, among other things,
limit the Company's ability to incur certain indebtedness, sell assets, or enter
into certain mergers or consolidations.
The financial statements presented below include the separate or combined
financial position, results of operations and cash flows for the year ended June
30, 1998 of Rural/Metro Corporation (Parent) and the guarantor subsidiaries
(Guarantors) and the subsidiaries which are not guarantors (Non-guarantors).
Consolidating financial statements for the years ended June 30, 1997 and 1996
have not been presented as such presentation is considered to be insignificant
since most of the Non-guarantors did not exist in those periods. The Company has
not presented separate financial statements and related disclosures for each of
the guarantor subsidiaries because management believes such information is
inconsequential to the note holders.
50
<PAGE> 54
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTORS NON-GUARANTORS ELIMINATING CONSOLIDATED
-------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash............................... $ -- $ 2,917 $ 3,594 $ -- $ 6,511
Accounts receivable, net........... -- 139,673 14,930 -- 154,603
Inventories........................ -- 12,149 979 -- 13,128
Prepaid expenses and other......... 531 14,717 1,154 -- 16,402
-------- --------- -------- --------- ---------
Total current assets....... 531 169,456 20,657 -- 190,644
PROPERTY AND EQUIPMENT, net.......... -- 87,132 5,413 -- 92,545
INTANGIBLE ASSETS, net............... -- 167,630 67,826 -- 235,456
DUE TO/FROM AFFILIATES............... 286,420 (244,979) (41,441) -- --
OTHER ASSETS......................... 4,654 11,160 993 -- 16,807
INVESTMENT IN SUBSIDIARIES........... 125,726 -- -- (125,726) --
-------- --------- -------- --------- ---------
$417,331 $ 190,399 $ 53,448 $(125,726) $ 535,452
======== ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable................... $ -- $ 8,828 $ 4,607 $ -- $ 13,435
Accrued liabilities................ 3,808 26,863 13,735 -- 44,406
Current portion of long-term
debt............................ -- 7,939 626 -- 8,565
-------- --------- -------- --------- ---------
Total current
liabilities.............. 3,808 43,630 18,968 -- 66,406
LONG-TERM DEBT, net of current
portion............................ 235,750 7,100 981 -- 243,831
NON-REFUNDABLE SUBSCRIPTION INCOME... -- 13,604 78 -- 13,682
DEFERRED INCOME TAXES................ -- 23,044 238 -- 23,282
OTHER LIABILITIES.................... -- 1,439 859 -- 2,298
-------- --------- -------- --------- ---------
Total liabilities.......... 239,558 88,817 21,124 -- 349,499
-------- --------- -------- --------- ---------
MINORITY INTEREST.................... -- -- -- 8,180 8,180
STOCKHOLDERS' EQUITY
Common stock....................... 144 82 17 (99) 144
Additional paid-in capital......... 134,078 54,622 30,513 (85,135) 134,078
Retained earnings.................. 45,139 46,878 1,794 (48,672) 45,139
Deferred compensation.............. (349) -- -- -- (349)
Treasury stock..................... (1,239) -- -- -- (1,239)
-------- --------- -------- --------- ---------
Total stockholders'
equity................... 177,773 101,582 32,324 (133,906) 177,773
-------- --------- -------- --------- ---------
$417,331 $ 190,399 $ 53,448 $(125,726) $ 535,452
======== ========= ======== ========= =========
</TABLE>
51
<PAGE> 55
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTORS NON-GUARANTORS ELIMINATING CONSOLIDATED
------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Ambulance services................ $ -- $341,668 $45,373 $ -- $387,041
Fire protection services.......... -- 44,985 986 -- 45,971
Other............................. -- 42,184 362 -- 42,546
------- -------- ------- -------- --------
Total revenue............. -- 428,837 46,721 -- 475,558
------- -------- ------- -------- --------
OPERATING EXPENSES
Payroll and employee benefits..... -- 225,102 29,704 -- 254,806
Provision for doubtful accounts... -- 76,872 4,306 -- 81,178
Depreciation...................... -- 18,329 884 -- 19,213
Amortization of intangibles....... 124 6,690 966 -- 7,780
Other operating expenses.......... -- 70,804 9,412 -- 80,216
Loss contract/restructuring
charge......................... -- 5,000 -- -- 5,000
------- -------- ------- -------- --------
Total expenses............ 124 402,797 45,272 -- 448,193
------- -------- ------- -------- --------
OPERATING INCOME (LOSS)............. (124) 26,040 1,449 -- 27,365
Interest expense, net............. 5,630 7,900 552 -- 14,082
Other............................. -- -- -- (199) (199)
------- -------- ------- -------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES........ (5,754) 18,140 897 199 13,482
PROVISION (BENEFIT) FOR INCOME
TAXES............................. (2,589) 8,146 420 -- 5,977
------- -------- ------- -------- --------
(3,165) 9,994 477 199 7,505
INCOME FROM WHOLLY-OWNED
SUBSIDIARIES...................... 10,670 -- -- (10,670) --
------- -------- ------- -------- --------
NET INCOME.......................... $ 7,505 $ 9,994 $ 477 $(10,471) $ 7,505
======= ======== ======= ======== ========
</TABLE>
52
<PAGE> 56
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT GUARANTORS NON-GUARANTORS ELIMINATING CONSOLIDATED
--------- ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................. $ 7,505 $ 9,994 $ 477 $(10,471) $ 7,505
Adjustments to reconcile net income to
cash provided by (used in)
operations --
Depreciation and amortization........ 131 25,012 1,850 -- 26,993
Amortization of deferred
compensation....................... 558 -- -- -- 558
Amortization of gain on sale of real
estate............................. -- (103) -- -- (103)
Provision for doubtful accounts...... -- 76,872 4,306 -- 81,178
Undistributed earnings/(loss) of
minority shareholder............... -- -- -- (199) (199)
Change in assets and liabilities, net
of effect of businesses acquired --
Increase in accounts
receivable.................... -- (104,836) (11,645) -- (116,481)
Increase in inventories......... -- (3,722) (538) -- (4,260)
(Increase) decrease in prepaid
expenses and other............ (1,371) (2,923) 2,009 -- (2,285)
(Increase) decrease in due
to/from affiliates............ (244,101) 186,613 46,818 10,670 --
Increase (decrease) in accounts
payable....................... -- 1,696 (529) -- 1,167
Increase (decrease) in accrued
liabilities and other......... 3,808 6,189 (579) -- 9,418
Increase in non-refundable
subscription income........... -- 288 17 -- 305
Increase in deferred income
taxes......................... -- 8,774 1 -- 8,775
--------- --------- -------- -------- ---------
Net cash provided by (used in)
operating activities.......... (233,470) 203,854 42,187 -- 12,571
--------- --------- -------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of senior
notes................................ 145,805 -- -- -- 145,805
Borrowings (repayments) on revolving
credit facility, net................. 86,000 (136,000) -- -- (50,000)
Repayment of debt and capital lease
obligations.......................... -- (25,389) (6,498) -- (31,887)
Borrowings of debt..................... -- 2,701 -- -- 2,701
Issuance of common stock............... 1,665 -- -- -- 1,665
--------- --------- -------- -------- ---------
Net cash provided by (used in)
financing activities............ 233,470 (158,688) (6,498) -- 68,284
--------- --------- -------- -------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for businesses acquired...... -- (6,644) (30,204) -- (36,848)
Capital expenditures................... -- (29,767) (1,276) -- (31,043)
Increase in other assets............... -- (8,858) (993) -- (9,851)
--------- --------- -------- -------- ---------
Net cash used in investing
activities...................... -- (45,269) (32,473) -- (77,742)
--------- --------- -------- -------- ---------
INCREASE (DECREASE) IN CASH.............. -- (103) 3,216 -- 3,113
CASH, beginning of year.................. -- 3,020 378 -- 3,398
--------- --------- -------- -------- ---------
CASH, end of year........................ $ -- $ 2,917 $ 3,594 $ -- $ 6,511
========= ========= ======== ======== =========
</TABLE>
53
<PAGE> 57
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVOLVING CREDIT FACILITY
The Company has a fully underwritten credit agreement for a revolving
credit facility. The amount of the facility was increased from $125.0 million to
$175.0 million during the fiscal year ended June 30, 1997 and increased to
$200.0 million during the fiscal year ended June 30, 1998. The revolving credit
facility was also amended by extending the maturity date to March 16, 2003 and
converting it to an unsecured credit facility. The revolving credit facility is
priced at prime rate, Federal Funds Rate plus 0.5% or a LIBOR-based rate. The
LIBOR-based rates range from LIBOR plus 0.875% to LIBOR plus 1.7%. Interest
rates and availability under the revolving credit facility are dependent upon
the Company meeting certain financial covenants including total debt leverage
ratios, total debt to capitalization ratios and fixed charge ratios.
Approximately $86.0 million was outstanding on the revolving credit facility at
June 30, 1998. Because of a financial covenant which restricts the Company's
ratio of debt (including outstanding letters of credit) to capitalization to
.60, availability on the facility was $11.9 million at June 30, 1998.
At June 30, 1998, the revolving credit facility was priced at LIBOR plus
1.625%. The weighted average interest rate on the revolving credit facility was
7.31% and 6.81% at June 30, 1998 and 1997, respectively.
DEBT MATURITIES
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>
1999............................................ $ 4,231 $ 5,409
2000............................................ 1,483 3,725
2001............................................ 916 1,676
2002............................................ 374 1,234
2003............................................ 84,724 616
Thereafter...................................... 150,596 --
-------- -------
$242,324 12,660
========
Less: Amounts representing interest............. (2,588)
-------
$10,072
=======
</TABLE>
The Company incurred interest expense of $14,259,000, $5,739,000 and
$5,205,000 and paid interest of $11,519,000, $6,223,000 and $5,324,000 in the
years ended June 30, 1998, 1997 and 1996, respectively.
The Company had outstanding letters of credit totaling $2,355,000 and
$3,980,000 at June 30, 1998 and 1997, 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 $10,193,000, $6,625,000 and $5,345,000 for the years ended June 30,
1998, 1997 and 1996, respectively.
54
<PAGE> 58
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental commitments under non-cancelable operating leases for each
of the years ending June 30 are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................ $6,953
2000................................................ 5,792
2001................................................ 4,682
2002................................................ 3,488
2003................................................ 2,611
Thereafter.......................................... 7,070
</TABLE>
LEGAL PROCEEDINGS
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.
On August 25, 1998, the Company was named as a defendant in two purported
class action lawsuits. The two lawsuits contain virtually identical allegations
and are brought on behalf of a class of those who purchased the Company's
publicly traded securities including its common stock between April 28, 1997 and
June 11, 1998. Both complaints allege that between April 28, 1997 and June 11,
1998 the Company issued certain false and misleading statements regarding
certain aspects of the financial status of the Company and that these statements
allegedly caused the Company's common stock to be traded at an artificially
inflated price. Both cases are at the earliest stages of litigation. The Company
intends to vigorously defend the complaints. The Company is unable to predict
the ultimate outcome of this litigation. If the lawsuits were ultimately
determined adversely to the Company, it could have a material effect on the
Company's results of operations and financial condition.
(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 discretionary contributions of $300,000 and $100,000 for the years
ended June 30, 1997 and 1996, respectively. No discretionary contributions were
approved for the year ended June 30, 1998. The ESOP held, for the benefit of all
participants, approximately 6% and 8% as of June 30, 1998 and 1997,
respectively, of the outstanding common stock of the Company. The ESOP is
administered by the ESOP's Advisory Committee, consisting of certain officers of
the Company.
Most full and part-time employees of the Company who have completed 200
hours of work 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 450,000 shares of stock for issuance under the ESPP.
The purchase price per share is 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. As of June
30, 1998, 124,321 shares of common stock have been issued under the ESPP.
55
<PAGE> 59
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, 1998, the maximum number of shares of common stock
issuable under the 1992 Plan was 6.0 million of which approximately 0.8 million
options had been exercised. 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.
56
<PAGE> 60
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes stock option activity:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
------------------------------------------------
WEIGHTED
NUMBER OF EXERCISE PRICE AVERAGE
SHARES PER SHARE EXERCISE PRICE
--------- --------------- ----------------
<S> <C> <C> <C>
Options outstanding at beginning of
year.................................. 2,301,397 $ 5.60 - $36.00 $24.45
Granted............................... 1,031,343 $ 1.25 - $34.50 $29.10
Canceled.............................. (89,927) $16.25 - $36.00 $27.50
Exercised............................. (148,908) $ 1.25 - $29.00 $14.40
---------
Options outstanding at end of year...... 3,093,905 $ 1.25 - $36.00 $26.26
=========
Options exercisable at end of year...... 1,875,149 $ 1.25 - $36.00 $25.73
=========
Options available for grant at end of
year.................................. 2,146,645
=========
Weighted average fair value per share of
options granted....................... $11.04
======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------------------------------
WEIGHTED
NUMBER OF EXERCISE PRICE 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.................................. 478,811
=========
Weighted average fair value per share of
options granted....................... $10.25
======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1996
------------------------------------------------
WEIGHTED
NUMBER OF EXERCISE PRICE 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.................................. 1,285,425
=========
Weighted average fair value per share of
options granted....................... $ 9.80
======
</TABLE>
57
<PAGE> 61
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>
$ 1.25 - $ 8.04 121,774 4.34 $ 6.36 117,595 $ 6.54
$13.00 - $18.75 433,662 5.81 16.93 303,104 16.86
$22.50 - $24.50 716,125 7.18 23.98 371,875 23.96
$29.00 - $36.00 1,822,344 8.76 30.71 1,082,575 30.91
--------- ---- ------ --------- ------
3,093,905 7.81 $26.26 1,875,149 $25.73
========= ==== ====== ========= ======
</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 1998, 1997 and 1996, using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1998 1997 1996
---------------- ---------------- ----------------
OPTIONS ESPP OPTIONS ESPP OPTIONS ESPP
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Risk free interest rate................. 5.01% 4.95% 6.23% 5.90% 6.14% 5.68%
Expected dividend yield................. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Expected lives in years (after vesting
for options).......................... 1.32 0.5 1.59 0.5 1.59 0.5
Expected volatility..................... 46.65% 63.42% 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, 1998............................... $11,386 $397
For year ended June 30, 1997............................... $ 9,681 $306
For year ended June 30, 1996............................... $ 8,250 $212
</TABLE>
58
<PAGE> 62
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
diluted earnings per share would have been reported as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1998 1997 1996
------ ------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
Historical................................... $7,505 $12,720 $11,512
Pro forma.................................... 2,090 8,013 8,352
Diluted earnings per share:
Historical................................... $ 0.54 $ 1.04 $ 1.14
Pro forma.................................... $ 0.15 $ 0.65 $ 0.85
</TABLE>
The effects of applying SFAS 123 for providing pro forma disclosures for
1998, 1997 and 1996 are not likely to be representative of the effects on
reported net income and diluted earnings per share 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 who are at least 18 years old. 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 15% of
his or her respective salary, not to exceed the statutory limit. The Company, at
its discretion, may elect to make a matching contribution in the form of cash or
the Company's common stock to each participant's account 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. The
Company made matching contributions to the 401(k) Plan aggregating approximately
$1,934,000 and $1,515,000 for the 401(k) Plan years ended December 31, 1997 and
1996, 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.
59
<PAGE> 63
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 $148,000, $139,000 and
$122,000 for the years ended June 30, 1998, 1997 and 1996, respectively, with a
law firm in which a member of the Board of Directors is a partner.
The Company incurred rental expense of $1,490,000, $600,000 and $592,000 in
each of the years ended June 30, 1998, 1997 and 1996, respectively, related to
leases of fire and ambulance facilities with two directors of the Company and
with employees that were previously owners of businesses acquired by the
Company.
At June 30, 1998 and 1997, the Company had notes payable to employees that
were previously owners of businesses acquired by the Company totaling $770,000
and $1,770,000, 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.
No provision is made for U.S. income taxes applicable to undistributed
foreign earnings of foreign subsidiaries that are indefinitely reinvested in
foreign operations.
The sources of income before income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
United States......................................... $11,791 $22,084 $19,556
Foreign............................................... 1,691 -- --
------- ------- -------
Income before income taxes............................ $13,482 $22,084 $19,556
======= ======= =======
</TABLE>
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. federal........................................ $ 790 $ 2,761 $ 4,219
State............................................... 68 618 796
Foreign............................................. 762 -- --
------- ------- -------
Total current............................... 1,620 3,379 5,015
------- ------- -------
Deferred
U.S. federal........................................ 4,576 5,985 3,029
Foreign............................................. (219) -- --
------- ------- -------
Total deferred.............................. 4,357 5,985 3,029
------- ------- -------
Total provision............................. $ 5,977 $ 9,364 $ 8,044
======= ======= =======
</TABLE>
60
<PAGE> 64
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The components of net deferred taxes were as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities
Amortization and accelerated depreciation................. $(12,449) $ (9,379)
Accounts receivable valuation............................. (18,980) (5,663)
Accounting method changes................................. (962) (944)
Other..................................................... (637) --
-------- --------
(33,028) (15,986)
-------- --------
Deferred tax assets
Restructuring charge...................................... 2,140 1,912
Compensation accruals..................................... 781 499
Insurance reserves........................................ 986 471
Other..................................................... 569 158
-------- --------
4,476 3,040
-------- --------
Net deferred tax liability.................................. (28,552) (12,946)
Less current portion........................................ 5,270 2,174
-------- --------
Net long-term deferred tax liability........................ $(23,282) $(10,772)
======== ========
</TABLE>
For the years ended June 30, 1998, 1997 and 1996 income tax benefits of
$1,012,000, $4,867,000 and $982,000, respectively, were allocated to additional
paid-in capital for tax benefits associated with the exercise of nonqualified
stock options and vesting of 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,
--------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax provision at statutory rate........... $4,719 $7,729 $6,845
State taxes, net of federal benefit...................... 293 967 491
Amortization of nondeductible goodwill................... 900 663 646
Other, net............................................... 65 5 62
------ ------ ------
Provision for income taxes............................... $5,977 $9,364 $8,044
====== ====== ======
</TABLE>
The Company received income tax refunds (net of income tax payments) of
approximately $3,323,000 during the year ended June 30, 1998. Cash payments for
income taxes (net of refunds) were approximately $8,197,000 and $2,848,000
during the years ended June 30, 1997 and 1996, respectively.
61
<PAGE> 65
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, 1998 and
1997 is as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
------- -------- -------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue.................................. $97,773 $111,342 $129,783 $136,660
Operating income (loss).................. 10,346 12,199 14,283 (9,463)
Net income (loss)........................ 4,658 5,424 6,372 (8,949)
Earnings (loss) per share................ $ .35 $ .38 $ .45 $ (.64)
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(2)
------- -------- -------- ----------
(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>
- ---------------
(1) In the fourth quarter of the year ended June 30, 1998, the Company recorded
a pre-tax charge of $5.0 million related to severance payments and an
additional provision for doubtful accounts of $17.9 million. See further
discussion in Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(2) In the fourth quarter of 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 and a
$2.8 million restructuring charge related to the integration of ambulance
company acquisitions.
62
<PAGE> 66
SCHEDULE II
RURAL/METRO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance at beginning of year..................... $ 35,814 $ 26,571 $ 10,412
Provision charged to expense..................... 81,178 43,424 31,036
Write-offs....................................... (47,440) (34,181) (14,877)
-------- -------- --------
Balance at end of year........................... $ 69,552 $ 35,814 $ 26,571
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loss contract/restructuring allowance:
Balance at beginning of year..................... $ 4,815 $ -- $ --
Provision........................................ 5,000 6,026 --
Payments/usage................................... (4,408) (1,211) --
-------- -------- --------
Balance at end of year........................... $ 5,407 $ 4,815 $ --
======== ======== ========
</TABLE>
63
<PAGE> 67
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 1998 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 1998 Annual Meeting of Stockholders.
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 1998 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
1998 Annual Meeting of Stockholders.
64
<PAGE> 68
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(i) Financial Statements
(1) Report of Management............................... 37
(2) Report of Independent Public Accountants........... 38
(3) Consolidated Financial Statements
Consolidated Balance Sheets at June 30, 1998 and
1997............................................... 39
Consolidated Statements of Income for the Years
Ended June 30, 1998, 1997 and 1996................ 40
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended June 30,
1998, 1997 and 1996............................... 41
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1998, 1997 and 1996.......... 42
Notes to Consolidated Financial Statements........ 43
(ii) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts......... 63
All other schedules have been omitted on the basis of
immateriality or because such schedules are not
otherwise applicable.
</TABLE>
(b) Reports on Form 8-K:
On June 5, 1998 the Company filed a Current Report on Form 8-K/A amending
its Current Report on Form 8-K filed on April 1, 1998, disclosing Combined
Financial Statement and Unaudited Pro Forma Combined Financial Statement and
Notes thereto of Peimu S.A., Semercor S.A., Marlon S.A., and Emergencias Recor
S.A.
On June 19, 1998 the Company filed a Current Report on Form 8-K announcing
a preliminary outlook for its fourth quarter.
(c) 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(6)
3.1(b) Rights Agreement dated as of August 23, 1995 between the
Registrant and American Securities Transfer, Inc., the
Rights Agent(7)
3.2 Amended and Restated Bylaws of the Registrant(1)
4.1 Specimen Certificate representing shares of Common Stock,
par value $.01 per share(1)
4.2 Indenture dated as of March 16, 1998, by and among the
Company, the subsidiaries acting as Guarantors thereto, and
the First National Bank of Chicago, as Trustee.(14)
4.3 Form of Global Note (included in Exhibit 4.2)(14)
4.4 Registration Rights Agreement dated March 11, 1998, by and
among Bear Stearns & Co. Inc., Salomon Brothers Inc, SBC
Warburg Dillon Reed Inc., First Union Capital Markets, the
Company, and certain subsidiaries of the Company, as
Guarantors.(14)
</TABLE>
65
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
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.(3)
10.4 Form of Stock Option Agreement pursuant to 1989 Employee
Stock Option Plan of Registrant(1)
10.5 Amended and Restated 1992 Stock Option Plan of Registrant,
amended through September 12, 1997
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, November 1, 1994, and
December 1, 1997.(1)
10.16(a) Form of Employment Agreement by and between Registrant and
each of the following executive officers: (i) Robert T.
Edwards, Dean P. Hoffman, William R. Crowell, and William F.
Gillis, effective July 1, 1997; (ii) Jack E. Brucker,
effective December 1, 1997; and (iii) Mark E. Liebner,
effective January 1, 1998
10.16(b) Form of Change of Control Agreement by and between
Registrant and Warren S. Rustand dated November 3, 1995.(9)
10.16(c) Form of Change of Control Agreement by and between Mark E.
Liebner dated March 4, 1998 and William R. Crowell dated May
12, 1998.
10.16(d) Form of Change of Control Agreement by and between the
Registrant and the following executive officers: (i) Robert
T. Edwards dated December 1, 1995, (ii) William F. Gillis,
dated July 1, 1997, (iii) Dean P. Hoffman, dated October 28,
1997, and (iv) Jack E. Brucker, dated November 24, 1997
10.16(e) Employment Agreement by and between Registrant and Warren S.
Rustand, dated November 3, 1995(9)
10.16(f) Employment Agreement by and between Registrant and Robert E.
Ramsey Jr., dated June 30, 1997.(11)
10.16(g) Employment Agreement by and between Registrant and John B.
Furman effective August 27, 1998.
10.16(h) Form of Change of Control Agreement by and between
Registrant and John B. Furman, effective August 27, 1998.
10.16(i) Severance Agreement by and between Warren S. Rustand and
Registrant effective August 24, 1998.
10.16(j) Consulting Agreement by and between James H. Bolin and
Registrant effective January 1, 1998.
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, as of October 13, 1994, and as of
September 25, 1998(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(6)
10.18(c) Amendment No. 2 to the Employee Stock Ownership Plan of the
Registrant, dated April 14, 1994(7)
10.21 Retirement Savings Value Plan 401(k) of Registrant, as
amended, dated July 1, 1990(1)
</TABLE>
66
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.22 Master Lease Agreement by and between Plazamerica, Inc. and
the Registrant, dated January 30, 1990(1)
10.36 Employee Stock Purchase Plan, as amended through November
20, 1997
10.37(a) 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(3)
10.37(b) Form of Loan and Security Agreement by and among Registrant
and CIT Group/Equipment Financing, Inc. first dated February
25, 1998 and related form of Guaranty and Schedule of
Indebtedness and Collateral.
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(4)
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(5)
10.45 Amended and Restated Credit Agreement dated as of March 16,
1998, by and among the Company as borrower, certain of its
subsidiaries as Guarantors, the lenders referred to therein,
and First Union National Bank, as agent and as lender, and
related Form of Amended and Restated Revolving Credit Note,
Form of Subsidiary Guarantee Agreement, and Form of
Intercompany Subordination 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(8)
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.(10)
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.(10)
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.(10)
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.(10)
10.53 Term Loan Agreement by and among Registrant, as borrower,
and First Union National Bank, as lender, dated as of
November 26, 1997.(12)
</TABLE>
67
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.54 Purchase Agreement dated January 16, 1998 and Complementary
Agreement dated March 26, 1998 between Rural/Metro
Corporation and Messrs. Horacio Artagaueytia, Jose Mateo
Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro,
Gervasio Reyes, and Carlos Arturo Delmiro Marfetan with
respect to the stock of Peimu S.A., Recor S.A., Marlon S.A.,
and Semercor S.A.(13)
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-Q Quarterly Report
filed with the Commission on or about May 12, 1995.
(4) 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.
(5) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about May 19, 1995.
(6) 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.
(7) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about August 28, 1995.
(8) 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.
(9) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 15, 1996.
(10) 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.
(11) Incorporated by reference to the Registrant's Form 10-K filed with the
Commission on or about September 29, 1997.
(12) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 17, 1998.
(13) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about April 1, 1998, as amended by the
Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.
(14) Incorporated by reference to the Registration Statement on Form S-4 of the
Registrant (Registration No. 333-51455) filed April 30, 1998 and declared
effective on May 14, 1998.
(15) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-4 of the Registrant (Registration No. 333-51455) filed May 11,
1998 and declared effective on May 14, 1998.
68
<PAGE> 72
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
Dated: September 28, 1998 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
- --------------------------------------- --------------------------------------- ------------------
<S> <C> <C>
By: /s/ JOHN B. FURMAN President and Acting Chief Executive September 28, 1998
- --------------------------------------- Officer (Principal Executive Officer)
John B. Furman
By: /s/ ROBERT T. EDWARDS Executive Vice President and Director September 28, 1998
- ---------------------------------------
Robert T. Edwards
By: /s/ ROBERT E. RAMSEY Executive Vice President and Director September 28, 1998
- ---------------------------------------
Robert E. Ramsey
By: /s/ MARK E. LIEBNER Senior Vice President, Chief Financial September 28, 1998
- --------------------------------------- Officer and Treasurer (Principal
Mark E. Liebner Financial Officer)
By: /s/ DEAN P. HOFFMAN Vice President, Financial Services September 28, 1998
- --------------------------------------- (Principal Accounting Officer)
Dean P. Hoffman
By: /s/ JAMES H. BOLIN Vice Chairman of the Board of Directors September 28, 1998
- ---------------------------------------
James H. Bolin
By: /s/ COR J. CLEMENT Vice Chairman of the Board of Directors September 28, 1998
- ---------------------------------------
Cor J. Clement
By: /s/ MARY ANNE CARPENTER Director September 28, 1998
- ---------------------------------------
Mary Anne Carpenter
By: /s/ LOUIS G. JEKEL Director September 28, 1998
- ---------------------------------------
Louis G. Jekel
</TABLE>
69
<PAGE> 73
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- --------------------------------------- ------------------
<S> <C> <C>
By: /s/ WILLIAM C. TURNER Director September 28, 1998
- ---------------------------------------
William C. Turner
By: /s/ HENRY G. WALKER Director September 28, 1998
- ---------------------------------------
Henry G. Walker
By: /s/ LOUIS A. WITZEMAN Director September 28, 1998
- ---------------------------------------
Louis A. Witzeman
</TABLE>
70
<PAGE> 74
<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(6)
3.1(b) Rights Agreement dated as of August 23, 1995 between the
Registrant and American Securities Transfer, Inc., the
Rights Agent(7)
3.2 Amended and Restated Bylaws of the Registrant(1)
4.1 Specimen Certificate representing shares of Common Stock,
par value $.01 per share(1)
4.2 Indenture dated as of March 16, 1998, by and among the
Company, the subsidiaries acting as Guarantors thereto, and
the First National Bank of Chicago, as Trustee.(14)
4.3 Form of Global Note (included in Exhibit 4.2)(14)
4.4 Registration Rights Agreement dated March 11, 1998, by and
among Bear Stearns & Co. Inc., Salomon Brothers Inc, SBC
Warburg Dillon Reed Inc., First Union Capital Markets, the
Company, and certain subsidiaries of the Company, as
Guarantors.(14)
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.(3)
10.4 Form of Stock Option Agreement pursuant to 1989 Employee
Stock Option Plan of Registrant(1)
10.5 Amended and Restated 1992 Stock Option Plan of Registrant,
amended through September 12, 1997
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, November 1, 1994, and
December 1, 1997.(1)
10.16(a) Form of Employment Agreement by and between Registrant and
each of the following executive officers: (i) Robert T.
Edwards, Dean P. Hoffman, William R. Crowell, and William F.
Gillis, effective July 1, 1997; (ii) Jack E. Brucker,
effective December 1, 1997; and (iii) Mark E. Liebner,
effective January 1, 1998
10.16(b) Form of Change of Control Agreement by and between
Registrant and Warren S. Rustand dated November 3, 1995.(9)
10.16(c) Form of Change of Control Agreement by and between Mark E.
Liebner dated March 4, 1998 and William R. Crowell dated May
12, 1998.
10.16(d) Form of Change of Control Agreement by and between the
Registrant and the following executive officers: (i) Robert
T. Edwards dated December 1, 1995, (ii) William F. Gillis,
dated July 1, 1997, (iii) Dean P. Hoffman, dated October 28,
1997, and (iv) Jack E. Brucker, dated November 24, 1997
10.16(e) Employment Agreement by and between Registrant and Warren S.
Rustand, dated November 3, 1995(9)
10.16(f) Employment Agreement by and between Registrant and Robert E.
Ramsey Jr., dated June 30, 1997.(11)
10.16(g) Employment Agreement by and between Registrant and John B.
Furman effective August 27, 1998.
10.16(h) Form of Change of Control Agreement by and between
Registrant and John B. Furman, effective August 27, 1998.
</TABLE>
71
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.16(i) Severance Agreement by and between Warren S. Rustand and
Registrant effective August 24, 1998.
10.16(j) Consulting Agreement by and between James H. Bolin and
Registrant effective January 1, 1998.
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, as of October 13, 1994, and as of
September 25, 1998(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(6)
10.18(c) Amendment No. 2 to the Employee Stock Ownership Plan of the
Registrant, dated April 14, 1994(7)
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)
10.36 Employee Stock Purchase Plan, as amended through November
20, 1997
10.37(a) 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(3)
10.37(b) Form of Loan and Security Agreement by and among Registrant
and CIT Group/Equipment Financing, Inc. first dated February
25, 1998 and related form of Guaranty and Schedule of
Indebtedness and Collateral.
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(4)
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(5)
10.45 Amended and Restated Credit Agreement dated as of March 16,
1998, by and among the Company as borrower, certain of its
subsidiaries as Guarantors, the lenders referred to therein,
and First Union National Bank, as agent and as lender, and
related Form of Amended and Restated Revolving Credit Note,
Form of Subsidiary Guarantee Agreement, and Form of
Intercompany Subordination 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(8)
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.(10)
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.(10)
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.(10)
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.(10)
10.53 Term Loan Agreement by and among Registrant, as borrower,
and First Union National Bank, as lender, dated as of
November 26, 1997.(12)
</TABLE>
72
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
10.54 Purchase Agreement dated January 16, 1998 and Complementary
Agreement dated March 26, 1998 between Rural/Metro
Corporation and Messrs. Horacio Artagaueytia, Jose Mateo
Campomar, Alberto Fluerquin, Carlos Mezzera, Renato Ribeiro,
Gervasio Reyes, and Carlos Arturo Delmiro Marfetan with
respect to the stock of Peimu S.A., Recor S.A., Marlon S.A.,
and Semercor S.A.(13)
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-Q Quarterly Report
filed with the Commission on or about May 12, 1995.
(4) 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.
(5) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about May 19, 1995.
(6) 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.
(7) Incorporated by reference to the Registrant's Form 8-K Current Report
filed with the Commission on or about August 28, 1995.
(8) 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.
(9) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about May 15, 1996.
(10) 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.
(11) Incorporated by reference to the Registrant's Form 10-K filed with the
Commission on or about September 29, 1997.
(12) Incorporated by reference to the Registrant's Form 10-Q Quarterly Report
filed with the Commission on or about February 17, 1998.
(13) Incorporated by reference to the Registrant's Form 8-K Current Report filed
with the Commission on or about April 1, 1998, as amended by the
Registrant's Form 8-K/A Current Report filed on or about June 5, 1998.
(14) Incorporated by reference to the Registration Statement on Form S-4 of the
Registrant (Registration No. 333-51455) filed April 30, 1998 and declared
effective on May 14, 1998.
(15) Incorporated by reference to Amendment No. 1 to the Registration Statement
on Form S-4 of the Registrant (Registration No. 333-51455) filed May 11,
1998 and declared effective on May 14, 1998.
73
<PAGE> 1
EXHIBIT 10.5
RURAL/METRO CORPORATION
1992 STOCK OPTION PLAN
(AS AMENDED THROUGH SEPTEMBER 1997)
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 was approved by the
stockholders of the Company on November 21, 1996. On September 12, 1997, the
Board adopted an Amended and Restated 1992 Stock Option Plan (as amended through
September 1997) (the "Revised 1997 Plan") whereby additional shares of stock
were authorized to be issued under the Plan. The Revised 1997 Plan was approved
by the stockholders of the Company on November 21, 1997. 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 1997 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 Company's Stock,
thereby acquiring a proprietary interest in its business and an increased
<PAGE> 2
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.
(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 6,000,000 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.
2
<PAGE> 3
(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 1997 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
1997 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.
3
<PAGE> 4
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
4
<PAGE> 5
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 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.
5
<PAGE> 6
(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, (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;
6
<PAGE> 7
(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.
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
7
<PAGE> 8
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 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.
8
<PAGE> 9
(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.
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
9
<PAGE> 10
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 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.
10
<PAGE> 11
(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 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
11
<PAGE> 12
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").
(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:
12
<PAGE> 13
(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.
(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
13
<PAGE> 14
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.
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.
14
<PAGE> 15
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 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
15
<PAGE> 16
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.
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
16
<PAGE> 17
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.
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.
17
<PAGE> 18
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.
"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
18
<PAGE> 19
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.
(vi) 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.
19
<PAGE> 20
"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.
"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.
20
<PAGE> 21
"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 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.
21
<PAGE> 22
EXECUTED as of the 12th day of September, 1997.
RURAL/METRO CORPORATION
By: /s/ Warren S. Rustand
-----------------------------
Name: Warren S. Rustand
-----------------------------
Its: Chief Executive Officer
-----------------------------
ATTESTED BY:
/s/ Louis G. Jekel
- -----------------------------
Secretary
22
<PAGE> 1
EXHIBIT 10.16(a)
FORM OF
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into as of
the date set forth below (the "Effective Date"), by and between
__________________ ("Executive") and RURAL/METRO CORPORATION, its subsidiaries,
affiliates, joint ventures and partnerships ("Rural/Metro").
R E C I T A L S
Executive is currently employed by Rural/Metro in the position of
__________________.
Rural/Metro has decided to offer Executive an Employment Agreement, the
terms of which are set forth below.
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Executive will be employed as the_____________________________
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 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.
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 $______________.
Thereafter, the salary will be
<PAGE> 2
reviewed at least annually in accordance with Rural/Metro's executive
compensation review policies and practices, all as determined by Rural/Metro, in
its sole discretion.
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 have entered into one or more Stock
Option Agreements and a Change of Control Agreement, which will provide the
Executive with certain additional protections if his employment is terminated in
certain instances following a "change of control". Nothing in this Agreement is
intended to alter or modify the Stock Option Agreements or the Change of Control
Agreement, which shall continue in full force and effect following the execution
of this Agreement.
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 "Initial Term" or any "Renewal Term".
The "Initial Term" of this Agreement shall expire by its terms
on December 31, 1999, unless sooner terminated in accordance with the provisions
of this Agreement. This Agreement will be renewed at the end of the Initial Term
for additional
<PAGE> 3
one-year periods commencing on each January 1 and ending on the following
December 31 (a "Renewal Term"), unless either party serves notice of its desire
not to renew or of its desire to modify this Agreement on the other. Such notice
must be given at least ninety (90) days before the end of the Initial Term or
the applicable Renewal Term.
If Rural/Metro notifies Executive of its desire not to renew this
Agreement pursuant to this paragraph 5 and at the time of such notification
Rural/Metro does not have "Cause" to terminate this Agreement pursuant to
paragraph 6A, Executive shall be entitled to receive Severance Benefits pursuant
to paragraph 9.
If Executive notifies Rural/Metro of his desire not to renew this
Agreement pursuant to this paragraph 5 and at the time of such notification
Executive has Good Reason to terminate this Agreement pursuant to paragraph 7A,
Executive shall be entitled to receive Severance Benefits pursuant to paragraph
9. Executive also shall be entitled to receive Severance Benefits pursuant to
paragraph 9 if Rural/Metro proposes to modify this Agreement pursuant to this
paragraph 5 in a manner that gives rise to Good Reason pursuant to paragraph 7A
for Executive's termination of employment and Executive rejects such proposed
modifications. Severance Benefits will not be payable pursuant to the preceding
sentence if Rural/Metro rescinds the proposed modifications and offers Executive
a new Agreement that does not include any proposed modifications that give rise
to Good Reason for Executive's termination of employment.
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
<PAGE> 4
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 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.
Rural/Metro may place Executive on a paid administrative leave, and bar or
restrict Executive's access to Rural/Metro facilities, contemporaneously with or
at any time following the delivery of the written notice to Executive.
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 mutually
agreed to
<PAGE> 5
in writing by Executive and 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; (b) Executive is required to relocate to an
employment location that is more than 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 ten percent (10%) less than the
salary paid to Executive during any prior calendar year, unless Executive has
agreed to said reduction or unless an equal or greater reduction applies to all
executives of the same and higher level; or (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 any prior year.
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
ninety (90) 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.
C. Administrative Leave. Rural/Metro may place Executive on a
paid administrative leave, and bar or restrict Executive's access to Rural/Metro
facilities, contemporaneously with or at any time following the delivery of the
written notice of termination by Executive pursuant to paragraph 7A or 7B.
<PAGE> 6
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 six (6) months from the date as of which
Executive is determined to have become Disabled, 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 Executive is unable, after any reasonable accommodations
required by the Americans with Disabilities Act or any applicable state law, to
perform the essential functions of his position because of a physical or mental
impairment. In the absence of agreement between Rural/Metro and Executive,
whether Executive is Disabled or is suffering from a Disability (and the date as
of which Executive became Disabled) will be determined by a licensed physician
selected by Rural/Metro. If a licensed physician selected by Executive disagrees
with the determination of the physician selected by Rural/Metro, the two (2)
physicians shall select a third (3rd) physician. The decision of the third (3rd)
physician concerning Executive's Disability then shall be binding and conclusive
on all interested parties.
9. SEVERANCE BENEFITS.
If this Agreement and Executive's employment are terminated
without Cause by Rural/Metro pursuant to paragraph 6B prior to the last day of
the Initial Term or
<PAGE> 7
any Renewal Term, or if Executive elects to terminate this Agreement for Good
Reason pursuant to paragraph 7A, Executive shall receive the "Severance
Benefits" provided by this paragraph. To the limited extent provided in
paragraph 5, Executive also shall be entitled to receive Severance Benefits if
this Agreement is not renewed. In addition, Executive shall be entitled to
receive Severance Benefits if his employment is terminated due to Disability
pursuant to paragraph 8. The Severance Benefits shall begin immediately
following termination of employment and will continue to be payable until the
latest of (a) the last day of the Initial Term or the then current Renewal Term,
as the case may be; (b) for twelve (12) months; or (c) or for the number of
weeks determined in accordance with Rural/Metro's standard severance benefit
policies, as in effect at the time of the execution of this Agreement.
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 Initial Term or any
Renewal 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.
<PAGE> 8
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.
10. BENEFITS; OPTIONS.
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. CONFIDENTIALITY 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, operational budgets and strategies, methods of
operation, customer lists, strategic plans, business plans, marketing plans and
strategies, new business strategies, merger and acquisition strategies,
management systems programs, computer systems, personnel and compensation
information and payroll data, and other such reports, documents or information
(collectively the "Confidential and Proprietary Information"). Executive
promises that he will not make or retain any copies of such Confidential and
Proprietary
<PAGE> 9
Information in any form, format or manner whatsoever (including
computer print-outs, computer tapes, floppy disks, CD roms, etc.) nor will he
use or 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.
12. COVENANT-NOT-TO-COMPETE.
A. Interests to be Protected. The parties acknowledge
that prior to and during the term of his employment, Executive has been and will
continue to 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.
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
<PAGE> 10
full and complete 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.
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.
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 and for whatever reason, 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 client(s) of
Rural/Metro with whom he has worked as an employee of Rural/Metro at any time
prior to termination, or at the time of termination, for the purpose of
soliciting or selling such customer the same, similar, or related services that
he provided on behalf of Rural/Metro. This non-solicitation provision applies
even if
<PAGE> 11
Executive is terminated by Rural/Metro due to the cessation of operations in any
geographical service area where he was employed prior to termination, or at the
time of termination.
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 and for any reason, 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, seek to
hire, and/or hire any of Rural/Metro's personnel or employees for the purpose of
having such employee engage in services that are the same, similar or related to
the services that such employee provided for Rural/Metro.
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 and for any
reason, 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, engage in the
same or similar business as Rural/Metro, which would be in direct competition
with any Rural/Metro line of business, in any geographical service area where
Rural/Metro is engaged in business, or was considering engaging in business at
any time prior to the termination or at time of termination. For the purposes of
this provision, the term "competition" shall mean directly or indirectly
engaging in or having a substantial interest in a business or operation which
has been, is, or will be, performing the same services provided by Rural/Metro.
F. Judicial Amendment. If the scope of any provision of
this Agreement is found by the Court or arbitrator 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
<PAGE> 12
modified by a judge or arbitrator 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.
H. Survival. The provisions of this paragraph shall
survive the termination of this Agreement.
13. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement, the Change of Control Agreement and any Stock
Option Agreements constitute the entire agreement between the parties as to the
subject matters dealt with in such Agreements. Accordingly, there are no side
agreements or verbal agreements other than those which are stated in this
document or in the Change of Control Agreement or any Stock Option Agreements.
Any amendment, modification or change in said Agreements must be done so in
writing and signed by both parties.
<PAGE> 13
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 Sate 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.
17. DISPUTE RESOLUTION.
A. Mediation. Any and all disputes arising under,
pertaining to or touching upon this Agreement or the statutory rights or
obligations of either party hereto, shall, if not settled by negotiation, be
subject to non-binding mediation under the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association ("AAA") in effect on
the date of the first notice of demand for mediation, before an independent
mediator selected by the parties pursuant to paragraph 17.D. Notwithstanding the
foregoing, both Executive and Rural/Metro may seek preliminary judicial relief
if such action is necessary to avoid irreparable damage during the pendency of
the proceedings described in this paragraph 17. 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.
<PAGE> 14
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, BREACH OF CONTRACT OR POLICY, OR 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 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 the National Rules for the Resolution of Employment Disputes of
AAA in effect on the date of the first notice of demand for arbitration. 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 discrimination claims
prohibited by statute, the arbitrator may direct payment consistent with the
applicable statute. In cases of employment tort, the arbitrator may award
punitive damages if proved by clear and convincing evidence. 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-
<PAGE> 15
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 the
AAA. 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 AAA. Executive shall have
the first strike.
IN WITNESS WHEREOF, Rural/Metro and Executive have executed
this Agreement on this day of _________________, 1997.
RURAL/METRO CORPORATION
- ----------------------------------------------------------------------
By:
-----------------------------------------
Warren Rustand, its Chairman of the Board
"EXECUTIVE"
-----------------------------------------
<PAGE> 1
EXHIBIT 10.16(c)
FORM OF CHANGE OF CONTROL
______________
_________________________
_________________________
_________________________
_________________________
CHANGE OF CONTROL AGREEMENT
Dear __________:
In order to allay your concerns, our Board of Directors has decided to
modify the Change of Control Agreement dated December 1, 1995, between you and
Rural/Metro Corporation ("Rural/Metro") (the "1995 Agreement"). Rather than
preparing an amendment to the 1995 Agreement, Rural/Metro has decided to replace
the 1995 Agreement in its entirety with this Change of Control Agreement (the
"Agreement").
This new Agreement completely replaces the 1995 Agreement, and it is
effective as of the date of execution by you and Rural Metro.
Please bear in mind that Change of Control benefits are being offered
only to a few, selected employees and that this Agreement extends protections to
you that are presently available to only one other employee. We accordingly ask
that you refrain from discussing this special program with others. Also, please
note that the special benefits package described below will only be effective if
you sign the extra copy of this Agreement which is enclosed and return it to me
on or before ________________.
In this Agreement, Rural/Metro and its subsidiaries are collectively
referred to as the "Company".
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as
long as you are actively employed by the Company, unless you and Rural/Metro
agree in writing to its termination.
1
<PAGE> 2
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 7) within two years following a Change of Control, you will
receive the "Severance Payment" described below. The Severance Payment also will
be payable if you elect to terminate your employment for any or no reason within
two years following a Change of Control.
The "Severance Payment" is a lump sum payment equal to the sum of: (a)
200% of your annualized base salary as of the day on which the Change of Control
occurs; plus (b) 200% of an amount equal to the incentive compensation paid or
payable to you pursuant to our Management Incentive Program on account of
performance during the fiscal year immediately preceding the fiscal year in
which the Change of Control occurs plus any other bonuses or incentive
compensation paid or payable to you for such year; less (c) the full amount of
any payments to which you may be entitled due to your termination pursuant to
the terms of your "Employment Agreement" (as defined in Section 19), any
applicable law, or otherwise.
The Severance Payment will be paid in one lump sum within five days
following your termination of employment.
The Severance Payment will not be payable if your employment is
terminated for Cause, or if your employment is terminated by reason of your
"Disability" (as defined in Section 9(d)) or your death. In addition, the
Severance Payment will not be payable if your employment is terminated by you or
the Company for any or no reason before a Change of Control occurs or more than
two years after a Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by Rural/Metro of claims that you may have pursuant to this
Agreement (but not any other claims).
The Severance Payment will be payable without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
2
<PAGE> 3
3. ACCELERATION OF OR PAYMENT FOR OPTIONS.
Except as otherwise noted below, if an agreement is entered into that
will result in a Change of Control, before the Change of Control occurs the
"Senior Committee" will accelerate the exercisability of any options you hold to
acquire Company stock pursuant to the Rural/Metro Corporation 1992 Stock Option
Plan (the "1992 Plan") that, pursuant to their terms, are not yet exercisable
(the "Existing Options"). For this purpose, the "Senior Committee" is the
"Senior Committee" established pursuant to the 1992 Plan.
The Senior Committee will not be obligated to accelerate the
exercisability of Existing Options (although it may if it so chooses) if any
party to the agreement expressly indicates, in a writing addressed to the Senior
Committee, that it intends to use pooling of interest accounting for all or any
part of the transaction and the Senior Committee, based on the advice of its
advisors, concludes (a) that pooling of interests accounting is available to
such party for all or any portion of the transaction, and (b) that the
availability of pooling of interests accounting will be jeopardized if the
Senior Committee accelerates the exercisability of the Existing Options.
If you are employed by the Company on the day on which a Change of
Control occurs and at that time you hold any Existing Options that are not
accelerated pursuant to the preceding paragraphs, you may be entitled to receive
a special "Option Payment".
The Option Payment will only be payable if all of the following
conditions are met: (a) you are employed by the Company on the day on which the
Change of Control occurs; (b) the exercisability of the Existing Options is not
accelerated by action of the Senior Committee or otherwise on a basis that
allows you to exercise your options prior to the Change of Control; (c) the
Existing Options are not replaced by other options on the stock of the acquirer
(the "Replacement Options"), which the Senior Committee, as constituted
immediately prior to the Change of Control, in its discretion, determines to be
comparable; and (d) Rural/Metro does not continue as a publicly held corporation
required to be registered pursuant to the provisions of the Securities Exchange
Act of 1934 following the Change of Control, or if Rural/Metro does continue as
a registered publicly held corporation, the Senior Committee, as constituted
immediately prior to the Change of Control, determines, in its discretion, that
Rural/Metro has undergone a fundamental change such that the value of the
Existing Options after the Change of Control is less than 75% of the value of
the Existing Options prior to the Change of Control.
3
<PAGE> 4
While the Senior Committee has the discretion to determine whether
Replacement Options are "comparable" to Existing Options for purposes of clause
(c) of the preceding paragraph, it may not consider Replacement Options to be
comparable to Existing Options unless, at a minimum, the Replacement Options are
exercisable as rapidly as the Existing Options and the Replacement Options are
structured to preserve the aggregate positive spread between the aggregate
exercise price for the Existing Options and the aggregate "Deal Value" of the
Rural/Metro stock subject to the Existing Options.
For purposes of this Section, the "Deal Value" of the Rural/Metro stock
is the value placed on the Rural/Metro stock by the parties for purposes of the
transaction that results in the Change of Control. If no single transaction
results in the Change of Control, or if the parties to such transaction do not
expressly agree to a value to be assigned to the Rural/Metro stock for purposes
of such transaction, the Deal Value of the Rural/Metro stock shall be the value
that the Senior Committee determines to be the inherent value of the Rural/Metro
stock as of the date on which the Change of Control occurs.
For purposes of clause (d) of the fourth paragraph of this Section, the
Senior Committee may use any option pricing model it chooses to compare the
value of the Existing Options before and after the Change of Control.
The Option Payment for each share of stock subject to an Existing
Option will be an amount equal to the Deal Value of the Rural/Metro stock less
the option price for such share as designated in the relevant option agreement.
The Option Payment for all shares subject to an Existing Option shall
be paid in one lump sum within 30 days following the occurrence of the last
event that entitles you to receive the Option Payment. Any option for which an
Option Payment is made will be automatically cancelled upon payment of the
Option Payment.
The Option Payment will only be made for "Existing Options". As a
result, no Option Payment will be made with respect to an option that is
exercisable prior to the day on which the Change of Control occurs, since the
term "Existing Option" does not include exercisable options.
Any determinations made in good faith by the Senior Committee for
purposes of this Agreement shall be final and binding on all parties.
4
<PAGE> 5
4. BENEFITS CONTINUATION.
If your employment is terminated by the Company without Cause, or if
you elect to terminate your employment with the Company for any or no reason,
within two years following a Change of Control, you will continue to receive
life, disability, accident and group health insurance benefits substantially
similar to those which you were receiving immediately prior to your termination
of employment for a period of twenty-four (24) months following your termination
of employment. Such benefits shall be provided on substantially the same terms
and conditions as they were provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a
result, benefits otherwise receivable pursuant to this Section shall be reduced
or eliminated if and to the extent that you receive such benefits pursuant to
your Employment Agreement.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer).
5. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of
Control occurs, the incentive compensation to which you will be entitled under
the Management Incentive Program for the calendar year in which the Change of
Control occurs will equal at least the "Minimum Incentive Compensation Amount".
The "Minimum Incentive Compensation Amount" will equal the incentive
compensation to which you would have been entitled if the year were to end on
the day on which the Change of Control occurs, based upon performance up to that
date. In measuring financial performance, financial results through the date of
the Change of Control will be annualized.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean
and include any one or more of the following transactions or situations:
5
<PAGE> 6
(a) A sale, transfer, or other disposition by Rural/Metro
through a single transaction or a series of transactions of securities of
Rural/Metro representing 30% or more of the combined voting power of
Rural/Metro's then outstanding securities to any "Unrelated Person" or
"Unrelated Persons" acting in concert with one another. For purposes of this
Section, 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 Securities Exchange Act of
1934 (the "Act")). For purposes of this Section, the term "Unrelated Person"
shall mean and include any Person other than: Rural/Metro, a wholly-owned
subsidiary of Rural/Metro, or an employee benefit plan of Rural/Metro.
(b) A sale, transfer, or other disposition through a
single transaction or a series of transactions of all or substantially all of
the assets of Rural/Metro to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(c) A change in the ownership of Rural/Metro 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 Rural/Metro representing at
least 30% of the combined voting power of Rural/Metro'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 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.
(d) Any consolidation or merger of Rural/Metro with or
into an Unrelated Person, unless immediately after the consolidation or merger
the holders of the common stock of Rural/Metro immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50% of the combined voting power of the
surviving corporation's then outstanding securities.
(e) During any period of two (2) years, individuals who,
at the beginning of such period, constituted the Board of Directors of
Rural/Metro 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 (2/3rds) of the directors then still in
office who were directors at the beginning of such period.
6
<PAGE> 7
(f) A change in control of Rural/Metro 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 Act, or any successor regulation of similar
import, regardless of whether Rural/Metro is subject to such reporting
requirement.
Notwithstanding any provision herein to the contrary, the filing of a
proceeding for the reorganization of Rural/Metro under Chapter 11 of the Federal
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purpose of this Agreement.
7. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" shall be given the
meaning ascribed to such term in your Employment Agreement, as it may be amended
from time to time. If no written Employment Agreement is in effect at the time
of your termination of employment, "Cause" shall be given the meaning ascribed
to it in the last written Employment Agreement that was in effect between you
and the Company that included a definition of "Cause".
8. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens
on you and the Company if the total payments made to you due to a Change of
Control exceed prescribed limits. For example, if your limit is $300,000 and the
total payments exceed the limit by even $1.00, you are subject to an excise tax
under Section 4999 of the Code of 20% of all amounts paid to you in excess of
$100,000. If your limit is $300,000, you will not be subject to an excise tax if
you receive exactly $300,000. If you receive $301,000, you will be subject to an
excise tax of $40,000 (20% of $201,000).
In order to avoid this excise tax and the related adverse tax
consequences for the Company, by signing this Agreement, you will be agreeing
that the present value of your "Total Payments" (as defined below) will not
exceed an amount equal to two and ninety-nine hundredths (2.99) times your "Base
Period Income" (as defined below). This is the maximum amount which you may
receive without becoming subject to the excise tax imposed by Section 4999 of
the Code or which the Company may pay without loss of deduction under Section
280G of the Code.
7
<PAGE> 8
"Base Period Income" is an amount equal to your "annualized includable
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includable compensation" is the average of your annual taxable income from the
Company for the "base period", which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder), including the Option Payment,
to or for your benefit, the receipt of which is contingent on a Change of
Control and to which Section 280G of the Code applies.
If Rural/Metro believes that these rules will result in a reduction of
the payments to which you are entitled under this Agreement, it will so notify
you within 60 days following delivery of the "Notice of Termination" described
in Section 9. You and Rural/Metro will then, at Rural/Metro's expense, retain
legal counsel, certified public accountants, and/or a firm of recognized
executive compensation consultants to provide an opinion or opinions concerning
whether your Total Payments exceed the limit discussed above.
Rural/Metro will select the legal counsel, certified public accountants
and executive compensation consultants. If you do not accept one or more of the
parties selected by Rural/Metro, you may provide Rural/Metro with the names of
legal counsel, certified public accountants and/or executive compensation
consultants acceptable to you. If Rural/Metro does not accept the party or
parties selected by you, the legal counsel, certified public accountants and/or
executive compensation consultants selected by you and Rural/Metro,
respectively, will select the legal counsel, certified public accountants and/or
executive compensation consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a)
the amount of your Base Period Income, (b) the present value of the Total
Payments and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment,
your payments under this Agreement will be reduced to the extent necessary to
eliminate the excess. You will be allowed to choose the payment (i.e., the
Severance Payment or the Option Payment)
8
<PAGE> 9
that should be reduced or eliminated, but the payment you choose to reduce or
eliminate must be a payment determined by such counsel to be includable in Total
Payments. You will make your decision in writing and deliver it to Rural/Metro
within 30 days of your receipt of such opinions. If you fail to so notify
Rural/Metro, it will decide which payments to reduce or eliminate.
For purposes of determining whether your "Total Payments" exceed the
limitation mentioned above, Rural/Metro and all legal counsel, certified public
accountants, and executive compensation consultants will be bound to make
certain assumptions.
The first assumption that must be made is that, except as otherwise
noted below, none of the amounts or benefits payable to you pursuant to the
severance provisions of your Employment Agreement are contingent on a Change of
Control. The only exception to this rule is that any increases in such amounts
due to an amendment to your Employment Agreement that occurs within one (1) year
of the Change of Control may be treated as contingent on the Change of Control.
The second assumption that must be made is that the vesting of your
stock grants under your Conditional Stock Grant and Repurchase Agreement is not
in any way contingent on a Change of Control.
If the legal counsel or certified public accountants selected to
provide the opinions referred to above so requests in connection with the
opinion required by this Section, a firm of recognized executive compensation
consultants, selected by you and Rural/Metro pursuant to the procedures set
forth above, shall provide an opinion, upon which such legal counsel or
certified public accountants may rely, as to the reasonableness of any item of
compensation as reasonable compensation for services rendered before or after
the Change of Control.
If Rural/Metro believes that your Total Payments will exceed the
limitations of this Section, it will nonetheless make payments to you, at the
times stated above, in the maximum amount that it believes may be paid without
exceeding such limitations. The balance, if any, will then be paid after the
opinions called for above have been received.
If the Internal Revenue Service concludes in a final determination that
the amounts paid to you exceed the limitations of this Section, as a general
rule, the excess will be treated as a loan to you by Rural/Metro and shall be
repayable on the 90th day following demand by Rural/Metro, together with
interest at the "applicable federal rate" provided in Section 1274(d)
9
<PAGE> 10
of the Code. All or a portion of the excess will not be treated as a loan and
you will not be required to return or repay it if both of the following
conditions are met:
(a) The excess is equal to or greater than $100,000; and
(b) All or a portion of the excess is attributable to a
determination by the IRS that amounts or benefits payable to you pursuant to the
severance provisions of your Employment Agreement, or the value of all or a
portion of the stock grant to which you are entitled pursuant to your
Conditional Stock Grant and Repurchase Agreement, must be treated as being
contingent on a Change of Control. If both of the conditions set forth in the
preceding sentence are satisfied, you may retain the portion of the excess that
is described in clause (b) of the preceding sentence. The balance of the excess
will be treated as a loan and will be repayable as described above.
If you are not required to return all or a portion of an excess payment
pursuant to the preceding paragraph, Rural/Metro also will make a special cash
payment to you equal to twenty percent (20%) of the amount by which your Total
Payments exceed your Base Period Income, as determined prior to the making of
the cash payment.
In the event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no further force or
effect.
9. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances alleged to provide a basis for
termination.
10
<PAGE> 11
(b) Any Notice of Termination by the Company shall be in
writing signed by the Chairman of the Board of Rural/Metro, specifying in detail
the basis for such termination.
(c) If the Company shall furnish a Notice of Termination
for Cause and you in good faith notify the Company that a dispute exists
concerning such termination within the 15 day period following your receipt of
such notice, you may elect to continue your employment during such dispute. If
it is thereafter determined that (i) Cause did exist, your "Termination Date"
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
dispute resolution provisions of Section 16 or (B) the date of your death, or
(ii) Cause did not exist, your employment shall continue as if the Company had
not delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination
by reason of Disability and you in good faith notify the Company that a dispute
exists concerning such termination within the 15-day period following your
receipt of such notice, you may elect to continue your employment during such
dispute. The dispute relating to the existence of a Disability shall be resolved
by the opinion of the licensed physician selected by Rural/Metro; provided,
however, that if you do not accept the opinion of the licensed physician
selected by Rural/Metro, the dispute shall be resolved by the opinion of a
licensed physician who shall be selected by you; provided further, however, that
if Rural/Metro does not accept the opinion of the licensed physician selected by
you, the dispute shall be finally resolved by the opinion of a licensed
physician selected by the licensed physicians selected by Rural/Metro and you,
respectively. If it is thereafter determined that (i) a Disability did exist,
your Termination Date shall be the earlier of (A) the date on which the dispute
is resolved or (B) the date of your death, or (ii) a Disability did not exist,
your employment shall continue as if the Company had not delivered its Notice of
Termination and there shall be no Termination Date arising out of such notice.
For purposes of this Agreement, "Disability" shall be given the meaning ascribed
to such term in your Employment Agreement at the time the Disability
determination is being made. If there is no Employment Agreement that defines
"Disability", "Disability" shall mean your inability to perform your customary
duties for the Company due to a physical or mental condition that is considered
to be of long-lasting or indefinite duration.
(e) If you do not elect to continue employment pending
resolution of a dispute regarding a Notice of Termination by the Company and it
is finally determined that the
11
<PAGE> 12
reason for termination set forth in such Notice of Termination did not exist,
the Company will be deemed to have terminated you other than by reason of
Disability or Cause.
(f) For purposes of this Agreement, a transfer from
Rural/Metro to one of its subsidiaries or a transfer from a subsidiary to
Rural/Metro or another subsidiary shall not be treated as a termination of
employment.
10. SUCCESSORS.
Rural/Metro will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Rural/Metro or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Rural/Metro or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Rural/Metro to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
elect to terminate your employment following a Change of Control, except that
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this Agreement, "Rural/Metro" shall mean Rural/Metro as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise.
11. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
12
<PAGE> 13
12. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to Rural/Metro shall be directed to the attention of the
Chairman of the Board of Rural/Metro with a copy to the Secretary of
Rural/Metro, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
13. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by you and the Chairman of the Board of Rural/Metro. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles. All references to
sections of the Securities Exchange Act of 1934 or the Code shall be deemed also
to refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company that arise prior to
the expiration of this Agreement shall survive the expiration of the term of
this Agreement.
14. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
13
<PAGE> 14
15. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
16. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 8 and 9(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
If no written Employment Agreement is in effect at the time of your termination
of employment, or, if the Employment Agreement in effect at the time of your
termination of employment does not include arbitration or alternative dispute
resolution provisions, all claims, disputes and other matters in question
between the parties arising under this Agreement shall be decided by arbitration
in Phoenix, Arizona, in accordance with the Model Employment Arbitration
Procedures of the American Arbitration Association (including such procedures
governing selection of the specific arbitrator or arbitrators), unless the
parties mutually agree otherwise. The Company shall pay the costs of any such
arbitration. The award by the arbitrator or arbitrators shall be final, and
judgment may be entered upon it in accordance with applicable law in any state
or Federal court having jurisdiction thereof.
17. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of
your rights under this Agreement or if any arbitration or legal proceeding shall
be brought in good faith to enforce or interpret any provision contained herein,
or to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank One, Arizona, NA from time
to time as its prime rate from the date that payments to you should have been
made under this Agreement. It is expressly provided that the Company shall in no
event recover from you any attorneys' fees, costs, disbursements or interest as
a result of any dispute or legal proceeding involving the Company and you.
14
<PAGE> 15
18. PAYMENT OBLIGATIONS ABSOLUTE.
Rural/Metro's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Rural/Metro may apply amounts payable under this Agreement to any debts
owed to the Rural/Metro by you on your Termination Date. All amounts payable by
Rural/Metro in accordance with this Agreement shall be paid without notice or
demand. If Rural/Metro has paid you more than the amount to which you are
entitled under this Agreement, Rural/Metro shall have the right to recover all
or any part of such overpayment from you or from whomsoever has received such
amount.
19. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your Employment
Agreement, as it may be amended or replaced from time to time (the "Employment
Agreement"). You will be entitled to receive all amounts due to you pursuant to
the terms of your Employment Agreement, but some payments under your Employment
Agreement may reduce your Severance Payments as provided in Section 2 and
benefits due pursuant to your Employment Agreement may reduce the benefits due
pursuant to Section 4. In addition, the IRS may consider payments under your
Employment Agreement as part of your Total Payment, which could result in a
reduction in payments as provided in Section 8. If there is any conflict between
the provisions of this Agreement and your Employment Agreement, the provisions
of this Agreement shall control.
20. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the entire
agreement between you and the Company concerning the subject matter discussed in
this Agreement and supersede all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether written or
oral, by any officer, employee or representative of the Company. Any prior
agreements or understandings with respect to the subject matter set forth in
this Agreement are hereby terminated and cancelled.
15
<PAGE> 16
21. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with
all other payments received during the year that are subject to the limitations
on deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of Rural/Metro, be deferred to the next succeeding calendar year.
Such deferred amounts shall be paid no later than the 60th day after the end of
such next succeeding calendar year, provided that such payment, when combined
with any other payments subject to the Section 162(m) limitations received
during the year, does not exceed the limitations on deductibility under Section
162(m) of the Code.
22. PARTIES.
This Agreement is an agreement between you and Rural/Metro. In certain
cases, though, obligations imposed upon Rural/Metro may be satisfied by a
Rural/Metro subsidiary. Any payment made or action taken by a Rural/Metro
subsidiary shall be considered to be a payment made or action taken by
Rural/Metro for purposes of determining whether Rural/Metro has satisfied its
obligations under this Agreement.
If you would like to participate in this special benefits program,
please sign and return the extra copy of this letter which is enclosed.
Sincerely,
_______________________________________
Warren Rustand
Chairman of the Board
Rural/Metro Corporation
Enclosure
16
<PAGE> 17
ACCEPTANCE
I hereby accept the offer to participate in this special benefit
program, and I agree to be bound by all of the provisions noted above.
_______________________________________
17
<PAGE> 1
EXHIBIT 10.16(d)
FORM OF CHANGE OF CONTROL
______________
__________________________
__________________________
__________________________
CHANGE OF CONTROL AGREEMENT
Dear _______:
Our Board of Directors believes that it is in the best interests of
Rural/Metro Corporation ("Rural/Metro") and its shareholders to take appropriate
steps to allay any concerns you may have about your future employment
opportunities with Rural/Metro and its subsidiaries (Rural/ Metro and its
subsidiaries are collectively referred to as the "Company"). As a result, the
Board has decided to offer to you the special package of benefits described
below.
Please bear in mind that these benefits are being offered only to a
few, selected employees and we accordingly ask that you refrain from discussing
this special program with others. Also, please note that the special benefits
package described below will only be effective if you sign the extra copy of
this Change of Control Agreement (the "Agreement") which is enclosed and return
it to me on or before ________________.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as
long as you are actively employed by Rural/Metro, unless you and Rural/Metro
agree in writing to its termination.
<PAGE> 2
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) within two years following a Change of Control, you will
receive the "Severance Payment" described below. The Severance Payment also will
be payable if you terminate your employment for "Good Reason" (as defined in
Section 7) within two years following a Change of Control.
The "Severance Payment" is a lump sum payment equal to the sum of: (a)
200% of your annualized base salary as of the day on which the Change of Control
occurs; plus (b) 200% of an amount equal to the incentive compensation paid or
payable to you pursuant to our Management Incentive Program on account of
performance during the calendar year immediately preceding the calendar year in
which the Change of Control occurs plus any other bonuses or incentive
compensation paid or payable to you for such year; less (c) the full amount of
any payments to which you may be entitled due to your termination pursuant to
the terms of your "Employment Agreement" (as defined in Section 20), any
applicable law, or otherwise.
The Severance Payment will be paid in one lump sum within five days
following your termination of employment.
The Severance Payment will not be payable if your employment is
terminated for Cause, if you terminate your employment without Good Reason, or
if your employment is terminated by reason of your "Disability" (as defined in
Section 10(d)) or your death. In addition, the Severance Payment will not be
payable if your employment is terminated by you or the Company for any or no
reason before a Change of Control occurs or more than two years after a Change
of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by Rural/Metro of claims that you may have pursuant to this
Agreement (but not any other claims).
The Severance Payment will be payable without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
3. ACCELERATION OF OR PAYMENT FOR OPTIONS.
Except as otherwise noted below, if an agreement is entered into that
will result in a Change of Control, before the Change of Control occurs the
"Senior Committee" will accelerate the exercisability of any options you hold to
acquire Company stock pursuant to the Rural/Metro Corporation 1992 Stock Option
Plan (the "1992 Plan") that, pursuant to their terms, are not yet exercisable
(the "Existing Options"). For this purpose, the "Senior Committee" is the
"Senior Committee" established pursuant to the 1992 Plan.
<PAGE> 3
The Senior Committee will not be obligated to accelerate the
exercisability of Existing Options (although it may if it so chooses) if any
party to the agreement expressly indicates, in a writing addressed to the Senior
Committee, that it intends to use pooling of interest accounting for all or any
part of the transaction and the Senior Committee, based on the advice of its
advisors, concludes (a) that pooling of interests accounting is available to
such party for all or any portion of the transaction, and (b) that the
availability of pooling of interests accounting will be jeopardized if the
Senior Committee accelerates the exercisability of the Existing Options.
If you are employed by the Company on the day on which a Change of
Control occurs and at that time you hold any Existing Options that are not
accelerated pursuant to the preceding paragraphs, you may be entitled to receive
a special "Option Payment".
The Option Payment will only be payable if all of the following
conditions are met: (a) you are employed by the Company on the day on which the
Change of Control occurs; (b) the exercisability of the Existing Options is not
accelerated by action of the Senior Committee or otherwise on a basis that
allows you to exercise your options prior to the Change of Control; (c) the
Existing Options are not replaced by other options on the stock of the acquirer
(the "Replacement Options"), which the Senior Committee, as constituted
immediately prior to the Change of Control, in its discretion, determines to be
comparable; and (d) Rural/Metro does not continue as a publicly held corporation
required to be registered pursuant to the provisions of the Securities Exchange
Act of 1934 following the Change of Control, or if Rural/Metro does continue as
a registered publicly held corporation, the Senior Committee, as constituted
immediately prior to the Change of Control, determines, in its discretion, that
Rural/Metro has undergone a fundamental change such that the value of the
Existing Options after the Change of Control is less than 75% of the value of
the Existing Options prior to the Change of Control.
While the Senior Committee has the discretion to determine whether
Replacement Options are "comparable" to Existing Options for purposes of clause
(c) of the preceding paragraph, it may not consider Replacement Options to be
comparable to Existing Options unless, at a minimum, the Replacement Options are
exercisable as rapidly as the Existing Options and the Replacement Options are
structured to preserve the aggregate positive spread between the aggregate
exercise price for the Existing Options and the aggregate "Deal Value" of the
Rural/Metro stock subject to the Existing Options.
<PAGE> 4
For purposes of this Section, the "Deal Value" of the Rural/Metro stock
is the value placed on the Rural/Metro stock by the parties for purposes of the
transaction that results in the Change of Control. If no single transaction
results in the Change of Control, or if the parties to such transaction do not
expressly agree to a value to be assigned to the Rural/Metro stock for purposes
of such transaction, the Deal Value of the Rural/Metro stock shall be the value
that the Senior Committee determines to be the inherent value of the Rural/Metro
stock as of the date on which the Change of Control occurs.
For purposes of clause (d) of the third paragraph of this Section, the
Senior Committee may use any option pricing model it chooses to compare the
value of the Existing Options before and after the Change of Control.
The Option Payment for each share of stock subject to an Existing
Option will be an amount equal to the Deal Value of the Rural/Metro stock less
the option price for such share as designated in the relevant option agreement.
The Option Payment for all shares subject to an Existing Option shall
be paid in one lump sum within 30 days following the occurrence of the last
event that entitles you to receive the Option Payment. Any option for which an
Option Payment is made will be automatically canceled upon payment of the Option
Payment.
The Option Payment will only be made for "Existing Options". As a
result, no Option Payment will be made with respect to an option that is
exercisable prior to the day on which the Change of Control occurs, since the
term "Existing Option" does not include exercisable options.
Any determinations made in good faith by the Senior Committee for
purposes of this Agreement shall be final and binding on all parties.
4. BENEFITS CONTINUATION.
If your employment is terminated by the Company without Cause, or if
you terminate your employment for Good Reason, within two years following a
Change of Control, you will continue to receive life, disability, accident and
group health insurance benefits substantially similar to those which you were
receiving immediately prior to your termination of employment for a period
<PAGE> 5
of eighteen (18) months following your termination of employment. Such benefits
shall be provided on substantially the same terms and conditions as they were
provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a
result, benefits otherwise receivable pursuant to this Section shall be reduced
or eliminated if and to the extent that you receive such benefits pursuant to
your Employment Agreement.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer).
5. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of
Control occurs, the incentive compensation to which you will be entitled under
the Management Incentive Program for the calendar year in which the Change of
Control occurs will equal at least the "Minimum Incentive Compensation Amount".
The "Minimum Incentive Compensation Amount" will equal the incentive
compensation to which you would have been entitled if the year were to end on
the day on which the Change of Control occurs, based upon performance up to that
date. In measuring financial performance, financial results through the date of
the Change of Control will be annualized.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean
and include any one or more of the following transactions or situations:
(a) A sale, transfer, or other disposition by Rural/Metro
through a single transaction or a series of transactions of securities of
Rural/Metro representing 30% or more of the combined voting power of
Rural/Metro's then outstanding securities to any "Unrelated Person" or
"Unrelated Persons" acting in concert with one another. For purposes of this
Section, 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 Securities Exchange Act of
1934 (the "Act")). For purposes of this Section, the term "Unrelated Person"
shall
<PAGE> 6
mean and include any Person other than: Rural/Metro, a wholly-owned subsidiary
of Rural/Metro, or an employee benefit plan of Rural/Metro.
(b) A sale, transfer, or other disposition through a
single transaction or a series of transactions of all or substantially all of
the assets of Rural/Metro to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(c) A change in the ownership of Rural/Metro 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 Rural/Metro representing at
least 30% of the combined voting power of Rural/Metro'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 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.
(d) Any consolidation or merger of Rural/Metro with or
into an Unrelated Person, unless immediately after the consolidation or merger
the holders of the common stock of Rural/Metro immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50% of the combined voting power of the
surviving corporation's then outstanding securities.
(e) During any period of two (2) years, individuals who,
at the beginning of such period, constituted the Board of Directors of
Rural/Metro 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 (2/3rds) of the directors then still in
office who were directors at the beginning of such period.
(f) A change in control of Rural/Metro 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 Act, or any successor regulation of similar
import, regardless of whether Rural/Metro is subject to such reporting
requirement.
Notwithstanding any provision herein to the contrary, the filing of a
proceeding for the reorganization of Rural/Metro under Chapter 11 of the Federal
Bankruptcy Code or any
<PAGE> 7
successor or other statute of similar import shall not be deemed to be a Change
of Control for purpose of this Agreement.
7. GOOD REASON DEFINED.
For purposes of this Agreement, "Good Reason" shall mean any one or
more of the following:
(a) The assignment to you of any duties which are
inconsistent with, or the reduction of powers or functions associated with, your
positions, duties, responsibilities and status with Rural/Metro, or a change in
your reporting responsibilities, or in the conditions of your employment;
provided that a single reduction by Rural/Metro of less than 10% (or aggregate
reductions totaling less than 10%) in your base salary as in effect on the date
hereof or as the same may be increased as provided in your Employment Agreement
is permissible and shall not constitute "Good Reason".
(b) The failure of Rural/Metro to cause any successor to
expressly assume and agree to perform this Agreement pursuant to Section 11
hereof.
(c) Any purported termination by Rural/Metro of your
employment that is not effected by a Notice of Termination pursuant to
Subsection 10 below and/or for grounds not constituting Cause.
(d) Rural/Metro relieving you of your duties.
(e) Rural/Metro requiring you to relocate, without your
express written consent to an employment location which is more than 50 miles
from your employment location on the date of the Change of Control.
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" shall be given the
meaning ascribed to such term in your Employment Agreement, as it may be amended
from time to time. If no written Employment Agreement is in effect at the time
of your termination of employment, "Cause" shall be given the meaning ascribed
to it in the last written Employment Agreement that was in effect between you
and the Company that included a definition of "Cause".
<PAGE> 8
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens
on you and the Company if the total payments made to you due to a Change of
Control exceed prescribed limits. For example, if your limit is $300,000 and the
total payments exceed the limit by even $1.00, you are subject to an excise tax
under Section 4999 of the Code of 20% of all amounts paid to you in excess of
$100,000. If your limit is $300,000, you will not be subject to an excise tax if
you receive exactly $300,000. If you receive $301,000, you will be subject to an
excise tax of $40,000 (20% of $201,000).
In order to avoid this excise tax and the related adverse tax
consequences for the Company, by signing this Agreement, you will be agreeing
that the present value of your "Total Payments" (as defined below) will not
exceed an amount equal to two and ninety-nine hundredths (2.99) times your "Base
Period Income" (as defined below). This is the maximum amount which you may
receive without becoming subject to the excise tax imposed by Section 4999 of
the Code or which the Company may pay without loss of deduction under Section
280G of the Code.
"Base Period Income" is an amount equal to your "annualized includable
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includable compensation" is the average of your annual taxable income from the
Company for the "base period", which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder), including the Option Payment,
to or for your benefit, the receipt of which is contingent on a Change of
Control and to which Section 280G of the Code applies.
If Rural/Metro believes that these rules will result in a reduction of
the payments to which you are entitled under this Agreement, it will so notify
you within 60 days following delivery of the "Notice of Termination" described
in Section 10. You and Rural/Metro will then, at Rural/Metro's expense, retain
legal counsel, certified public accountants, and/or a firm of recognized
executive compensation consultants to provide an opinion or opinions concerning
whether your Total Payments exceed the limit discussed above.
<PAGE> 9
Rural/Metro will select the legal counsel, certified public accountants
and executive compensation consultants. If you do not accept one or more of the
parties selected by Rural/Metro, you may provide Rural/Metro with the names of
legal counsel, certified public accountants and/or executive compensation
consultants acceptable to you. If Rural/Metro does not accept the party or
parties selected by you, the legal counsel, certified public accountants and/or
executive compensation consultants selected by you and Rural/Metro,
respectively, will select the legal counsel, certified public accountants and/or
executive compensation consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a)
the amount of your Base Period Income, (b) the present value of the Total
Payments and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment,
your payments under this Agreement will be reduced to the extent necessary to
eliminate the excess. You will be allowed to choose the payment (i.e., the
Severance Payment or the Option Payment) that should be reduced or eliminated,
but the payment you choose to reduce or eliminate must be a payment determined
by such counsel to be includable in Total Payments. You will make your decision
in writing and deliver it to Rural/Metro within 30 days of your receipt of such
opinions. If you fail to so notify Rural/Metro, it will decide which payments to
reduce or eliminate.
For purposes of determining whether your "Total Payments" exceed the
limitation mentioned above, Rural/Metro and all legal counsel, certified public
accountants, and executive compensation consultants will be bound to make
certain assumptions.
The first assumption that must be made is that, except as otherwise
noted below, none of the amounts or benefits payable to you pursuant to the
severance provisions of your Employment Agreement are contingent on a Change of
Control. The only exception to this rule is that any increases in such amounts
due to an amendment to your Employment Agreement that occurs within one (1) year
of the Change of Control may be treated as contingent on the Change of Control.
The second assumption that must be made is that the vesting of your
stock grants under your Conditional Stock Grant and Repurchase Agreement is not
in any way contingent on a Change of Control.
<PAGE> 10
If the legal counsel or certified public accountants selected to
provide the opinions referred to above so requests in connection with the
opinion required by this Section, a firm of recognized executive compensation
consultants, selected by you and Rural/Metro pursuant to the procedures set
forth above, shall provide an opinion, upon which such legal counsel or
certified public accountants may rely, as to the reasonableness of any item of
compensation as reasonable compensation for services rendered before or after
the Change of Control.
If Rural/Metro believes that your Total Payments will exceed the
limitations of this Section, it will nonetheless make payments to you, at the
times stated above, in the maximum amount that it believes may be paid without
exceeding such limitations. The balance, if any, will then be paid after the
opinions called for above have been received.
If the Internal Revenue Service concludes in a final determination that
the amounts paid to you exceed the limitations of this Section, as a general
rule, the excess will be treated as a loan to you by Rural/Metro and shall be
repayable on the 90th day following demand by Rural/Metro, together with
interest at the "applicable federal rate" provided in Section 1274(d) of the
Code. All or a portion of the excess will not be treated as a loan and you will
not be required to return or repay it if both of the following conditions are
met:
(a) The excess is equal to or greater than $100,000; and
(b) All or a portion of the excess is attributable to a
determination by the IRS that amounts or benefits payable to you pursuant to the
severance provisions of your Employment Agreement, or the value of all or a
portion of the stock grant to which you are entitled pursuant to your
Conditional Stock Grant and Repurchase Agreement, must be treated as being
contingent on a Change of Control. If both of the conditions set forth in the
preceding sentence are satisfied, you may retain the portion of the excess that
is described in clause (b) of the preceding sentence. The balance of the excess
will be treated as a loan and will be repayable as described above.
If you are not required to return all or a portion of an excess payment
pursuant to the preceding paragraph, Rural/Metro also will make a special cash
payment to you equal to twenty percent (20%) of the amount by which your Total
Payments exceed your Base Period Income, as determined prior to the making of
the cash payment.
<PAGE> 11
In the event that the provisions of Sections 280G and 4999 of
the Code are repealed without succession, this Section shall be of no further
force or effect.
10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances alleged to provide a basis for
termination.
(b) Any Notice of Termination by the Company shall be in
writing signed by the Chairman of the Board of Rural/Metro, specifying in detail
the basis for such termination.
(c) If the Company shall furnish a Notice of Termination
for Cause and you in good faith notify the Company that a dispute exists
concerning such termination within the 15 day period following your receipt of
such notice, you may elect to continue your employment during such dispute. If
it is thereafter determined that (i) Cause did exist, your "Termination Date"
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
dispute resolution provisions of Section 17 or (B) the date of your death, or
(ii) Cause did not exist, your employment shall continue as if the Company had
not delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination
by reason of Disability and you in good faith notify the Company that a dispute
exists concerning such termination within the 15-day period following your
receipt of such notice, you may elect to continue your employment during such
dispute. The dispute relating to the existence of a Disability shall be resolved
by the opinion of the licensed physician selected by Rural/Metro; provided,
however, that if you do not accept the opinion of the licensed physician
selected by Rural/Metro, the dispute shall be resolved by the opinion of a
licensed physician who shall be selected by you; provided further, however, that
if Rural/Metro does not accept the opinion of the licensed physician selected by
you, the dispute shall be finally resolved by the opinion of a licensed
physician selected by the licensed physicians selected by Rural/Metro and you,
respectively. If it is thereafter determined that (i) a Disability did exist,
your Termination Date shall be the earlier of (A) the date on which the dispute
is resolved or (B) the date of your death, or (ii) a Disability did not exist,
your
<PAGE> 12
employment shall continue as if the Company had not delivered its Notice of
Termination and there shall be no Termination Date arising out of such notice.
For purposes of this Agreement, "Disability" shall be given the meaning ascribed
to such term in your Employment Agreement at the time the Disability
determination is being made. If there is no Employment Agreement that defines
"Disability", "Disability" shall mean your inability to perform your customary
duties for the Company due to a physical or mental condition that is considered
to be of long-lasting or indefinite duration.
(e) If you in good faith furnish a Notice of Termination
for Good Reason and the Company notifies you that a dispute exists concerning
the termination within the 15 day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
dispute resolution provisions of Section 17, (B) the date of your death or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment pending
resolution of a dispute regarding a Notice of Termination, and it is finally
determined that the reason for termination set forth in such Notice of
Termination did not exist, if such notice was delivered by you, you shall be
deemed to have voluntarily terminated your employment other than for Good Reason
and if delivered by the Company, the Company will be deemed to have terminated
you other than by reason of Disability or Cause.
(g) For purposes of this Agreement, a transfer from
Rural/Metro to one of its subsidiaries or a transfer from a subsidiary to
Rural/Metro or another subsidiary shall not be treated as a termination of
employment. Such a transfer may, however, in certain circumstances, provide you
with Good Reason to terminate employment pursuant to Section 7.
11. SUCCESSORS.
<PAGE> 13
Rural/Metro will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Rural/Metro or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Rural/Metro or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Rural/Metro to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this Agreement, "Rural/Metro" shall mean Rural/Metro as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder had you continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to Rural/Metro shall be directed to the attention of the
Chairman of the Board of Rural/Metro with a copy to the Secretary of
Rural/Metro, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
<PAGE> 14
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and signed
by you and the Chairman of the Board of Rural/Metro. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles. All references to
sections of the Securities Exchange Act of 1934 or the Code shall be deemed also
to refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company that arise prior to
the expiration of this Agreement shall survive the expiration of the term of
this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved
<PAGE> 15
in accordance with the arbitration or alternative dispute resolution provisions
included in your Employment Agreement. If no written Employment Agreement is in
effect at the time of your termination of employment, or, if the Employment
Agreement in effect at the time of your termination of employment does not
include arbitration or alternative dispute resolution provisions, all claims,
disputes and other matters in question between the parties arising under this
Agreement shall be decided by arbitration in Phoenix, Arizona, in accordance
with the Model Employment Arbitration Procedures of the American Arbitration
Association (including such procedures governing selection of the specific
arbitrator or arbitrators), unless the parties mutually agree otherwise. The
Company shall pay the costs of any such arbitration. The award by the arbitrator
or arbitrators shall be final, and judgment may be entered upon it in accordance
with applicable law in any state or Federal court having jurisdiction thereof.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of
your rights under this Agreement or if any arbitration or legal proceeding shall
be brought in good faith to enforce or interpret any provision contained herein,
or to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank One, Arizona, NA from time
to time as its prime rate from the date that payments to you should have been
made under this Agreement. It is expressly provided that the Company shall in no
event recover from you any attorneys' fees, costs, disbursements or interest as
a result of any dispute or legal proceeding involving the Company and you.
<PAGE> 16
19. PAYMENT OBLIGATIONS ABSOLUTE.
Rural/Metro's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Rural/Metro may apply amounts payable under this Agreement to any debts
owed to the Rural/Metro by you on your Termination Date. All amounts payable by
Rural/Metro in accordance with this Agreement shall be paid without notice or
demand. If Rural/Metro has paid you more than the amount to which you are
entitled under this Agreement, Rural/Metro shall have the right to recover all
or any part of such overpayment from you or from whomsoever has received such
amount.
20. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your Employment
Agreement, as it may be amended or replaced from time to time (the "Employment
Agreement"). You will be entitled to receive all amounts due to you pursuant to
your Employment Agreement, but some payments under your Employment Agreement may
reduce your Severance Payments as provided in Section 2 and benefits due
pursuant to your Employment Agreement may reduce the benefits due pursuant to
Section 4. In addition, the IRS may consider payments under your Employment
Agreement as part of your Total Payment, which could result in a reduction in
payments as provided in Section 9. If there is any conflict between the
provisions of this Agreement and your Employment Agreement, the provisions of
this Agreement shall control.
21. ENTIRE AGREEMENT.
This Agreement, your Employment Agreement and the Stock Option
Agreements set forth the entire agreement between you and the Company concerning
the subject matter discussed in such agreements and supersede all prior
agreements, promises, covenants, arrangements, communications, representations
or warranties, whether written or oral, by any officer, employee or
representative of the Company. Any prior agreements or understandings with
respect to the subject matter set forth in the aforementioned agreements are
hereby terminated and canceled.
<PAGE> 17
22. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with
all other payments received during the year that are subject to the limitations
on deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of Rural/Metro, be deferred to the next succeeding calendar year.
Such deferred amounts shall be paid no later than the 60th day after the end of
such next succeeding calendar year, provided that such payment, when combined
with any other payments subject to the Section 162(m) limitations received
during the year, does not exceed the limitations on deductibility under Section
162(m) of the Code.
23. PARTIES.
This Agreement is an agreement between you and Rural/Metro. In certain
cases, though, obligations imposed upon Rural/Metro may be satisfied by a
Rural/Metro subsidiary. Any payment made or action taken by a Rural/Metro
subsidiary shall be considered to be a payment made or action taken by
Rural/Metro for purposes of determining whether Rural/Metro has satisfied its
obligations under this Agreement.
If you would like to participate in this special benefits program,
please sign and return the extra copy of this letter which is enclosed.
Sincerely,
Warren S. Rustand
Chairman of the Board
Rural/Metro Corporation
Enclosure
<PAGE> 18
ACCEPTANCE
I hereby accept the offer to participate in this special benefit
program and I agree to be bound by all of the provisions noted above.
________________________________
<PAGE> 1
Exhibit 10.16(g)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made this day of September,
1998, by and between JOHN B. FURMAN ("Executive") and RURAL/METRO CORPORATION,
its subsidiaries, affiliates, joint ventures and partnerships ("Rural/Metro"),
effective August 27, 1998 ("Effective Date").
R E C I T A L S
The Board of Directors of Rural/Metro believes it is in the best
interests of Rural/Metro to employ Executive as the acting President and Chief
Executive Officer of Rural/Metro.
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 the President and acting Chief
Executive Officer of Rural/Metro and shall report only to the Board of Directors
of Rural/Metro (the "Board"). Executive shall perform the duties of his
position, as determined by the Board, in accordance with the policies, practices
and bylaws of Rural/Metro. Executive also shall serve as an ex-officio member of
the Board.
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.
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,
at which time Executive may be entitled to terminate this Agreement for Good
Reason as provided in paragraph 7.
<PAGE> 2
2. COMPENSATION.
A. BASE SALARY.
During the first year of this Agreement, Executive's
bi-weekly salary will be based upon annual compensation of Two Hundred
Ninety-Two Thousand Five Hundred and 00/100 Dollars ($292,500.00) ("Base
Salary"). Thereafter, Executive's Base Salary will be reviewed at least annually
in accordance with Rural/Metro's executive compensation review policies and
practices, all as determined by the Board, in its sole discretion. Executive's
Base Salary may be increased upon any such review, but in no event shall the
amount of Executive's Base Salary as set forth in this paragraph 2A be
decreased.
B. ADDITIONAL COMPENSATION.
During the first year of this Agreement, Executive
also shall receive additional compensation in the amount of One Hundred Thousand
and 00/100 Dollars ($100,000.00), payable as nearly as possible in twelve (12)
equal monthly installments.
3. MANAGEMENT INCENTIVE PROGRAM.
Commencing with the incentive program for the fiscal year
ending on June 30, 1999, and at all times thereafter, 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. STOCK OPTIONS.
A. INITIAL GRANT.
Rural/Metro has granted to the Executive options to
purchase One Hundred Thousand (100,000) shares of Rural/Metro stock at the
closing price of Rural/Metro stock on Executive's first day of employment, which
was August 27, 1998,
<PAGE> 3
with the terms and conditions of the options to be set forth in a separate Stock
Option Agreement to be entered into by and between Executive and Rural/Metro.
The Stock Option Agreement shall provide that the options shall be fully vested
and exercisable at the time of grant and the options will remain exercisable
during the period of Executive's employment with Rural/Metro and for at least 36
months following the termination of Executive's employment with Rural/Metro. In
any event, notwithstanding the preceding sentence, the options will lapse and no
longer be exercisable on or after the tenth (10th) anniversary of the date of
grant.
B. SUBSEQUENT GRANT.
If this Agreement or Executive's employment by
Rural/Metro is renewed at the expiration of the Initial Term (as that term is
defined in paragraph 5), Rural/Metro will promptly grant Executive options to
purchase an additional One Hundred Thousand (100,000) shares of Rural/Metro
stock at the closing price of Rural/Metro stock on the date of grant with the
terms and conditions of the options to be set forth in a separate Stock Option
Agreement. The Stock Option Agreement shall provide that the options shall be
fully vested and exercisable at the time of grant and the options will remain
exercisable during the period of Executive's employment with Rural/Metro and for
at least 36 months following the termination of Executive's employment with
Rural/Metro. In any event, notwithstanding the preceding sentence, the options
will lapse and no longer be exercisable on or after the tenth (10th) anniversary
of the date of grant.
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)
<PAGE> 4
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 "Initial
Term" or any "Renewal Term".
The "Initial Term" of this Agreement shall expire by its terms
one year from the Effective Date of this Agreement, unless sooner terminated in
accordance with the provisions of this Agreement. This Agreement will be renewed
at the end of the Initial Term for additional one-year periods (a "Renewal
Term"), unless either party serves notice of its desire not to renew or of its
desire to modify this Agreement on the other. Such notice must be given at least
forty-five (45) days before the end of the Initial Term or the applicable
Renewal Term.
If Rural/Metro notifies Executive of its desire not to renew
this Agreement pursuant to this paragraph 5 and at the time of such notification
Rural/Metro does not have "Cause" to terminate this Agreement pursuant to
paragraph 6A, Executive shall receive the Severance Benefits pursuant to
paragraph 9.
If Executive notifies Rural/Metro of his desire not to renew
this Agreement pursuant to this paragraph 5 and at the time of such notification
Executive has Good Reason to terminate this Agreement pursuant to paragraph 7A,
Executive shall receive the Severance Benefits pursuant to paragraph 9.
Executive also shall receive the Severance Benefits pursuant to paragraph 9 if
Rural/Metro proposes to modify this Agreement in a manner that gives rise to
Good Reason pursuant to paragraph 7A for Executive's termination of employment
and Executive rejects such proposed modifications. Severance Benefits will not
be payable pursuant to the preceding sentence if Rural/Metro rescinds the
proposed modifications and offers Executive a new Agreement that does not
include any proposed modifications that give rise to Good Reason for Executive's
termination of employment.
<PAGE> 5
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 the Board 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 or failed to
act, which, if he were prosecuted and convicted, would constitute a felony
involving One Thousand Dollars ($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. The
existence of "Cause" shall be determined by Rural/Metro's Board of Directors
acting in good faith after prior notice to Executive and after providing
Executive with an opportunity to be heard.
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.
<PAGE> 6
B. TERMINATION WITHOUT CAUSE.
Rural/Metro also may terminate this Agreement and
Executive's employment without Cause at any time by giving sixty (60) days prior
written notice to Executive. In the event this Agreement and Executive's
employment are terminated by Rural/Metro without Cause, Executive shall receive
the Severance Benefits pursuant to paragraph 9. Rural/Metro may place Executive
on a paid administrative leave, and bar or restrict Executive's access to
Rural/Metro facilities, contemporaneously with or at any time following the
delivery of the written notice to Executive.
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
sixty (60) 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; (b) Executive is
assigned duties inconsistent with the positions, duties, responsibility and
status of the President and Chief Executive Officer of Rural/Metro; (c)
Executive is required to relocate to an employment location that is more than
twenty-five (25) miles from his current employment location (which the parties
agree is Rural/Metro's present Scottsdale headquarters); (d) Executive's Base
Salary rate (which shall include, for the first year of Executive's employment
only, any additional
<PAGE> 7
compensation to which Executive is entitled under paragraph 2B) is reduced to a
level that is at least ten percent (10%) less than the salary (and in the case
of Executive's first year of employment only, the additional compensation to
which Executive is entitled under paragraph 2B) paid to Executive during any
prior calendar year, unless Executive has agreed to said reduction; (e) 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 any
prior year; or (f) Executive is placed on an administrative leave or is barred
or restricted access to Rural/Metro facilities for a period of more than sixty
(60) days provided, however, that the terms of this clause (f) shall not apply
in the event that Executive is placed on an administrative leave pursuant to
paragraphs 6B or 7C hereof or in the event that Executive is placed on an
administrative leave because Rural/Metro has "Cause" to terminate Executive's
employment with Rural/Metro.
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 receive Severance Benefits pursuant to
paragraph 9.
C. ADMINISTRATIVE LEAVE.
Rural/Metro may place Executive on a paid
administrative leave, and bar or restrict Executive's access to Rural/Metro
facilities, contemporaneously with or at any time following the delivery of the
written notice of termination by Executive pursuant to paragraph 7A or 7B.
<PAGE> 8
8. DEATH OR DISABILITY.
This Agreement will terminate automatically on Executive's
death. Any compensation 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", Executive's
employment hereunder and Rural/Metro's obligation to pay Executive's Base Salary
and, in the event Executive becomes "Disabled" during the first year of his
employment with Rural/Metro any additional compensation to which Executive may
be entitled pursuant to paragraph 2B, (less any amounts payable to Executive
pursuant to any long-term disability insurance policy paid for by Rural/Metro)
shall continue for a period of twelve (12) months from the date of Executive's
initial absence due to such Disability. If at the end of said twelve (12) month
period Executive has not recovered from such Disability, 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 and confirmed by a licensed physician designated by Executive,
and after any reasonable accommodations required by applicable law, he is unable
to perform the essential functions of his position due to a physical or mental
impairment, and such incapacity is expected to continue for a period of at least
twelve (12) consecutive months from the date of the initial absence due to such
incapacity. The determination by said physicians shall be binding and conclusive
for all purposes. If the physician selected by the Board and the physician
selected by Executive cannot agree, the two (2) physicians
<PAGE> 9
shall select a third (3rd) physician. The decision of the third (3rd) physician
concerning Executive's Disability then shall be binding and conclusive on all
interested parties.
9. SEVERANCE BENEFITS.
If during the Initial Term or any Renewal Term, this Agreement
and Executive's employment are terminated without Cause by Rural/Metro pursuant
to paragraph 6B prior to the last day of the Initial Term or any Renewal Term,
or if Executive elects to terminate this Agreement for Good Reason pursuant to
paragraph 7A, Executive shall receive the "Severance Benefits" provided by this
paragraph. To the extent provided in paragraph 5, Executive also shall receive
the Severance Benefits if this Agreement is not renewed. In addition, Executive
also shall receive the Severance Benefits if his employment is terminated due to
Disability pursuant to paragraph 8.
The Severance Benefits shall begin immediately following the
effective date of termination of employment and will continue to be payable for
the balance, if any, of the Initial Term or the then current Renewal Term and
for a period of twelve (12) months thereafter.
The Executive's Severance Benefits shall consist of the
continuation of the Executive's then Base Salary and any applicable additional
compensation as set forth in paragraph 2B for the balance, if any, of the
Initial Term or the then current Renewal Term and for a period of twelve (12)
months thereafter; provided, however, that for the twelve (12) month period
following the end of the Initial Term or the then current Renewal Term in lieu
of receiving the Base Salary and any applicable additional compensation called
for by paragraph 2B, Executive shall receive Three Hundred Fifty Thousand and
00/100 Dollars ($350,000.00), payable in equal bi-weekly installments. The
Severance Benefits also shall consist of the continuation of any health, life,
disability, or other insurance benefits that Executive was receiving as of his
last day of active employment for the balance, if any, of the Initial Term or
the then current Renewal Term and for a period of
<PAGE> 10
twelve (12) months thereafter. 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 Initial Term or any
Renewal 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.
In the event that Rural/Metro ceases payment of Severance
Benefits to Executive in accordance with the preceding paragraph due to
Rural/Metro's good faith belief that Executive has committed 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, the confidentiality and non-disclosure requirements
set forth in paragraph 11 and the Covenant-Not-To-Compete set forth in paragraph
12 shall remain in full force and effect. In the event that Rural/Metro ceases
payment of Severance Benefits to Executive without a good faith
<PAGE> 11
belief the Executive has committed a material violation of such provisions, in
addition to such other remedies as may be available to Executive in law or in
equity, the confidentiality and non-disclosure requirements set forth in
paragraph 11 and the Covenant-Not-To-Compete set forth in paragraph 12 shall
lapse and be without force and effect unless Rural/Metro resumes the payments
within sixty (60) days of its receipt of a demand to do so from Executive.
The payment of Severance Benefits shall not be affected by
whether Executive seeks or obtains other employment. Executive shall have no
obligation to seek or obtain other employment and Executive's Severance Benefits
shall not be impacted by Executive's failure to mitigate.
10. BENEFITS.
Executive will be entitled to participate in any benefit
plans, including, but not limited to, retirement plans, stock option plans,
disability plans, life insurance plans and health and dental plans available to
other Rural/Metro executive 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 by Executive in his
discretion, provided that such vacation shall not interfere with the performance
of Executive's duties hereunder.
11. CONFIDENTIALITY 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, operational budgets and strategies, methods of
operation, customer lists, strategic plans, business plans, marketing plans and
strategies, new business strategies, merger and acquisition strategies,
management systems programs, computer systems, personnel and compensation
information and payroll data, and other such reports, documents or
<PAGE> 12
information (collectively the "Confidential and Proprietary 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 Confidential and
Proprietary Information in any form, format, or manner whatsoever (including
computer print-outs, computer tapes, floppy disks, CD roms, etc.) 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.
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.
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.
<PAGE> 13
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 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.
B. DEVOTION TO EMPLOYMENT.
Executive shall devote substantially all his business
time and 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.
C. NON-SOLICITATION OF CLIENTS.
During the term of Executive's employment with
Rural/Metro and for a period of twelve (12) months after the termination of
employment with Rural/Metro,
<PAGE> 14
regardless of who initiates the termination and for whatever reason, 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 client(s) of Rural/Metro with whom he has worked as an
employee of Rural/Metro at any time prior to termination, or at the time of
termination, for the purpose of soliciting or selling such customer the same,
similar, or related services that he provided on behalf of Rural/Metro.
D. NON-SOLICITATION OF EMPLOYEES.
During the term of Executive's employment with
Rural/Metro and for a period of twelve (12) months after the termination of
employment with Rural/Metro, regardless of who initiates the termination and for
any reason, 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, seek to hire, and/or hire any of
Rural/Metro's personnel or employees for the purpose of having such employee
engage in services that are the same, similar or related to the services that
such employee provided for Rural/Metro.
E. COMPETING BUSINESS.
During the term of this Agreement and for a period of
twelve (12) months after the termination of employment with Rural/Metro,
regardless of who initiates the termination and for any reason, 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, engage in the same or similar business as
Rural/Metro, which would be in direct competition with any Rural/Metro line of
business, in any geographical service area where Rural/Metro is engaged in
business, or was considering engaging in business at any time prior to the
<PAGE> 15
termination or at time of termination. For the purposes of this provision, the
term "competition" shall mean directly or indirectly engaging in or having a
substantial interest in a business or operation which has been, is, or will be,
performing the same services provided by Rural/Metro.
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.
H. SURVIVAL.
The provisions of this paragraph shall survive the
termination of this Agreement.
<PAGE> 16
13. DEFERRAL OF AMOUNTS PAYABLE UNDER THIS AGREEMENT.
A payment due pursuant to this Agreement or the MIP may be deferred if
and to the extent that the payment does not satisfy the requirements to be
"qualified performance-based compensation" (as such term is defined by the
regulations issued under Section 162(m) of the Internal Revenue Code of 1986
(the "Code")) and when combined with all other payments received during the year
that are subject to the limitations on deductibility under Section 162(m) of the
Code, the payment exceeds the limitations on deductibility under Section 162(m)
of the Code. The deferral of payments shall be in the discretion of the
Compensation Committee of Rural/Metro, and shall be made pursuant to a Deferred
Compensation Agreement or Plan acceptable to Rural/Metro and Executive. Such
deferred amounts shall be paid no later than the sixtieth (60th) day after the
end of the next succeeding calendar year, provided that such payment, when
combined with any other payments subject to the Section 162(m) limitations
received during the year, does not exceed the limitations on deductibility under
Section 162(m) of the Code. If the payments in such succeeding calendar year
exceed the limitations on deductibility under Section 162(m) of the Code, such
payments shall continue to be deferred to the next succeeding year. The above
procedure shall be repeated until such payments can be paid without exceeding
the limitation on deductibility under Section 162(m) of the Code.
14. OTHER AGREEMENTS.
Rural/Metro and Executive will enter into one or more Stock Option
Agreements and a Change of Control Agreement, which will provide the Executive
with
<PAGE> 17
certain additional protections if his employment is terminated in certain
instances following a "change of control." Nothing in this Agreement is intended
to alter or modify the Stock Option Agreements or the Change of Control
Agreement, which, once executed, shall continue in full force and effect.
15. BUSINESS EXPENSES.
Rural/Metro will reimburse Executive for any and all
necessary, customary, and usual expenses, properly receipted in accordance with
Rural/Metro's policies, incurred by Executive on behalf of Rural/Metro.
16. AMENDMENTS.
This Agreement, the Executive's Stock Option Agreement and the
Executive's Change of Control Agreement 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 above. Any
amendment, modification or change in this Agreement must be done so in writing
and signed by both parties.
17. 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.
18. GOVERNING LAW.
The law of the Sate of Arizona shall govern the interpretation
and application of all of the provisions of this Agreement.
<PAGE> 18
19. INDEMNITY.
Rural/Metro shall indemnify Executive to the fullest extent
permitted or required by the laws of the State of Delaware of and from any
"Expenses" incurred by Executive in any "Proceeding."
For purposes of this paragraph 19, "Expenses" shall mean and
include all expense, liability and loss including expenses of investigations,
judicial or administrative proceedings or appeals, attorney, accountant and
other professional fees and disbursements, judgments, fines, and amounts paid in
settlement.
For purposes of this paragraph 19, "Proceeding" shall mean and
include any threatened, pending or completed action, suit or proceeding, whether
brought in the right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which the Executive may be
or may have been involved as a party, witness or otherwise, by reason of the
fact that the Executive is or was an officer of Rural/Metro or is or was serving
at the request of Rural/Metro as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
whether or not serving in such capacity at the time any liability or expense is
incurred for which indemnification may be provided under this Agreement.
Rural/Metro shall pay the Expenses incurred by Executive in
any Proceeding in advance of the final disposition of the Proceeding at the
written request of Executive, if Executive (a) furnishes Rural/Metro with a
written affirmation of Executive's good faith belief that he is entitled to
indemnification by Rural/Metro; and (b) furnishes Rural/Metro with a written
undertaking to repay the advance to the extent that it is ultimately determined
that Executive is not entitled to be indemnified by Rural/Metro. Such
undertaking shall be an unlimited general obligation of Executive, but need not
be secured. Advances pursuant to this paragraph 19 shall be made no later than
twenty (20) days after Rural/Metro's receipt of the affirmation and undertakings
set forth above and shall be made without regard to the Executive's ability to
repay the amount
<PAGE> 19
advanced and without regard to Executive's ultimate entitlement to
indemnification under this Agreement.
20. DISPUTE RESOLUTION.
A. MEDIATION.
Any and all disputes arising under, pertaining to or
touching upon this Agreement or the statutory rights or obligations of either
party hereto, shall, if not settled by negotiation, be subject to non-binding
mediation under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association ("AAA") in effect on the date of the first
notice of demand for mediation, before an independent mediator selected by the
parties pursuant to paragraph 20D. Notwithstanding the foregoing, both Executive
and Rural/Metro may seek preliminary judicial relief if such action is necessary
to avoid irreparable damage during the pendency of the proceedings described in
this paragraph 20. 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 20D. The mediator shall
not serve as arbitrator. TO THE
<PAGE> 20
EXTENT ALLOWABLE UNDER APPLICABLE LAW, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL
EMPLOYMENT DISCRIMINATION, BREACH OF CONTRACT OR POLICY, OR 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 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 the National Rules for the Resolution of Employment Disputes of
AAA in effect on the date of the first notice of demand for arbitration. 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 discrimination claims
prohibited by statute, the arbitrator may direct payment consistent with the
applicable statute. In cases of employment tort, the arbitrator may award
punitive damages if proved by clear and convincing evidence. 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
<PAGE> 21
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 the AAA. 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 AAA. Executive shall have the first strike.
<PAGE> 22
IN WITNESS WHEREOF, Rural/Metro and Executive have executed this
Agreement on this day of September, 1998.
"EXECUTIVE" RURAL/METRO CORPORATION
- -------------------------------------------------------------
____________________________ By:_______________________________
John B. Furman James H. Bolin
Vice Chairman
Board of Directors
<PAGE> 1
Exhibit 10.16(h)
September 17, 1998
John B. Furman
c/o Rural/Metro Corporation
8401 East Indian School Road
Scottsdale, Arizona 85251
CHANGE OF CONTROL AGREEMENT
Dear John:
Our Board of Directors (the "Board") believes that it is in
the best interests of Rural/Metro Corporation ("Rural/Metro") and its
shareholders to take appropriate steps to allay any concerns you may have about
your future employment opportunities with Rural/Metro and its subsidiaries
(Rural/Metro and its subsidiaries are collectively referred to as the
"Company"). As a result, the Board has decided to offer to you the special
package of benefits described below.
Please bear in mind that these benefits are being offered only
to a few, selected employees and we accordingly ask that you refrain from
discussing this special program with others. Also, please note that the special
benefits package described below will only be effective if you sign the extra
copy of this Change of Control Agreement (the "Agreement") which is enclosed and
return it to me on or before September 15, 1998.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in
effect as long as you are actively employed by Rural/Metro, unless you and
Rural/Metro agree in writing to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without
"Cause" (as defined in Section 8) within two years following a Change of
Control, you will receive the "Severance Payment" described below. The Severance
Payment also will be payable if you terminate your employment for "Good Reason"
(as defined in Section 7) within two years following a Change of Control.
<PAGE> 2
The "Severance Payment" is a lump sum payment equal to the sum
of: (a) the greater of 200% of your annualized base salary as of the day on
which the Change of Control occurs or $700,000; plus (b) 200% of an amount equal
to the incentive compensation paid or payable to you pursuant to our Management
Incentive Program on account of performance during the calendar year immediately
preceding the calendar year in which the Change of Control occurs plus any other
bonuses or incentive compensation paid or payable to you for such year; less (c)
the full amount of any payments to which you may be entitled due to your
termination pursuant to the terms of your "Employment Agreement" (as defined in
Section 20), any applicable law, or otherwise.
The Severance Payment will be paid in one lump sum within five
days following your termination of employment.
The Severance Payment will not be payable if your employment
is terminated for Cause, if you terminate your employment without Good Reason,
or if your employment is terminated by reason of your "Disability" (as defined
in Section 10(d)) or your death. In addition, the Severance Payment will not be
payable if your employment is terminated by you or the Company for any or no
reason before a Change of Control occurs or more than two years after a Change
of Control has occurred.
In order to receive the Severance Payment, you must execute
any release reasonably requested by Rural/Metro of claims that you may have
pursuant to this Agreement (but not any other claims).
The Severance Payment will be payable without regard to
whether you look for or obtain alternative employment following your termination
of employment with the Company.
3. ACCELERATION OF OR PAYMENT FOR OPTIONS.
Except as otherwise noted below, if an agreement is entered
into that will result in a Change of Control, before the Change of Control
occurs the Board will accelerate the vesting and exercisability of any options
you hold to acquire Company stock that, pursuant to their terms, are not yet
vested and exercisable (the "Existing Options"). In addition, the Existing
Options and any other options that you hold will remain exercisable following
the Change of Control until the options lapse in accordance with their terms.
<PAGE> 3
The Board will not be obligated to accelerate the
exercisability of Existing Options (although it may if it so chooses) if any
party to the agreement expressly indicates, in a writing addressed to the Board,
that it intends to use pooling of interest accounting for all or any part of the
transaction and the Board, based on the advice of its advisors, concludes (a)
that pooling of interests accounting is available to such party for all or any
portion of the transaction, and (b) that the availability of pooling of
interests accounting will be jeopardized if the Committee accelerates the
exercisability of the Existing Options.
If you are employed by the Company on the day on which a
Change of Control occurs and at that time you hold any Existing Options that are
not accelerated pursuant to the preceding paragraph, you may be entitled to
receive a special "Option Payment".
The Option Payment will only be payable if all of the
following conditions are met: (a) you are employed by the Company on the day on
which the Change of Control occurs; (b) the vesting and exercisability of the
Existing Options are not accelerated by action of the Board or otherwise on a
basis that allows you to exercise your options prior to the Change of Control;
(c) the Existing Options are not replaced by other options on the stock of the
acquirer (the "Replacement Options"), which the Board, as constituted
immediately prior to the Change of Control, in its discretion, determines to be
comparable; and (d) Rural/Metro does not continue as a publicly held corporation
required to be registered pursuant to the provisions of the Securities Exchange
Act of 1934 following the Change of Control, or if Rural/Metro does continue as
a registered publicly held corporation, the Board, as constituted immediately
prior to the Change of Control, determines, in its discretion, that Rural/Metro
has undergone a fundamental change such that the value of the Existing Options
after the Change of Control is less than 75% of the value of the Existing
Options prior to the Change of Control.
While the Board has the discretion to determine whether
Replacement Options are "comparable" to Existing Options for purposes of clause
(c) of the preceding paragraph, it may not consider Replacement Options to be
comparable to Existing Options unless, at a minimum, the Replacement Options are
exercisable as rapidly as the Existing Options and the Replacement Options are
structured to preserve the aggregate positive spread between the aggregate
exercise price for the Existing Options and the aggregate "Deal Value" of the
Rural/Metro stock subject to the Existing Options.
For purposes of this Section, the "Deal Value" of the
Rural/Metro stock is the value placed on the Rural/Metro stock by the parties
for purposes of the transaction that results in the Change of Control. If no
single transaction results in the Change of Control, or if the parties to such
transaction do not expressly agree to a value to be
<PAGE> 4
assigned to the Rural/Metro stock for purposes of such transaction, the Deal
Value of the Rural/Metro stock shall be the value that the Board determines to
be the inherent value of the Rural/Metro stock as of the date on which the
Change of Control occurs.
For purposes of clause (d) of the fourth paragraph of this
Section, the Board may use any option pricing model it chooses to compare the
value of the Existing Options before and after the Change of Control.
The Option Payment for each share of stock subject to an
Existing Option will be an amount equal to the Deal Value of the Rural/Metro
stock less the option price for such share as designated in the relevant option
agreement.
The Option Payment for all shares subject to an Existing
Option shall be paid in one lump sum within 30 days following the occurrence of
the last event that entitles you to receive the Option Payment. Any option for
which an Option Payment is made will be automatically cancelled upon payment of
the Option Payment.
The Option Payment will only be made for "Existing Options".
As a result, no Option Payment will be made with respect to an option that is
exercisable prior to the day on which the Change of Control occurs, since the
term "Existing Option" does not include exercisable options.
Any determinations made in good faith by the Board for
purposes of this Agreement shall be final and binding on all parties.
4. BENEFITS CONTINUATION.
If your employment is terminated by the Company without Cause,
or if you terminate your employment for Good Reason, within two years following
a Change of Control, you will continue to receive life, disability, accident and
group health insurance benefits substantially similar to those which you were
receiving immediately prior to your termination of employment for a period of
twenty-four (24) months following your termination of employment. Such benefits
shall be provided on substantially the same terms and conditions as they were
provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits.
As a result, benefits otherwise receivable pursuant to this Section shall be
reduced or eliminated if and to the extent that you receive such benefits
pursuant to your Employment Agreement.
<PAGE> 5
Benefits otherwise receivable pursuant to this Section also
shall be reduced or eliminated if and to the extent that you receive comparable
benefits from any other source (for example, another employer).
5. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a
Change of Control occurs, the incentive compensation to which you will be
entitled under the Management Incentive Program for the calendar year in which
the Change of Control occurs will equal at least the "Minimum Incentive
Compensation Amount". The "Minimum Incentive Compensation Amount" will equal the
incentive compensation to which you would have been entitled if the year were to
end on the day on which the Change of Control occurs, based upon performance up
to that date. In measuring financial performance, financial results through the
date of the Change of Control will be annualized.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control
shall mean any one or more of the following transactions or situations:
(a) A sale, transfer, or other disposition by
Rural/Metro through a single transaction or a series of transactions of
securities of Rural/Metro representing 30% or more of the combined voting power
of Rural/Metro's then outstanding securities to any "Unrelated Person" or
"Unrelated Persons" acting in concert with one another. For purposes of this
Section, 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 Securities Exchange Act of
1934 (the "Act")). For purposes of this Section, the term "Unrelated Person"
shall mean and include any Person other than: Rural/Metro, a wholly-owned
subsidiary of Rural/Metro, or an employee benefit plan of Rural/Metro.
(b) A sale, transfer, or other disposition through a
single transaction or a series of transactions of all or substantially all of
the assets of Rural/Metro to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(c) A change in the ownership of Rural/Metro 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 Rural/Metro representing at
least 30% of the combined voting
<PAGE> 6
power of Rural/Metro'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 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.
(d) Any consolidation or merger of Rural/Metro with
or into an Unrelated Person, unless immediately after the consolidation or
merger the holders of the common stock of Rural/Metro immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50% of the combined voting power of the
surviving corporation's then outstanding securities.
(e) During any period of two (2) years, individuals
who, at the beginning of such period, constituted the Board of Directors of
Rural/Metro 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 (2/3rds) of the directors then still in
office who were directors at the beginning of such period.
(f) A change in control of Rural/Metro 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 Act, or any successor regulation of
similar import, regardless of whether Rural/Metro is subject to such reporting
requirement.
Notwithstanding any provision herein to the contrary, the
filing of a proceeding for the reorganization of Rural/Metro under Chapter 11 of
the Federal Bankruptcy Code or any successor or other statute of similar import
shall not be deemed to be a Change of Control for purpose of this Agreement.
7. GOOD REASON DEFINED.
For purposes of this Agreement, "Good Reason" shall mean any
one or more of the following:
(a) The assignment to you of any duties which are
inconsistent with, or the reduction of powers or functions associated with, your
positions, duties, responsibilities and status with Rural/Metro, or a change in
your reporting responsibilities, or in the conditions of your employment;
provided that a single reduction by Rural/Metro of less than 10% (or aggregate
reductions totaling less than 10%) in your base salary as in effect on the date
hereof or as the same may be increased as provided in your Employment Agreement
is permissible and shall not constitute "Good Reason".
<PAGE> 7
(b) The failure of Rural/Metro to cause any successor
to expressly assume and agree to perform this Agreement pursuant to Section 11
hereof.
(c) Any purported termination by Rural/Metro of your
employment that is not effected by a Notice of Termination pursuant to
Subsection 10 below and/or for grounds not constituting Cause.
(d) Rural/Metro relieving you of your duties.
(e) Rural/Metro requiring you to relocate, without
your express written consent to an employment location which is more than 25
miles from your employment location on the date of the Change of Control.
(f) Any other event which constitutes "Good Reason"
under paragraph 7A of your Employment Agreement with Rural/Metro. If there is no
such Agreement in effect at the time of your termination, this paragraph (f)
shall be inapplicable.
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" shall be
given the meaning ascribed to such term in your Employment Agreement, as it may
be amended from time to time. If no written Employment Agreement is in effect at
the time of your termination of employment, "Cause" shall be given the meaning
ascribed to it in the last written Employment Agreement that was in effect
between you and the Company that included a definition of "Cause".
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax
burdens on you and the Company if the total payments made to you due to a Change
of Control exceed prescribed limits. For example, if your limit is $300,000 and
the total payments exceed the limit by even $1.00, you are subject to an excise
tax under Section 4999 of the Code of 20% of all amounts paid to you in excess
of $100,000. If your limit is $300,000, you will not be subject to an excise tax
if you receive exactly $300,000. If you receive $300,001, you will be subject to
an excise tax of $40,000 (20% of $200,001).
In order to avoid this excise tax and the related adverse tax
consequences for the Company, by signing this Agreement, you will be agreeing
that the present value of your "Total Payments" (as defined below) will not
exceed an amount equal to two and ninety-nine hundredths (2.99) times your "Base
Period Income" (as defined below). This
<PAGE> 8
is the maximum amount which you may receive without becoming subject to the
excise tax imposed by Section 4999 of the Code or which the Company may pay
without loss of deduction under Section 280G of the Code.
"Base Period Income" is an amount equal to your "annualized
includable compensation" for the "base period" as defined in Sections 280G(d)(1)
and (2) of the Code and the regulations adopted thereunder. Generally, your
"annualized includable compensation" is the average of your annual taxable
income from the Company for the "base period", which is the five calendar years
prior to the year in which the Change of Control occurs. These concepts are
complicated and technical and all of the rules set forth in the applicable
regulations apply for purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment
and any other "payments in the nature of compensation" (as defined in Section
280G of the Code and the regulations adopted thereunder), including the Option
Payment, to or for your benefit, the receipt of which is contingent on a Change
of Control and to which Section 280G of the Code applies.
If Rural/Metro believes that these rules will result in a
reduction of the payments to which you are entitled under this Agreement, it
will so notify you within 60 days following delivery of the "Notice of
Termination" described in Section 10. You and Rural/Metro will then, at
Rural/Metro's expense, retain legal counsel, certified public accountants,
and/or a firm of recognized executive compensation consultants to provide an
opinion or opinions concerning whether your Total Payments exceed the limit
discussed above.
Rural/Metro will select the legal counsel, certified public
accountants and executive compensation consultants. If you do not accept one or
more of the parties selected by Rural/Metro, you may provide Rural/Metro with
the names of legal counsel, certified public accountants and/or executive
compensation consultants acceptable to you. If Rural/Metro does not accept the
party or parties selected by you, the legal counsel, certified public
accountants and/or executive compensation consultants selected by you and
Rural/Metro, respectively, will select the legal counsel, certified public
accountants and/or executive compensation consultants to provide the opinions
required.
At a minimum, the opinions required by this Section must set
forth (a) the amount of your Base Period Income, (b) the present value of the
Total Payments and (c) the amount and present value of any excess parachute
payments.
If the opinions state that there would be an excess parachute
payment, your payments under this Agreement will be reduced to the extent
necessary to eliminate the excess. You will be allowed to choose the payment
(i.e., the Severance Payment or
<PAGE> 9
the Option Payment) that should be reduced or eliminated, but the payment you
choose to reduce or eliminate must be a payment determined by such counsel to be
includable in Total Payments. You will make your decision in writing and deliver
it to Rural/Metro within 30 days of your receipt of such opinions. If you fail
to so notify Rural/Metro, it will decide which payments to reduce or eliminate.
If the legal counsel or certified public accountants selected
to provide the opinions referred to above so requests in connection with the
opinion required by this Section, a firm of recognized executive compensation
consultants, selected by you and Rural/Metro pursuant to the procedures set
forth above, shall provide an opinion, upon which such legal counsel or
certified public accountants may rely, as to the reasonableness of any item of
compensation as reasonable compensation for services rendered before or after
the Change of Control.
If Rural/Metro believes that your Total Payments will exceed
the limitations of this Section, it will nonetheless make payments to you, at
the times stated above, in the maximum amount that it believes may be paid
without exceeding such limitations. The balance, if any, will then be paid after
the opinions called for above have been received.
If the amount paid to you by Rural/Metro is ultimately
determined, pursuant to the opinion referred to above or by the Internal Revenue
Service, to have exceeded the limitation of this Section, the excess will be
treated as a loan to you by Rural/Metro and shall be repayable on the 90th day
following demand by Rural/Metro, together with interest at the "applicable
federal rate" provided in Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of
the Code are repealed without succession, this Section shall be of no further
force or effect.
10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall
be communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances alleged to provide a basis for
termination.
<PAGE> 10
(b) Any Notice of Termination by the Company shall be
in writing signed by the Chairman of the Board of Rural/Metro, specifying in
detail the basis for such termination.
(c) If the Company shall furnish a Notice of
Termination for Cause and you in good faith notify the Company that a dispute
exists concerning such termination within the 15 day period following your
receipt of such notice, you may elect to continue your employment during such
dispute. If it is thereafter determined that (i) Cause did exist, your
"Termination Date" shall be the earlier of (A) the date on which the dispute is
finally determined, either by mutual written agreement of the parties or
pursuant to the alternative dispute resolution provisions of Section 17 or (B)
the date of your death, or (ii) Cause did not exist, your employment shall
continue as if the Company had not delivered its Notice of Termination and there
shall be no Termination Date arising out of such notice.
(d) If the Company shall furnish a Notice of
Termination by reason of Disability and you in good faith notify the Company
that a dispute exists concerning such termination within the 15-day period
following your receipt of such notice, you may elect to continue your employment
during such dispute. The dispute relating to the existence of a Disability shall
be resolved by the opinion of the licensed physician selected by Rural/Metro;
provided, however, that if you do not accept the opinion of the licensed
physician selected by Rural/Metro, the dispute shall be resolved by the opinion
of a licensed physician who shall be selected by you; provided further, however,
that if Rural/Metro does not accept the opinion of the licensed physician
selected by you, the dispute shall be finally resolved by the opinion of a
licensed physician selected by the licensed physicians selected by Rural/Metro
and you, respectively. If it is thereafter determined that (i) a Disability did
exist, your Termination Date shall be the earlier of (A) the date on which the
dispute is resolved or (B) the date of your death, or (ii) a Disability did not
exist, your employment shall continue as if the Company had not delivered its
Notice of Termination and there shall be no Termination Date arising out of such
notice. For purposes of this Agreement, "Disability" shall be given the meaning
ascribed to such term in your Employment Agreement at the time the Disability
determination is being made. If there is no Employment Agreement that defines
"Disability", "Disability" shall mean your inability to perform your customary
duties for the Company due to a physical or mental condition that is considered
to be of long-lasting or indefinite duration.
(e) If you in good faith furnish a Notice of
Termination for Good Reason and the Company notifies you that a dispute exists
concerning the termination within the 15 day period following the Company's
receipt of such notice, you may elect to continue your employment during such
dispute. If it is thereafter determined
<PAGE> 11
that (i) Good Reason did exist, your Termination Date shall be the earlier of
(A) the date on which the dispute is finally determined, either by mutual
written agreement of the parties or pursuant to the alternative dispute
resolution provisions of Section 17, (B) the date of your death or (C) one day
prior to the second anniversary of a Change of Control, and your payments
hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment
pending resolution of a dispute regarding a Notice of Termination, and it is
finally determined that the reason for termination set forth in such Notice of
Termination did not exist, if such notice was delivered by you, you shall be
deemed to have voluntarily terminated your employment other than for Good Reason
and if delivered by the Company, the Company will be deemed to have terminated
you other than by reason of Disability or Cause.
(g) For purposes of this Agreement, a transfer from
Rural/Metro to one of its subsidiaries or a transfer from a subsidiary to
Rural/Metro or another subsidiary shall not be treated as a termination of
employment.
11. SUCCESSORS.
Rural/Metro will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Rural/Metro or any of its
subsidiaries to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that Rural/Metro or any subsidiary would be
required to perform it if no such succession had taken place. Failure of
Rural/Metro to obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and shall entitle you
to compensation in the same amount and on the same terms to which you would be
entitled hereunder if you terminate your employment for Good Reason following a
Change of Control, except that for purposes of implementing the foregoing, the
date on which any such succession becomes effective shall be deemed the
Termination Date. As used in this Agreement, "Rural/Metro" shall mean
Rural/Metro as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law or otherwise.
<PAGE> 12
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be
enforceable by you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to Rural/Metro shall be directed to the
attention of the Chairman of the Board of Rural/Metro with a copy to the
Secretary of Rural/Metro, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and the Chairman of the Board of Rural/Metro. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Arizona without regard to its conflicts of law principles. All references to
sections of the Securities Exchange Act of 1934 or the Code shall be deemed also
to refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company that arise prior to
the expiration of this Agreement shall survive the expiration of the term of
this Agreement.
15. VALIDITY.
<PAGE> 13
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the
parties arising under this Agreement shall, unless otherwise provided herein
(such as in Sections 9 and 10(d)), be resolved in accordance with the
arbitration or alternative dispute resolution provisions included in your
Employment Agreement. If no written Employment Agreement is in effect at the
time of your termination of employment, or, if the Employment Agreement in
effect at the time of your termination of employment does not include
arbitration or alternative dispute resolution provisions, all claims, disputes
and other matters in question between the parties arising under this Agreement
shall be decided by arbitration in Phoenix, Arizona, in accordance with the
National Rules for the Resolution of Employment Disputes of the American
Arbitration Association (including such procedures governing selection of the
specific arbitrator or arbitrators), unless the parties mutually agree
otherwise. The Company shall pay the costs of any such arbitration. The award by
the arbitrator or arbitrators shall be final, and judgment may be entered upon
it in accordance with applicable law in any state or Federal court having
jurisdiction thereof.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the
enforcement of your rights under this Agreement or if any arbitration or legal
proceeding shall be brought in good faith to enforce or interpret any provision
contained herein, or to recover damages for breach hereof, and you are the
prevailing party, you shall recover from the Company any reasonable attorneys'
fees and necessary costs and disbursements incurred as a result of such dispute
or legal proceeding, and prejudgment interest on any money judgment obtained by
you calculated at the rate of interest announced by Bank One, Arizona, NA from
time to time as its prime rate from the date that payments to you should have
been made under this Agreement. It is expressly provided that the Company shall
in no event recover from you any attorneys' fees, costs, disbursements or
interest as a result of any dispute or legal proceeding involving the Company
and you.
<PAGE> 14
19. PAYMENT OBLIGATIONS ABSOLUTE.
Rural/Metro's obligation to pay you the compensation and to
make the arrangements in accordance with the provisions herein shall be absolute
and unconditional and shall not be affected by any circumstances; provided,
however, that Rural/Metro may apply amounts payable under this Agreement to any
debts owed to the Rural/Metro by you on your Termination Date. All amounts
payable by Rural/Metro in accordance with this Agreement shall be paid without
notice or demand. If Rural/Metro has paid you more than the amount to which you
are entitled under this Agreement, Rural/Metro shall have the right to recover
all or any part of such overpayment from you or from whomsoever has received
such amount.
20. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your
Employment Agreement, as it may be amended or replaced from time to time (the
"Employment Agreement"). You will be entitled to receive all amounts due to you
pursuant to your Employment Agreement, but some payments under your Employment
Agreement may reduce your Severance Payments as provided in Section 2 and
benefits due pursuant to your Employment Agreement may reduce the benefits due
pursuant to Section 4. In addition, payments under your Employment Agreement
may, in some limited circumstances, be considered as part of your Total Payment
and result in a reduction in payments as provided in Section 9. If there is any
conflict between the provisions of this Agreement and your Employment Agreement,
the provisions of this Agreement shall control.
21. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the
entire agreement between you and the Company concerning the subject matter
discussed in this Agreement and supersede all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
written or oral, by any officer, employee or representative of the Company. Any
prior agreements or understandings with respect to the subject matter set forth
in this Agreement are hereby terminated and cancelled.
<PAGE> 15
22. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when
combined with all other payments received during the year that are subject to
the limitations on deductibility under Section 162(m) of the Code, exceeds the
limitations on deductibility under Section 162(m) of the Code, such payment
shall, in the discretion of Rural/Metro, be deferred to the next succeeding
calendar year. Such deferred amounts shall be paid no later than the 60th day
after the end of such next succeeding calendar year, provided that such payment,
when combined with any other payments subject to the Section 162(m) limitations
received during the year, does not exceed the limitations on deductibility under
Section 162(m) of the Code.
23. PARTIES.
This Agreement is an agreement between you and Rural/Metro. In
certain cases, though, obligations imposed upon Rural/Metro may be satisfied by
a Rural/Metro subsidiary. Any payment made or action taken by a Rural/Metro
subsidiary shall be considered to be a payment made or action taken by
Rural/Metro for purposes of determining whether Rural/Metro has satisfied its
obligations under this Agreement.
If you would like to participate in this special benefits
program, please sign and return the extra copy of this letter which is enclosed.
Sincerely,
----------------------------------
James H. Bolin
Vice Chairman
Board of Directors
Enclosure
<PAGE> 16
ACCEPTANCE
I hereby accept the offer to participate in this special
benefit program and I agree to be bound by all of the provisions noted above.
John B. Furman
<PAGE> 1
Exhibit 10.16(i)
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is made and entered into by
and between RURAL/METRO CORPORATION, for itself and on behalf and for the
benefit of its direct and indirect subsidiaries, affiliates, joint ventures, and
partnerships (collectively, "Rural/Metro"), and Warren Rustand ("Executive").
RECITALS
A. Pursuant to Stock Option Agreements attached hereto as Exhibits A
and B, dated as of August 18, 1993 and December 8, 1994, respectively, Executive
was granted stock options for 8,750 and 12,500 shares respectively.
B. Pursuant to an Employment Agreement attached hereto as Exhibit C
(the "1995 Employment Agreement"), dated as of November 3, 1995, between
Rural/Metro and Executive, Rural/Metro employed Executive as Chairman of the
Board of Directors and team leader of the Office of the Chief Executive.
C. Pursuant to the First Amendment to Employment Agreement attached
hereto as Exhibit D (the "First Amendment"), dated as of March 18, 1997, between
Rural/Metro and Executive, the Employment Agreement was amended effective
October 1, 1996, to provide, among other things, that Executive was employed by
Rural/Metro as Chairman of the Board and Chief Executive Officer. The 1995
Employment Agreement and the First Amendment are collectively referred to herein
as the "Employment Agreement."
D. Executive and Rural/Metro entered into the following ancillary
agreements (the "Ancillary Agreements") arising out of the employment
relationship between them: (i) a Restricted Stock Agreement effective October
17, 1995, attached hereto as Exhibit E; (ii) a Stock Option Agreement granting
certain options as of October 17, 1995, as such agreement was amended as of
December 8, 1995, attached hereto as Exhibit F; (iii) a Stock Option Agreement
granting certain options as of August 16, 1996, attached hereto as Exhibit G;
(iv) a Stock Option Agreement granting certain options as of September 12, 1997,
attached hereto as Exhibit H; (v) a Deferred Compensation Agreement effective
October 1, 1995, dated February 13, 1996, attached hereto as Exhibit I; and (vi)
a Split Dollar Life Insurance Agreement attached hereto as Exhibit J effective
December 21, 1995, dated February 21, 1996.
E. Executive and Rural/Metro entered into a letter agreement attached
hereto as Exhibit K (the "Health Insurance Benefit Agreement"), dated as of
December 15, 1995, to allow Executive to continue individual health insurance
coverage effective October 1, 1995, at the expense of Rural/Metro as a
substitute for Executive's participation in Rural/Metro's regular health
insurance plan.
F. Pursuant to a Non-Negotiable Promissory Note attached hereto as
Exhibit L, dated June 26, 1998, Rural/Metro has loaned Executive the amount of
fifty-nine thousand nine hundred ninety dollars and no cents ($59,990.00) at an
interest rate of eight percent (8%) per annum.
<PAGE> 2
G. Pursuant to a Lease Agreement attached hereto as Exhibit M (the
"Lease"), Rural/Metro rents a townhouse for Executive's use located at 4703 N.
84th Way Scottsdale, Arizona 85251 (the "Townhouse").
H. The parties mutually desire to permit the resignation of Executive
on the terms and conditions of this Agreement.
I. Executive desires to tender his resignation from the following
positions with Rural/Metro effective as of the Effective Date: (i) Chairman of
the Board of Directors of Rural/Metro; (ii) Director of Rural/Metro; (iii)
President and Chief Executive Officer of Rural/Metro; and (iv) all directorship
and officership positions with any of Rural/Metro's subsidiaries and affiliates.
J. Rural/Metro desires to accept Executive's resignation effective the
Effective Date.
K. The parties have agreed that, except as otherwise expressly provided
in this Agreement, Executive's separation from employment and resignations shall
be treated as "termination without cause" for purposes of certain provisions of
the Employment Agreement and certain provisions of the Ancillary Agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DEFINITIONS. As used herein:
"Ancillary Agreements" has the meaning given to such term in Recital D
hereof.
"Deferred Compensation Agreement" means the Deferred Compensation
Agreement between Rural/Metro and Executive effective October 1, 1995, dated
February 13, 1996, and attached hereto as Exhibit I.
"Effective Date" means August 24, 1998.
"Employment Agreement" has the meaning given to such term in Recital C
hereof.
"Health Insurance Benefit Agreement" has the meaning given to such term
in Recital E hereof.
"Information" means information (oral or written), including, but not
limited to, financial information, regarding Rural/Metro or any of its, direct
or otherwise, subsidiaries, affiliates, joint ventures and partnerships, or
their respective assets or businesses.
"Lease" has the meaning given to such term in Recital G hereof.
"Person" has the meaning contained in Section 3(a)(9) of the Securities
and Exchange Act of 1934, as amended.
<PAGE> 3
"Promissory Note" has the meaning given to such term in Recital F
hereof.
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, agents, advisors (including attorneys,
accountants, consultants, bankers and financial advisors) and banks and other
financing sources which may provide funding for a transaction.
"Restricted Stock Agreement" means the Restricted Stock Agreement
entered into by the parties effective October 17, 1995, and attached hereto as
Exhibit E.
"Rural/Metro" means Rural/Metro Corporation, a Delaware corporation,
and any of its direct or indirect subsidiaries, affiliates, joint ventures and
partnerships.
"Salary Continuation" has the meaning given to such term in Section
3(a) hereof.
"Salary Continuation Period" means the twenty-four (24) month period
commencing on the Effective Date.
"Split Dollar Life Insurance Agreement" means the Split Dollar Life
Insurance Agreement dated February 21, 1996, and effective December 21, 1995,
and attached hereto as Exhibit J.
"Stock Option Agreements" means the Stock Option Agreement granting
options for 8,750 shares of stock to Executive at the exercise price of $16.25
granted as of August 18, 1993, the Stock Option Agreement granting options for
12,500 shares of stock to Executive at the exercise price of $18.25 granted as
of December 8, 1994, the Stock Option Agreement granting options for 250,000
shares of stock to Executive at the exercise price of $24.00 granted as of
October 17, 1995, the Stock Option Agreement granting 22,500 shares of stock to
Executive at the exercise price of $32.25 granted as of August 16, 1996, and the
Stock Option Agreement granting 22,500 shares of stock to Executive at the
exercise price of $29.00 granted as of September 12, 1997, and attached hereto
as Exhibits A, B, E, F and G.
"Townhouse" means the premises leased by Rural/Metro located at 4703 N.
84th Way, Scottsdale, Arizona 85251.
2. RESIGNATION. Pursuant to the resignation attached hereto as Exhibit
N, Executive hereby resigns from the following positions with Rural/Metro
effective as of the Effective Date: (i) Chairman of the Board of Directors of
Rural/Metro; (ii) Director of Rural/Metro; (iii) President and Chief Executive
Officer of Rural/Metro; and (iv) all directorship and officership positions with
any of Rural/Metro's subsidiaries and affiliates. Rural/Metro hereby accepts
Executive's resignation.
3. CONSIDERATION. In full consideration for Executive's execution of,
and full and timely compliance with, this Agreement:
(a) Rural/Metro shall continue Executive's salary in the amount of
$314,600.00 annually (the "Salary Continuation") pursuant to Section 10 of the
Employment Agreement for the Salary Continuation Period, such salary to be
payable at such times as are consistent with Rural/Metro's payroll practices for
its corporate executives. Executive
<PAGE> 4
acknowledges and agrees that the Salary Continuation shall be subject to all
statutory withholdings. For the Salary Continuation Period, Executive and
Rural/Metro agree that Executive shall be entitled to the continuation of the
health insurance (as set forth in Section 3(b) of this Agreement), life
insurance (including the Split Dollar Life Insurance Agreement as set forth in
Section 7 of this Agreement), disability (including the special long-term
disability policy currently in force for Executive) or other insurance benefits
that Executive was receiving as of his last day of active employment as set
forth in Section 10 of the Employment Agreement.
(b) During the Salary Continuation Period, Rural/Metro shall
continue to pay, or reimburse to the extent provided in the Health Insurance
Benefit Agreement, the premium for Executive's, and his dependents if they were
covered on the Effective Date, individual health insurance coverage as set forth
in the Health Insurance Benefit Agreement in such amounts as are in effect on
the Effective Date. The foregoing shall not, however, prohibit Rural/Metro from
exercising any of its rights to terminate the Health Insurance Benefit Agreement
currently provided therein; provided that if Rural/Metro is entitled to
terminate the Health Insurance Benefit Agreement due to increased premium cost,
Executive may pay such increase and keep the Health Insurance Benefit Agreement
in force. In the event the Health Insurance Benefit Agreement is terminated in
accordance with its terms, to the extent the plan permits, Rural/Metro shall add
Executive to its regular health insurance plan. If such coverage is unavailable,
Rural/Metro shall provide Executive the cash equivalent of such coverage as
provided in Section 10 of the Employment Agreement.
(c) Rural/Metro agrees to continue to pay the rent at the Townhouse
through January 5, 1999. Executive shall be allowed to continue to reside at the
Townhouse until January 5, 1999. During that time, Executive shall be
responsible for all costs related to the Townhouse other than rent, including,
but not limited to, utilities and phone charges. Executive agrees to vacate the
Townhouse as of January 5, 1999. Executive agrees that he shall be solely
responsible for any rent that may be due after January 5, 1999, and any costs
associated with any holdover by Executive.
(d) Rural/Metro grants Executive the option to purchase the
furniture owned by Rural/Metro in the Townhouse at a purchase price of
$11,160.00, which Rural/Metro represents is equal to the book value of such
furniture on the Effective Date; provided that Executive exercises this option
in writing within fifteen (15) days prior to termination of the Lease and
payment for those items within five (5) days thereafter. Alternatively, at the
option of Executive, the purchase price for the furniture may be offset against
the next payment of Salary Continuation on a dollar for dollar basis.
(e) Rural/Metro grants Executive the option to purchase certain
furniture and office equipment identified on Exhibit O attached hereto, located
in Executive's office at Rural/Metro's executive offices located at 8401 E.
Indian School Road, Scottsdale, Arizona 85251, and Executive's Tucson, Arizona,
personal residence and office at a purchase price equal to $5,100.00 which
Rural/Metro represents is equal to the book value of such equipment and
furniture on the Effective Date; provided that Executive exercises this option
in writing within five (5) days of the Executive's execution of this Agreement.
In order to exercise this option, Executive must provide a list of the specific
items he will purchase to the attention of the Chief Financial Officer of
Rural/Metro and payment for those items within five (5) days thereafter. At
<PAGE> 5
the option of Executive, the purchase price of the furniture and equipment may
be offset against the first payment of Salary Continuation on a dollar for
dollar basis.
(f) Within ten (10) days of the Effective Date, Rural/Metro shall
pay to Executive the value of three (3) weeks of Executive's accrued, but unused
vacation for the current year.
(g) The payment of any amounts due hereunder shall not be affected
by whether Executive seeks or obtains employment. Executive shall have no
obligation to seek or obtain other employment and the payment of amounts due
hereunder shall not be impacted by Executive's failure to mitigate.
4. EXERCISE OF STOCK OPTIONS. Subject to Executive's full and timely
performance of Executive's obligations under this Agreement, all of Executive's
presently unvested stock options will continue to vest in accordance with the
schedule set forth in the Stock Option Agreements. Rural/Metro acknowledges that
all of Executive's stock options have vested except for the options granted
pursuant to the Stock Option Agreement dated as of October 17, 1995, as such
agreement was amended as of December 8, 1995 (the "1995 Option Agreement"). Such
options will vest in accordance with the schedule set forth in Section 3(a) of
the 1995 Option Agreement. Executive (or in the event of his death, his personal
representative or beneficiary) shall have until August 24, 2002, to exercise
Executive's stock options under all Stock Option Agreements. Rural/Metro hereby
waives its right under Section 2.2(i) of the 1992 Stock Option Plan and the
corresponding sections of the Stock Option Agreements to repurchase shares
acquired by Executive upon exercise of Executive's stock options. In the event
Executive breaches or fails to perform any of Executive's obligations set forth
in this Agreement, subject to applicable notice and cure periods, (i) all
unvested stock options as of the date of breach or failure shall be forfeited,
and (ii) Executive shall have thirty (30) days from the date of breach or
failure (or expiration of any cure period) to exercise then vested but
unexercised stock options.
5. RESTRICTED STOCK AGREEMENT. Subject to Executive's full and timely
performance of Executive's obligations under this Agreement, Executive's
presently unvested restricted stock will continue to vest in accordance with the
schedule set forth in Section 4(a) of the Restricted Stock Agreement. In the
event Executive breaches or fails to perform any of Executive's obligations set
forth in this Agreement, subject to applicable notice and cure periods, all
restricted stock unvested as of the date of the breach or failure shall be
forfeited. In no event shall Rural/Metro be obligated to pay the tax gross-up
set forth in Section 7 of the Restricted Stock Agreement with respect to the
restricted stock that is unvested as of the Effective Date.
6. DEFERRED COMPENSATION. Executive and Rural/Metro agree that
Executive's Deferred Compensation Account for the calendar year 1998 shall be
credited with a prorated amount of $64,658.00 using the Effective Date as the
last day of active employment as set forth in Section 2 of the Deferred
Compensation Agreement. Employee agrees and acknowledges that he shall not be
entitled to any additional Deferred Compensation (as defined in the Deferred
Compensation Agreement) for periods after the Effective Date (as defined in the
Deferred Compensation Agreement) pursuant to the Deferred Compensation
Agreement. The parties agree that Executive's Deferred Compensation Account with
respect to all periods prior to the Effective Date shall be paid out to
Executive in a lump sum as soon as possible after the year-end
<PAGE> 6
Valuation Date (as defined in the Deferred Compensation Agreement) next
following the Effective Date as set forth in Section 9(c)(2) of the Deferred
Compensation Agreement, and Rural/Metro waives delivery of a written claim for
benefits under Section 11 of the Deferred Compensation Agreement. Executive and
Rural/Metro agree that the entire principal balance and accrued interest thereon
due under the Promissory Note shall be offset against Executive's lump sum
distribution of his Deferred Compensation Account (as defined in the Deferred
Compensation Agreement), in the following order: first, interest owed under the
Promissory Note through the date of payment and then, the principal thereof.
Rural/Metro agrees to amend the Promissory Note to reflect this payment
schedule.
7. SPLIT DOLLAR LIFE INSURANCE AGREEMENT. Executive and Rural/Metro
agree that Rural/Metro shall continue to make the Company's Premium Payment and
the Annual Bonus (as such terms are defined in the Split Dollar Life Insurance
Agreement) payments under the Split Dollar Life Insurance Agreement for the
Salary Continuation Period, as though this separation from employment is a
"termination without cause" pursuant to Section 10 of the Employment Agreement
and Section 9(a)(iii) of the Split Dollar Life Insurance Agreement.
Notwithstanding the foregoing, in no event shall Rural/Metro have any obligation
to pay any premiums in excess of the premiums being paid on the Effective Date.
Nothing contained in this Agreement shall be construed to limit Rural/Metro's
right to recover Rural/Metro's Secured Position (as such term is defined in the
Split Dollar Life Insurance Agreement) pursuant to Section 10 of the Split
Dollar Life Insurance Agreement.
8. ALL DOCUMENTS. Executive hereby acknowledges that the Employment
Agreement, the Stock Option Agreements and other Ancillary Agreements, the
Health Insurance Benefit Agreement, the Promissory Note and the Lease constitute
all of the agreements relating to Executive's employment with Rural/Metro.
9. VACATING THE OFFICES. Executive shall promptly, but in no event more
than five (5) business days after the date hereof, vacate his Rural/Metro
Scottsdale office. In connection therewith, Executive shall be permitted to
remove any personal belongings and furniture, which shall include the items
listed on Exhibit P. Executive shall retain his Tucson office space, the
furnishings and contents of which belong to Executive, and Rural/Metro shall
have no further right to occupy such premises and no further obligation to
reimburse Executive for the cost thereof.
10. RESTRICTIVE COVENANTS.
(a) CONFIDENTIALITY AND NON-DISCLOSURE. Executive hereby agrees,
acknowledges and represents that Executive, in all respects, remains subject to,
and will comply with, each and every obligation imposed by Section 12 of
Executive's Employment Agreement; provided that Executive may retain archive
copies of any confidential or proprietary Information currently in his
possession, subject to the restrictions on use and disclosure set forth in this
Agreement and the Employment Agreement.
(b) COVENANT-NOT-TO-COMPETE. Executive hereby agrees, acknowledges
and represents that for a period of twenty-four (24) months from the Effective
Date, Executive
<PAGE> 7
remains, in all respects, subject to, and will comply with, each and every
obligation imposed by Section 13 of Executive's Employment, with the exception
of Section 13B.
11. RETURN OF INFORMATION AND COMPANY PROPERTY. Other than the
furniture and/or office equipment purchased by Executive pursuant to this
Agreement, Executive shall promptly return and deliver, and/or cause his
representatives to promptly deliver, to Rural/Metro all property, credit cards,
Information and copies thereof belonging to Rural/Metro; provided that Executive
may retain archive copies of any confidential or proprietary Information
currently in his possession, subject to the restrictions on use and disclosure
set forth in this Agreement and the Employment Agreement.
12. RESTRICTIONS. Executive will not at any time during the Salary Continuation
Period, and Executive will not at any time during the Salary Continuation Period
assist or encourage others to:
(a) acquire or agree, offer, seek or propose to acquire (or directly
or indirectly request permission to do so), directly or indirectly, alone or in
concert with any other Person, by purchase or otherwise, any ownership,
including, but not limited to, beneficial ownership as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
any of the assets, businesses or securities of Rural/Metro, or any rights or
options to acquire such ownership (including from any third party), except
pursuant to the Stock Option Agreements and Restricted Stock Agreement;
(b) otherwise enter into, seek or offer to enter into any business
combination with or relating to Rural/Metro;
(c) solicit proxies (as such terms are defined in Rule 14a-1 under
the Exchange Act, whether or not such solicitation is exempt under Rule 14a-2
under the Exchange Act) or become a participant in a "solicitation", or grant a
proxy or enter into a voting trust or other arrangement of similar effect with
respect to any matter from or with respect to holders of any shares of common
stock of Rural/Metro ("Stock") or any securities convertible into or
exchangeable for or exercisable (whether currently or upon the occurrence of any
contingency) for the purchase of Stock (the Stock and such other securities
being hereinafter collectively called the "Voting Securities"), or make any
communication exempted from the definition of solicitation by Rule
14a-1(1)(2)(iv) under the Exchange Act;
(d) directly or indirectly initiate, or induce or attempt to induce
any other person, entity or group (as defined in Section 13(d)(3) of the
Exchange Act) to initiate, any stockholder proposal or tender offer for any
securities of Rural/Metro, any change of control of Rural/Metro or the convening
of a stockholders' meeting of Rural/Metro;
(e) directly or indirectly otherwise seek or propose (or request
permission to propose) to influence or control the management or policies of
Rural/Metro;
(f) enter into any discussions, negotiations, arrangements or
understandings with any other Person other than your Representatives with
respect to any matter described in the foregoing subparagraphs (a) through (e)
above;
<PAGE> 8
(g) request Rural/Metro (or its directors, officers, employees or
agents); directly or indirectly, to amend or waive any provisions of this
Section 12;
(h) take any action inconsistent with the intent or provisions of
any of the foregoing subsections (a) through (g); or
(i) take any action with respect to any of the matters described in
this Section 12 that requires public disclosure.
Notwithstanding any provision of this Agreement to the contrary, in the
event that any third party or parties having no direct or indirect affiliation
with Executive and not acting directly or indirectly in concert with Executive
publicly announces any intention or proposal with respect to any matter
described in subparagraphs (a) through (e) above, or in the event that
Rural/Metro publicly announces that it has entered into any discussions,
negotiations, arrangements or understandings with any third party or parties
with respect to any matter described in subparagraphs (a) through (e) above,
Executive shall have no further obligations to Rural/Metro under this Section
12, which shall become void and of no further force and effect; provided, that
Executive shall not have theretofore breached or failed to perform any of
Executive's obligations set forth in this Section 12.
13. WAIVER AND RELEASE. In exchange for the consideration paid or
granted to Executive pursuant to Section 2 of this Agreement, and subject to
Rural/Metro's full and timely performance of Rural/Metro's obligations under
this Agreement, Executive hereby fully, forever, irrevocably and unconditionally
releases and discharges Rural/Metro, including its past and present officers and
directors and its or their successors (collectively, the "Releasees"), from any
and all claims or damages which he has, had, or may have, arising out of any
act, event, or omission occurring during the period of time in which Executive
was an officer, director or employee of Rural/Metro, whether now known or
unknown, and whether asserted or unasserted, including, but not limited to, any
and all claims under Title VII of the Civil Rights Act of 1964, as amended; the
Americans with Disabilities Act; the Fair Labor Standards Act, as amended;
Employee Retirement Income Security Act, as amended ("ERISA"); Consolidated
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"); state and local
civil rights laws; the Age Discrimination in Employment Act; the National Labor
Relations Act (collectively, the "Acts"), and any other provision or theory of
law, either in tort or in contract, and whether statutory or under the common
law, including, but not limited to, all claims arising out of or incident to
Executive's employment with Rural/Metro; provided that Executive is not waving
his rights to enforce the terms of this Agreement or the Stock Option Agreements
and other Ancillary Agreements, as modified by this Agreement. Executive
understands and acknowledges that Title VII of the Civil Rights Act of 1964,
ERISA, state and local civil rights laws, provide Executive the right to bring
actions against Rural/Metro if, among other things, Executive believes he has
been discriminated against on the basis of race, ancestry, color, religion, sex,
national origin, disability, or benefit eligibility. With full understanding of
the rights afforded under these Acts, Executive agrees that he will not file any
action against Rural/Metro and/or Releasees based upon any alleged violation of
these Acts and waives any rights to assert a claim for relief available under
these Acts against Rural/Metro and/or Releasees, including, but not limited to,
back pay, front pay, attorneys' fees, damages, reinstatement, or injunctive
relief.
<PAGE> 9
14. WAIVER AND RELEASE OF EXECUTIVE. Subject to Executive's full and
timely performance of Executive's obligations under this Agreement, Rural/Metro
hereby fully, forever, irrevocably and unconditionally releases and discharges
Executive and his heirs and personal representatives (collectively, "Executive's
Releasees") from any and all claims or damages which it has, had, or may have,
arising out of any act, event or omission occurring during the period of time in
which Executive was an officer, director or employee of Rural/Metro, whether
known or unknown, and whether asserted or unasserted; provided that nothing
contained herein shall release, or be deemed to release, Executive from any
claims arising from any action brought by a shareholder of Rural/Metro (other
than any action brought or induced to be brought, directly or indirectly, by any
person who is a Releasee) suing Rural/Metro in such person's capacity as a
shareholder of Rural/Metro against Rural/Metro or its officers and directors
acting in their corporate capacity. Rural/Metro agrees during the Salary
Continuation Period and for three (3) years thereafter to maintain Executive as
a named insured under its current or successor Directors' and Officers'
Liability Insurance Policy (D&O policy) to the extent currently provided or
hereafter adopted by the Board of Directors, and consistent with the coverage
for other executives and directors of Rural/Metro, subject to approval by
Rural/Metro's D&O insurance carrier. At all times following the Effective Date,
Rural/Metro shall provide indemnification and advancement of expenses to
Executive to the full extent provided from time to time to then current
directors and officers of Rural/Metro pursuant to Rural/Metro's charter, bylaws
or otherwise.
15. VALIDITY AND CONSIDERATION. Executive understands and acknowledges
that the consideration given pursuant to this Agreement in exchange for the
execution of and compliance with this Agreement is given in addition to anything
of value to which Executive is, as a matter of law, entitled.
16. RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967.
Executive specifically understands and acknowledges that the Age Discrimination
in Employment Act of 1967, as amended, provides Executive the right to bring a
claim against Rural/Metro if Executive believes that he has been discriminated
against on the basis of age. Executive understands the rights afforded under
this Act and agrees that he will not file any claim or action against
Rural/Metro and/or Releasees and waives any rights to assert a claim for relief
available under this Act against Rural/Metro and/or Releasees, including, but
not limited to, back pay, front pay, attorneys' fees, damages, reinstatement, or
injunctive relief.
17. NO ADMISSION. Execution of this Agreement and compliance with this
Agreement shall not be considered as an admission by Rural/Metro or Executive of
any liability whatsoever, or as an admission by Rural/Metro or Executive of: (i)
any violation of the rights of Executive or of any other person; (ii) a
violation of any order, law, statute or duty; (iii) a breach of any contract,
including, but not limited to, the Employment Agreement; (iv) an act of
discrimination whatsoever against Executive or any other person; or (v) any
grounds to terminate the employment of Executive. Rural/Metro specifically
disclaims any liability to or discrimination against Executive or any other
person; or any alleged violation of any rights of Executive or any person, any
order, law, statute, duty; or a breach of any contract, including, but not
limited to, the Employment Agreement and the Ancillary Agreements, on the part
of Rural/Metro and/or Releasees.
<PAGE> 10
18. CONFIDENTIALITY. Executive agrees to maintain the terms of this
Agreement as confidential and neither Executive, nor any person or entity acting
on his behalf shall disclose (except to his legal, business and financial
advisors, but only to the extent such disclosure is necessary for such persons
to render professional services in connection therewith, and provided that prior
to disclosure to any such persons, such persons shall be furnished a copy of
this Section of this Agreement and shall agree to be bound hereby for the
benefit of Rural/Metro), any such terms of this Agreement to any third party,
without the written consent of Rural/Metro, unless and only to the extent that
(a) such disclosure is required by law, or (b) such terms become generally
available to the public without any breach of this Agreement by Executive.
Notwithstanding the foregoing, Executive acknowledges that Rural/Metro is a
publicly-traded corporation and may have disclosure obligations with respect to
this Agreement. Executive agrees to cooperate with any disclosures that may be
required.
19. NON-DISPARAGEMENT.
(a) Executive agrees that neither he nor anyone acting on his behalf
or with his direct or indirect assistance shall knowingly make any derogatory or
disparaging statement about Rural/Metro, its direct or indirect subsidiaries or
affiliates, joint ventures and partnerships or any of their respective officers,
directors, executives, agents, successors or assigns of the business or any of
the products or services of Rural/Metro, its direct or indirect subsidiaries or
affiliates, joint ventures and partnerships or directly or indirectly take any
action which is intended to embarrass or injure any of them.
(b) Rural/Metro agrees that neither it nor anyone acting on its
behalf or with its direct or indirect assistance will knowingly make any
derogatory, disparaging or defamatory statements regarding Executive or
Executive's employment with Rural/Metro, or directly or indirectly take any
action which is intended to embarrass or injure Executive. Rural/Metro further
agrees not to take any direct or indirect retribution against Scott Rustand or
Ann Berger as a result of Executive's separation from employment with
Rural/Metro.
(c) The parties agree to issue a mutually acceptable press release
pertaining to Executive's separation from employment in the form attached hereto
as Exhibit Q.
20. COOPERATION AND NOTICE. Executive agrees to fully cooperate with
and make reasonable best efforts to assist Rural/Metro, its officers and
directors, and any of its direct or indirect subsidiaries, affiliates,
partnerships, or joint ventures, in any litigation matters, lawsuits, cases,
claims, charges, actions, hearings, and/or investigations before any federal,
state, or local court, law enforcement agency, licensing body, administrative
body, arbitrator, mediator, or other judicial or quasi-judicial body
(hereinafter collectively referred to as "Legal Actions"). Such assistance shall
include, but is not limited to, providing information to Rural/Metro, its
officers, directors and/or any of its direct or indirect subsidiaries,
affiliates, partnerships or joint ventures or any of their legal counsel, when
requested and in a prompt and thorough manner, and testifying when reasonably
determined necessary by Rural/Metro, its officers and directors, and any of its
direct or indirect subsidiaries, affiliates, partnerships, or joint ventures or
any of their legal counsel. Rural/Metro shall reimburse Executive for his
reasonable out-of-pocket expenses incurred in connection with performing his
obligations under this Section 20. Executive agrees that he will use his
reasonable best efforts to notify Secretary or General Counsel of Rural Metro
<PAGE> 11
of any subpoena of Executive requiring testimony or documents of any nature in
any manner connected with Executive's employment or affiliation with Rural/Metro
within 24 hours of the service of the subpoena on Executive or his legal
representative(s).
21. LEGAL ACTION. Except to enforce the terms of this Agreement and the
unaffected terms of the Employment Agreement and the Stock Option Agreements and
other Ancillary Agreements, the parties agree, represent and acknowledge that
they will not: (a) directly or indirectly institute any Legal Action against
Rural/Metro or Releasees or Executive or Executive's Releasees, as appropriate,
in any forum, including, but not limited to, any federal, state, or local court,
law enforcement agency, licensing body, administrative body, arbitrator,
mediator, or other judicial or quasi-judicial body at any time hereafter; and
(b) directly or indirectly assist, encourage or cooperate with any other Person,
in any way, including providing financial assistance or Information, to
institute or pursue such Legal Action against Rural/Metro or Releasees or
Executive or Executive's Releasees, as appropriate, in any forum, including, but
not limited to, any federal, state, or local court, law enforcement agency,
licensing body, administrative body, arbitrator, mediator, or other judicial or
quasi-judicial body at any time hereafter. Nothing in this Section shall prevent
either party from giving testimony pursuant to a lawful subpoena. If any of
Rural/Metro, the Releasees, Executive or Executive's Releasees brings a Legal
Action against any other of such persons contrary to the contemplation of this
Section 21, the provisions of Section 13 or 14 hereof otherwise purporting to
release the person or entity bringing such Legal Action shall be null and void
with respect to such person or entity.
22. DELIVERY DATE. A copy of this Agreement was delivered to Executive
on August 24, 1998. Executive acknowledges that he has been given a period of
twenty-one (21) days within which to consider this Agreement, that he has been
given an opportunity to consult and has consulted with counsel of his own
choosing in deciding to execute this Agreement, and that Executive enters into
this Agreement knowingly, voluntarily, free of duress or coercion, and with a
full understanding of all terms and conditions contained herein.
23. REVOCATION. Executive understands that Executive has a period of
seven (7) calendar days from the date he signs this Agreement to revoke this
Agreement, and that, should he decide to revoke it, within that seven-day
period, he shall not be entitled to any of the consideration recited herein
(monetary or otherwise); provided that Rural/Metro shall maintain continuously
in force during such seven-day period all insurance coverages described in
Section 3 hereof. Executive further understands that this Agreement shall not
become effective or enforceable until the expiration of the seven-day revocation
period, and, therefore, Executive acknowledges that Rural/Metro shall not have
any obligation to pay any amount to, or on behalf of Executive, or perform any
of its obligations under this Agreement until the revocation period has expired
without Executive exercising his right of revocation. Executive agrees that he
must provide written notice of revocation of this Agreement, should he wish to
exercise his right to revoke this Agreement. Notwithstanding the foregoing,
Executive's revocation of this Agreement shall not revoke Executive's
resignation from all his positions with Rural/Metro.
24. ENTIRE UNDERSTANDING. The parties agree that the Employment
Agreement, Stock Option Agreements and other Ancillary Agreements shall be
modified by the specific provisions of this Agreement. The terms of this
Agreement shall supersede any conflicting terms of the Employment Agreement and
Ancillary Agreements. This Agreement contains the entire
<PAGE> 12
understanding and agreement between the parties with respect to the matters set
forth herein; supersedes any other agreements between the parties hereto
concerning the subject matter hereof, and may not be amended, supplemented,
changed, or modified in any manner, orally, or otherwise, except by an
instrument in writing, executed by all parties hereto.
25. CURE PERIOD. In the event either party breaches or fails to perform
any of its obligations under this Agreement, or any other agreement referred to
herein, such party shall have a period of five (5) days from receipt of written
notice of the breach from the other party to cure such breach; provided, that
Executive shall not be entitled to a cure period for a breach of Sections 10 and
12 hereof unless the President and Chief Executive Officer of Rural/Metro shall
have received written notice from Executive of the action that Rural/Metro
asserts constitutes such breach prior to Executive taking such action.
Notwithstanding the foregoing, neither Executive nor Rural/Metro shall be
entitled to a cure period for breaches of Section 21 hereof.
26. PERMANENT FILE. Subject to Executive's full and timely performance
with the terms of this Agreement, Rural/Metro agrees that the only information
related to Executive's separation from employment with Rural/Metro reflected in
Executive's personnel employment file shall be this Agreement.
27. REMEDIES. In the event either party breaches the terms of this
Agreement, such party shall be entitled to enforce all remedies available to it
in law or equity, including, but not limited to, injunctive relief, ceasing
payment of all amounts otherwise due hereunder and recovery of all amounts
previously paid to Executive hereunder, attorney's fees and costs.
28. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed given when delivered in person, or three
(3) business days after being placed in the hands of a courier service (e.g.,
DHL or Federal Express) prepaid or faxed provided that a confirming copy is
delivered forthwith as herein provided, addressed as follows:
If to Rural/Metro:
Rural/Metro Corporation
8401 E. Indian School Road
Scottsdale, Arizona 85251
Attention: General Counsel
FAX: (602) 606-3328
With a copy to:
O'Connor, Cavanagh, Anderson, Killingsworth
& Beshears, P.A.
One East Camelback Road, Suite 1100
Phoenix, Arizona 85012
Attn: Alan Lundgren
Fax: (602) 263-2900
<PAGE> 13
If to Employee:
Warren Rustand
5750 E. Santa Fe
Tucson, Arizona 85715
Fax: (520) 296-5331
With a copy to:
Osborn Maledon
2929 N. Central Avenue, Suite 2100
Phoenix, Arizona 85012-2794
Attn: William M. Hardin
Fax: (602) 235-9444
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section.
29. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona and the United States as
applied to agreements among Arizona residents entered into and to be performed
entirely in Arizona.
30. SUCCESSORS AND ASSIGNS. This Agreement is binding on the parties
hereto, and their respective heirs, representatives, successors and assigns.
31. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together will constitute
one and the same instrument.
32. CONSTRUCTION. The parties hereto acknowledge and agree that each
party has participated in the drafting of this Agreement and that this document
has been reviewed by the respective legal counsel for the parties hereto, or
have had the opportunity for such counsel to review this Agreement, and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be applied to the interpretation
of this Agreement. No inference in favor of, or against, any party shall be
drawn from the fact that one party has drafted any portion hereof.
33. UNENFORCEABILITY. The parties agree and understand that if any
provision of this Agreement is declared to be unenforceable by a court of
competent jurisdiction, the remaining terms and conditions shall not be affected
and shall remain in full force and effect.
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the dates indicated below.
Date:
-------------------------- ----------------------------------
Warren Rustand, an individual
Date: RURAL/METRO CORPORATION, a Delaware
------------------------- corporation
By:
--------------------------------
Name:
-------------------------------
Its:
-------------------------------
<PAGE> 1
Exhibit 10.16(j)
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is made and entered into on
this day of , 1997, effective January 2, 1998, (the "Effective
Date"), by and between James H. Bolin ("Consultant") and RURAL/METRO
CORPORATION, a Delaware corporation, its subsidiaries, affiliates, joint
ventures and partnerships ("Rural/Metro").
R E C I T A L S
A. Consultant is currently employed by Rural/Metro in the position of
President, pursuant to an Employment Agreement which is scheduled to expire on
January 1, 1998.
B. Consultant has expressed his intention to terminate his employment
relationship with Rural/Metro when the term of his Employment Agreement expires
on January 1, 1998.
C. Consultant also has expressed a willingness to continue to serve
Rural/Metro in a part-time consulting capacity and as a member of Rural/Metro's
Board of Directors following the termination of his Employment Agreement.
Consultant has been a valued member of Rural/Metro's management team for many
years, and it is in Rural/Metro's best interest to retain access to Consultant's
knowledge of Rural/Metro's business. Accordingly, Rural/Metro has decided to
offer Consultant a position as a part-time independent contractor/consultant
beginning after the January 1, 1998 termination of his Employment Agreement. The
terms of this consulting arrangement are set forth below.
<PAGE> 2
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Consultant will be retained by Rural/Metro as a special consultant
following the termination of his full-time employment on January 1, 1998. In
this capacity, Consultant shall serve on the Rural/Metro Board of Directors for
the balance of his current term, and Consultant agrees to accept any special
Board positions or committee assignments to which he may be elected or
appointed. In addition, Consultant shall work on such special projects as may be
mutually agreed upon between Consultant and Rural/Metro's Chief Executive
Officer. Consultant shall not be required to work on more than sixty (60) days
in any calendar year without his consent.
2. CONSULTING FEES.
During the term of this Agreement, consulting fees will be paid to
Consultant in such installments as may be agreed to from time to time by
Consultant and Rural/Metro at the rate of $117,991.00 per year.
3. STATUS.
During the term of this Agreement, Consultant's status will be that of
an independent contractor of Rural/Metro. As an independent contractor,
Consultant agrees that he shall be responsible for the payment of his own income
taxes, social security taxes, Medicare taxes, and any and all other taxes
related to the fees received from Rural/Metro for services rendered under this
Agreement. Consultant further agrees to indemnify and hold harmless Rural/Metro
for any expenses or liabilities arising from or related to such taxes.
Consultant specifically acknowledges that Rural/Metro will not provide workman's
compensation coverage or unemployment coverage for Consultant. Consultant
acknowledges that he is an independent contractor and is not entitled to
<PAGE> 3
coverage and acknowledges that he will not make and waives any right to make a
claim against Rural/Metro suffered by Consultant performing under this
Agreement.
4. CONDITIONAL STOCK GRANT AND REPURCHASE AGREEMENT.
Notwithstanding the definition of "Service" set forth in Section 3.1 of
the Conditional Stock Grant and Repurchase Agreement dated May 14, 1993 between
Consultant and Rural/Metro, as amended ("Stock Grant Agreement"), during the
term of this Agreement, Consultant shall be considered in "Service" for purposes
of the Stock Grant Agreement. As a consequence, pursuant to Section 3.4 of the
Stock Grant Agreement, Consultant will continue to vest in shares of Rural/Metro
stock granted to him under the Stock Grant Agreement after his status with
Rural/Metro changes from full-time employee to part-time independent contractor
on January 2, 1998 and such shares shall continue to be subject to all other
terms and conditions of the Stock Grant Agreement. The Stock Grant Agreement is
hereby amended to the extent that it is inconsistent with this Section 4.
5. STOCK OPTION AGREEMENTS.
Due to his continued relationship with Rural/Metro under this
Agreement, Consultant shall be considered to be in the service of Rural/Metro
during the term of this Agreement, for the purpose of the various Stock Option
Agreements between Consultant and Rural/Metro. Therefore, for purposes of those
stock options granted to Consultant under the Rural/Metro Corporation Amended
and Restated 1992 Stock Option Plan, the Rural/Metro Corporation 1989 Employee
Stock Option Plan, as amended, and the Rural/Metro Corporation Senior Management
Stock Option Plan (the "Plans") that are not fully vested and exercisable as of
the Effective Date, Consultant will continue to accrue vesting service during
the term of this Agreement. Upon the expiration of this
<PAGE> 4
Agreement, Consultant shall cease accruing vesting service for purposes of any
stock options granted to him under the Plans, unless Consultant continues to
serve Rural/Metro.
6. TERM AND TERMINATION.
A. General. This Agreement is being executed as of the day and year
first noted above but the services shall commence on January 2, 1998 and this
Agreement will continue in effect until January 1, 2002, unless terminated
earlier pursuant to the terms of this Agreement. This Agreement also may be
terminated by the parties in any of the following ways: (a) Rural/Metro may
elect to terminate this Agreement with or without "Cause", as defined below; or
(b) Consultant may elect to terminate this Agreement with or without "Good
Reason," as defined below.
B. Employment Continuation. Rural/Metro's obligations under this
Agreement are expressly conditioned on the continuation of Consultant's
employment with Rural/Metro through January 1, 1998 pursuant to the terms and
conditions of the Employment Agreement previously entered into between
Rural/Metro and Consultant. If the Employment Agreement or Consultant's
employment with Rural/Metro is terminated for any reason by either Rural/Metro
or Consultant prior to January 1, 1998, this Consulting Agreement will become
null and void without any further action of any party.
C. Release. Rural/Metro's obligations under this Agreement also are
conditioned on Consultant executing a Release substantially in the form of the
Release attached hereto as Exhibit A, on or before the close of business on
January 22, 1998, and Consultant's forbearance of his right to revoke said
Release. Should Consultant fail to execute the Release and deliver it to the
Chief Executive Officer of Rural/Metro on or before January 22, 1998, or should
Consultant revoke the Release, this Agreement will automatically terminate,
releasing Rural/Metro from all obligations under this
<PAGE> 5
Agreement, and Consultant will be required to return any payments made to him
under this Agreement between January 2, 1998 and January 31, 1998.
7. TERMINATION BY RURAL/METRO.
A. Termination For Cause. Rural/Metro may terminate this Agreement and
Consultant's relationship with Rural/Metro for Cause at any time upon written
notice to Consultant.
For purposes of this Agreement, "Cause" shall be limited to termination
resulting from a determination by Rural/Metro that Consultant: (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 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
Consulting Agreement.
Because Consultant is in a position which involves great
responsibilities, Rural/Metro is not required to utilize its progressive
discipline policy.
Should Consultant be terminated for Cause, Rural/Metro shall be
relieved of any further obligation under this Agreement.
B. Termination Without Cause. Rural/Metro also may terminate this
Agreement and Consultant's relationship with Rural/Metro without Cause at any
time by giving thirty (30) days written notice to Consultant. In the event this
Agreement and Consultant's relationship with Rural/Metro are terminated by
Rural/Metro without Cause, Rural/Metro will continue to make the payments due to
Consultant pursuant to
<PAGE> 6
paragraph 2 through January 1, 2002. If a "Change of Control" (as defined below)
occurs, the remaining payments will be accelerated and paid in one lump-sum
within thirty (30) days of the effective date of the Change of Control.
8. TERMINATION BY CONSULTANT.
Consultant may terminate this Agreement and his relationship with
Rural/Metro with or without "Good Reason" in accordance with the provisions of
this paragraph 8.
A. Termination Without Good Reason. Consultant may terminate this
Agreement and his relationship with Rural/Metro without Good Reason at any time
by giving thirty (30) days written notice to Rural/Metro. If Consultant
terminates this Agreement and his relationship with Rural/Metro without Good
Reason, Rural/Metro's obligation to make any additional payments to Consultant
under this Agreement will cease as of the effective date of such termination.
B. Termination For Good Reason. Consultant also may terminate this
Agreement and his relationship with Rural/Metro for "Good Reason". For this
purpose, "Good Reason" means and includes (i) Rural/Metro's material breach of
its obligations under this Agreement, or (ii) the occurrence of a Change of
Control. If this Agreement and Consultant's relationship with Rural/Metro are
terminated by Consultant for Good Reason, Rural/Metro will continue to make the
payments due to Consultant pursuant to paragraph 2 through January 1, 2002. If a
"Change of Control" (as defined below) occurs, the remaining payments will be
accelerated and paid in one lump-sum within thirty (30) days of the effective
date of the Change of Control.
C. Material Breaches As Good Reason. Only a material breach by
Rural/Metro will result in Good Reason for Consultant's termination of this
Agreement. In addition, if a breach, even if material, is one that may be cured,
the breach will not be considered to be material unless Rural/Metro fails to
cure said breach within thirty (30)
<PAGE> 7
days after receiving written notice of said breach from Consultant or unless
Rural/Metro repeats said breach at any time after receiving said notice. A
breach will not give rise to Good Reason for Consultant's termination of this
Agreement unless Consultant notifies Rural/Metro of said breach and his
intention to terminate this Agreement for Good Reason within thirty (30) days
(or such longer period of time as may be agreed to by Rural/Metro) of the
occurrence of the breach.
D. Change of Control As Good Reason. Rural/Metro recognizes that
Consultant's willingness to enter into this Agreement is based upon his desire
to assist Rural/Metro in the implementation of the policies and strategies which
he, as a member of the existing management team, helped to formulate.
Rural/Metro also recognizes that Consultant is not willing to commit himself to
providing the services called for by the Agreement unless he is assured that he
will receive payments for a period of four (4) years if he is able to provide
the requisite services. Since Consultant's goals and minimum requirements may be
frustrated following a Change of Control, Rural/Metro is willing to allow
Consultant to elect within two (2) years of receipt of knowledge of a Change of
Control to terminate this Agreement and his relationship with Rural/Metro.
For purposes of this Agreement, the term "Change of Control" means and
includes:
(a) A sale, transfer or other disposition by Rural/Metro
through a single transaction or a series of transactions of securities
of Rural/Metro representing 30% or more of the combined voting power of
Rural/Metro's then outstanding securities to any "Unrelated Person" or
"Unrelated Persons" acting in concert with one another. For purposes of
this Section, 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
Securities Exchange Act of 1934 (the "Act")). For purposes of this
Section, the term
<PAGE> 8
"Unrelated Person" shall mean and include any Person other than
Rural/Metro, a wholly-owned subsidiary of Rural/Metro, or an employee
benefit plan of Rural/Metro.
(b) A sale, transfer or other disposition through a single
transaction or a series of transactions of all or substantially all of
the assets of Rural/Metro to an Unrelated Person or Unrelated Persons
acting in concert with one another.
(c) A change in ownership of Rural/Metro 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
Rural/Metro representing at least 30% of the combined voting power of
Rural/Metro'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 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.
(d) Any consolidation or merger of Rural Metro with or into an
Unrelated Person, unless immediately after the consolidation or merger
the holders of the common stock of Rural/Metro immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the
surviving corporation representing at least 50% of the combined voting
power of the surviving corporation's then outstanding securities.
(e) During any period of two (2) years, individuals who, at
the beginning of such period, constituted the Board of Directors of
Rural/Metro cease, for any reason, to constitute at least a majority
thereof, unless the election or nomination for election of each new
director was
<PAGE> 9
approved by the vote of at least two-thirds (2/3rds) of the directors
then still in office who were directors at the beginning of such
period.
(f) A change in control of Rural/Metro 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 Act, or any successor regulation
of similar import, regardless of whether Rural/Metro is subject to such
reporting requirement. The filing of a proceeding for the
reorganization of Rural/Metro under Chapter 11 of the Federal
Bankruptcy Code or any successor or other statute of similar import
shall not be deemed to be a Change of Control for the purpose of this
Agreement.
9. DEATH OR DISABILITY.
This Agreement will terminate automatically on Consultant's death or
Disability. Any amount payable under this Agreement to Consultant for services
rendered prior to his death shall be paid to Consultant's surviving spouse, or
if Consultant does not leave a surviving spouse, to Consultant's estate. No
other benefits shall be payable to Consultant'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 of termination due to Disability, Rural/Metro will
continue to make the payments due to Consultant pursuant to paragraph 2 for a
period of 12 months after the effective date of the determination that
Consultant is Disabled. Consultant shall be considered "Disabled" or to be
suffering from a "Disability" for purposes of this paragraph 9 if, in the
judgment of a licensed physician selected by the Board of Directors of
Rural/Metro, Consultant is unable to perform the essential functions of his
position required under this Agreement, with or without reasonable accommodation
because of a physical or mental impairment. If Consultant disagrees with the
determination of the physician appointed by the Board of Directors of
Rural/Metro, a physician selected by
<PAGE> 10
Consultant shall determine if Consultant is Disabled. If the two physicians
cannot agree, a third physician, selected by both physicians, shall determine if
Consultant is Disabled. The determination by said third physician shall be
binding and conclusive for all purposes.
10. BENEFITS.
Consultant acknowledges that, due to his status as an independent
contractor, he will not be entitled to participate in any benefit plans
Rural/Metro maintains for its employees. Consultant will maintain his rights
under COBRA.
11. CONFIDENTIALITY AND NON-DISCLOSURE.
During the course of his employment, Consultant has been and 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, operational budgets and
strategies, methods of operation, customer lists, strategic plans, business
plans, marketing plans and strategies, new business strategies, merger and
acquisition strategies, management systems programs, computer systems, personnel
and compensation information and payroll data, and other such reports, documents
or information (collectively the "Confidential and Proprietary Information"). In
the event his relationship with Rural/Metro is terminated by either party for
any reason, Consultant promises that he will not take with him any copies of
such Confidential and Proprietary Information in any form, format or manner
whatsoever (including computer print-outs, computer tapes, floppy disks, CD
roms, etc.) 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.
12. COVENANT-NOT-TO-COMPETE.
<PAGE> 11
A. Interests to be Protected. The parties acknowledge that during his
relationship with Rural/Metro, Consultant has performed and will continue to
perform essential services for Rural/Metro, its employees and shareholders, and
for clients of Rural/Metro. Consultant has been and 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 has gained and will gain valuable insight as
to the clients' operations, personnel and need for services. In addition,
Consultant has been and will be exposed to, have access to, and be required to
work with, a considerable amount of Rural/Metro's Confidential and Proprietary
Information.
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 Consultant 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 Consultant if he should terminate, the
parties are in full and complete 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.
B. Devotion to Rural/Metro. Consultant shall devote his best efforts to
the performance of his duties on behalf of Rural/Metro. During the term of this
<PAGE> 12
Agreement, Consultant shall not, without the express written consent of
Rural/Metro, perform services for or participate in any activity competitive
with or adverse to Rural/Metro's business, practice or affairs, whether alone or
as partner, officer, director, employee of any corporation or as a trustee,
fiduciary, consultant or other representative. However, Consultant may be a
passive shareholder holding up to 2% of the outstanding stock of a publicly
traded corporation that engages in activity that is competitive with or adverse
to Rural/Metro's business. This paragraph is not intended to prohibit Consultant
from engaging in other professional or nonprofessional activities that do not
conflict with Rural/Metro's business or interests (such as board of directors'
activity).
C. Non-Solicitation of Clients. During the term of this Agreement and
for a period of twenty-four (24) months after the termination of this Agreement,
regardless of who initiates the termination and for whatever reason, Consultant
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 client(s) of Rural/Metro with whom he has worked on behalf of
Rural/Metro at any time prior to termination, or at the time of termination, for
the purpose of soliciting or selling such customer the same, similar, or related
services that he provided on behalf of Rural/Metro. This non-solicitation
provision applies even if Consultant is terminated by Rural/Metro due to the
cessation of operations in any geographical service area where he was engaged
prior to termination, or at the time of termination.
D. Non-Solicitation of Employees. During the term of this Agreement and
for a period of twenty-four (24) months after the termination of this Agreement,
regardless of who initiates the termination and for any reason, Consultant 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, seek to
<PAGE> 13
hire, and/or hire any of Rural/Metro's personnel or employees for the purpose of
having such employee engage in services that are the same, similar or related to
the services that such employee provided for Rural/Metro.
E. Competing Business. During the term of this Agreement and for a
period of twenty-four (24) months after the termination of this Agreement,
regardless of who initiates the termination and for any reason, Consultant 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, engage in the same or similar business as
Rural/Metro, which would be in direct competition with any Rural/Metro line of
business, in any geographical service area where Rural/Metro is engaged in
business, or was considering engaging in business at any time prior to the
termination or at the time of termination. For the purposes of this provision,
the term "competition" shall mean directly or indirectly engaging in or having a
substantial interest in a business or operation which has been, is or will be,
performing the same services provided by Rural/Metro.
F. Judicial Amendment. If the scope of any provision of this Agreement
is found by a 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
Consultant'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,
Consultant understands and
<PAGE> 14
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 Consultant.
H. Survival. The provisions of this paragraph shall survive the
termination of this Agreement except as otherwise provided in this Agreement.
I. Termination. The provisions of this paragraph shall terminate if
Consultant terminates this Agreement and his relationship with Rural/Metro for
Good Reason pursuant to paragraph 8.B. Notwithstanding the forgoing, in no event
shall the provisions of this paragraph terminate before December 31, 1999.
13. OTHER AGREEMENTS AND AMENDMENTS.
This Agreement, the Employment Agreement, the Conditional Stock Grant
and Repurchase Agreement, and the various Stock Option Agreements between
Consultant and Rural/Metro constitute the entire agreement between the parties
as to the subject matter hereof. Accordingly, there are no side agreements or
verbal agreements other than those which are stated in this document or in the
Employment Agreement, the Conditional Stock Grant and Repurchase Agreement, or
the Stock Option Agreements. Any amendment, modification or change in said
Agreements must be done so in writing and signed by both parties. Rural/Metro
and Consultant also were parties to a Change of Control Agreement dated December
1, 1995. Consultant acknowledges that the Change of Control Agreement terminated
as of January 1, 1998 and is no longer in force or effect.
<PAGE> 15
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 laws of the State of Arizona shall govern the interpretation and
application of all of the provisions of this Agreement.
16. INDEMNITY.
Consultant shall be indemnified in his position to the fullest extent
permitted or required by the laws of the State of Delaware.
17. DISPUTE RESOLUTION.
A. Mediation. Any and all disputes arising under, pertaining to or
touching upon this Agreement or the statutory rights or obligations of either
party hereto, shall, if not settled by negotiation, be subject to non-binding
mediation under the National Rules for the Resolution of Employment Disputes of
the American Arbitration Association ("AAA") in effect on the date of the first
notice of demand for mediation, before an independent mediator selected by the
parties pursuant to paragraph 17.D. Notwithstanding the foregoing, both
Executive and Rural/Metro may seek preliminary judicial relief if such action is
necessary to avoid irreparable damage during the pendency of the proceedings
described in this paragraph 17. 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 Consultant, respectively. The demand shall set forth
with reasonable specificity the basis of the dispute and the relief sought. The
mediation
<PAGE> 16
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, BREACH OF CONTRACT OR POLICY, OR 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 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 the
National Rules for the Resolution of Employment Disputes of AAA in effect on the
date of the first notice of demand for arbitration. 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 discrimination claims prohibited by
statute, the arbitrator may direct payment consistent with the applicable
statute. In cases of employment tort, the arbitrator may award punitive damages
if proved by clear and convincing evidence. The arbitrator may award fees to the
prevailing party and assess
<PAGE> 17
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 the AAA. 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 AAA. Consultant shall have the first
strike.
18. NOTICES.
All notices, demands, or other communications given under this
Agreement shall be in writing and shall be deemed to have been sufficiently
given upon personal delivery, facsimile transmission, or by certified mail,
return receipt requested, correctly addressed to the addresses of the parties as
follows:
<PAGE> 18
If to Consultant James H. Bolin
1524 West Port au Prince Lane
Phoenix, Arizona 85023-5107
If to Rural/Metro Warren Rustand
Rural/Metro Corporation
8401 East Indian School Road
Scottsdale, Arizona 85251
Consultant has signed this Agreement and Rural/Metro has caused this
Agreement to be signed by its authorized representative on this ____ day of
January, 1998.
________________________________________
James H. Bolin
RURAL/METRO
CORPORATION, a Delaware corporation
By:
_______________________________________
Its:
_______________________________________
<PAGE> 19
EXHIBIT "A"
RELEASE
This Release is made and entered into as of this _______ day of
January, 1998, by James H. Bolin ("Consultant") in favor of RURAL/METRO
CORPORATION, a Delaware corporation, its subsidiaries, affiliates, joint
ventures and partnerships ("Rural/Metro"). Rural/Metro's obligations under its
Consulting Agreement (the "Agreement") with Consultant are conditioned upon the
Consultant delivering this Release to Rural/Metro's Chief Executive Officer on
or before January 22, 1998.
R E C I T A L S
A. Consultant has been employed by Rural/Metro in the position of
President. Consultant expressed a desire to reduce his work schedule and role
with Rural/Metro effective January 1, 1998, but to continue to serve Rural/Metro
as a member of its Board of Directors and as a part-time independent
contractor/consultant after January 1, 1998. Consultant has made this decision
for personal reasons and without any pressure or encouragement from Rural/Metro
or any Rural/Metro officer or employee.
B. Consultant and Rural/Metro entered into an Employment Agreement in
February of 1997 ("Employment Agreement"), which governed the terms and
conditions of Consultant's employment with Rural/Metro. The Employment Agreement
between the parties expired on January 1, 1998.
C. Consultant and Rural/Metro also have entered into a Consulting
Agreement dated January ___, 1998 ("Consulting Agreement"), which governs the
terms and conditions of Consultant's relationship with Rural/Metro as a
part-time independent contractor/consultant. The Consulting Agreement is
scheduled to expire January 1, 2002.
D. Consultant understands that this Release is given as consideration
for the payments and benefits provided to Consultant by Rural Metro in the
Consulting Agreement between the parties.
<PAGE> 20
NOW, THEREFORE, THE TERMS OF THIS RELEASE ARE AS FOLLOWS:
1. RELEASE OF CLAIMS.
Consultant hereby agrees to forever release, discharge, cancel, waive,
and acquit, for himself and for his marital community, heirs, executors,
administrators and assigns, Rural/Metro, and any and all of its affiliates,
subsidiaries, corporate parents, agents, directors, officers, owners, employees,
attorneys, successors and assigns, of and from any and all employment based
rights, claims, demands, causes of action, obligations, damages, penalties,
fees, costs, expenses, and liability of any nature whatsoever, whether in law or
equity, which Consultant may have against it, them, or any of them arising out
of, or by reason of any cause, matter, or thing whatsoever as of the date of
execution of this Release by Consultant, WHETHER KNOWN OR UNKNOWN TO THE PARTIES
AT THAT TIME.
2. WAIVER OF ALL CLAIMS. Consultant agrees to waive all employment
related claims against Rural/Metro including, without limitation, attorney's
fees, any claims, demands, or causes of action arising out of, or relating in
any manner whatsoever to, the employment between Consultant and Rural/Metro,
including, but not limited to, any charge, claim, lawsuit or other proceeding
arising under the Civil Rights Acts of 1866, 1964, 1991, Title VII as amended by
the Civil Rights Act of 1991, the Americans with Disabilities Act ("ADA"), the
Age Discrimination in Employment Act ("ADEA"), the Labor Management Relations
Act, the Employee Retirement Income Security Act, the Fair Labor Standards Act,
the Equal Pay Act, the Rehabilitation Act of 1973, the Arizona Civil Rights Act,
the Arizona Wage Statute, the Family and Medical Leave Act, Workers'
Compensation claims, or any other federal, state or local statute.
3. INDEMNIFICATION EXCEPTION.
Notwithstanding any other provision in this Release, by the execution
of this Release Consultant does not release or waive any claim Consultant my
have to
<PAGE> 21
indemnification from Rural/Metro, whether such claim is based on contract,
statute, or otherwise.
4. WAIVER OF PARTICIPATION IN LITIGATION.
Consultant further agrees neither to institute, nor cause to be
instituted, any legal proceeding, including but not limited to, filing any claim
or complaint with any government agency alleging any violation of law or public
policy, against Rural/Metro and/or any and all of its affiliates, subsidiaries,
corporate parents, agents, directors, officers, owners, employees, successors,
and assignees premised upon any legal theory or claim whatsoever that exists as
of the date of execution of this Release by Consultant, including but not
limited to, contract, tort, wrongful discharge, personal injury, interference
with contract, breach of contract, defamation, negligence, infliction of
emotional distress, fraud, or deceit, except to enforce the terms of this
Release.
5. ACKNOWLEDGMENTS BY CONSULTANT. Consultant, by his execution of this
Release, acknowledges that the following statements are true:
A. Consultant has been given the opportunity and has, in fact, read
this Release in its entirety and any of his questions concerning the Release
have been answered to his satisfaction;
B. Consultant has been advised to seek independent legal advice of his
own choosing and has, in fact, done so;
C. Consultant fully understands the contents of this Release and
understands that it is a FULL WAIVER OF ALL CLAIMS, including arbitration claims
and awards, against Rural/Metro and its affiliates, including any rights under
ADEA or ADA, other than claims with respect to Consultant's rights under COBRA
and his rights arising out of his participation in the qualified retirement plan
sponsored by Rural/Metro or its affiliates (including, but not limited to,
Rural/Metro's 401(k) Plan and its ESOP).
<PAGE> 22
D. Consultant has entered into this Release knowingly and voluntarily
in consideration for the promises referenced in the Consulting Agreement, and
that no other representations have been made to him to induce or influence his
execution of this Release; and
E. Consultant has been given at least 21 days within which to consider
this Release before signing and seven days following his execution of the
Release to revoke this Release. The Release shall not become effective or
enforceable until the foregoing seven day revocation period has expired.
Consultant's decision not to revoke this Release shall be reflected by his
signing Attachment "A" hereto.
---------------------------
James H. Bolin
<PAGE> 23
ATTACHMENT "A"
By signing below, I hereby acknowledge that I have chosen not to revoke
my agreement to, and execution of, the Release. My signature below confirms my
renewed agreement to the terms of the Release, including the release and waiver
of any and all claims relating to my employment with Rural/Metro Corporation and
its successors, assigns, and affiliates and/or the termination of my employment
with Rural/Metro.
--------------------------------
James H. Bolin
--------------------------------
Date
DO NOT SIGN, DATE, OR RETURN THIS ATTACHMENT TO RURAL/METRO UNTIL EIGHT DAYS
AFTER YOU DATE AND SIGN THE RELEASE.
<PAGE> 1
EXHIBIT 10.36
RURAL/METRO CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED THROUGH NOVEMBER 20, 1997
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 and such Subsidiary Corporations as may be designated from time to
time by the Board of Directors of the Company.
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
2
<PAGE> 3
Company prior to the Offering Commencement Date for the next scheduled Offering
(as such terms are 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 30 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 450,000. 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 30 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.
3
<PAGE> 4
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.
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 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; provided, however, that for Offerings that commence on or after
January 1, 1998, the Option Price shall be the lower of (a) 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; or
(b) 85 percent of the closing price of the Stock on the Offering Termination
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.
4
<PAGE> 5
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, at the option of the Committee, either
(a) returned (without interest) to any Employee promptly following the
termination of an Offering, or (b) added to the Participation Amount and held
for the purchase of Stock in connection with the next Offering; provided,
however, that such amount (without interest) shall be refunded to any Employee
who provides the Company with a written request for a refund prior to the use of
such amount to purchase Stock at the end of the next Offering.
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 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.
5
<PAGE> 6
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 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 450,000 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
6
<PAGE> 7
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 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
7
<PAGE> 8
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 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
8
<PAGE> 9
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 the Plan (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, 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> 1
Exhibit 10.37(b)
MASTER SECURITY AGREEMENT
This Master Security Agreement provides a set of terms and conditions that the
parties hereto intend to be applicable to various loan transactions secured by
personal property. Each such loan and security agreement shall be evidenced by a
schedule of indebtedness and collateral ("Schedule") executed by Secured Party
and Debtor that explicitly incorporates the provisions of this Master Security
Agreement and that sets forth specific terms of that particular loan and
security contract. Where the provisions of a Schedule conflict with the terms
hereof, the provisions of the Schedule shall prevail. Each Schedule shall
constitute a complete and separate loan and security agreement, independent of
all other Schedules, and without any requirement of being accompanied by an
originally executed copy of this Master Security Agreement. The term "Security
Agreement" when used herein shall refer to an individual Schedule.
One originally executed copy of the Schedule shall be denominated "Originally
Executed Copy No. 1 of ___ originally executed copies" and such copy shall be
retained by Secured Party. If more than one copy of the Schedule is executed by
Secured Party and Debtor, all such other copies shall be numbered consecutively
with numbers greater than 1. Only transfer of possession by Secured Party of
Originally Executed Copy No. 1 shall be effective for purposes of perfecting an
interest in such Schedule by possession.
1. GRANT OF SECURITY INTEREST; DESCRIPTION OF COLLATERAL.
Debtor grants to Secured Party a security interest in the property described in
the Schedules now or hereafter executed by or pursuant to the authority of the
Debtor and accepted by Secured Party in writing along with all present and
future attachments and accessories thereto and replacements and proceeds
thereof, including amounts payable under any insurance policy, all hereinafter
referred to collectively as "Collateral." Each Schedule shall be serially
numbered. Unless and only to the extent otherwise expressly provided in a
Schedule, no Schedule shall replace any previous Schedule but shall be
supplementary to all previous Schedules.
2. WHAT OBLIGATIONS THE COLLATERAL SECURES.
EACH ITEM OF COLLATERAL SHALL SECURE THE SPECIFIC AMOUNT WHICH DEBTOR PROMISES
TO PAY IN EACH SCHEDULE.
3. PROMISE TO PAY; TERMS AND PLACE OF PAYMENT.
Debtor promises to pay Secured Party the amounts set forth on each Schedule at
the rate and upon such terms as provided therein.
4. USE AND LOCATION OF COLLATERAL.
Debtor warrants and agrees that the Collateral is to be used primarily for:
/ / business or commercial purposes (other than agricultural),
/ / agricultural purposes (see definition on the final page), or
/ / both agricultural and business or commercial purposes.
Location:
________________________________________________________________________________
Address City County State Zip Code
Debtor and Secured Party agree that regardless of the manner of affixation, the
Collateral shall remain personal property and not become part of the real
estate.
5. LATE CHARGES AND OTHER FEES.
Any payment not made when due shall, at the option of Secured Party, bear late
charges thereon calculated at the rate of 1% per month, but in no event greater
than the highest rate permitted by relevant law. Debtor shall be responsible for
and pay to Secured Party a returned check fee, not to exceed the maximum
permitted by law, which fee will be equal to the sum of (i) the actual bank
charges incurred by Secured Party plus (ii) all other actual costs and expenses
incurred by Secured Party. The returned check fee is payable upon demand as
indebtedness secured by the Collateral under this Security Agreement.
6. DEBTOR'S WARRANTIES AND REPRESENTATIONS.
Debtor warrants and represents:
Page 1 of 6
<PAGE> 2
(a) that Debtor is justly indebted to Secured Party for the full amount of the
indebtedness set forth on each Schedule;
(b) that except for the security interest granted hereby, the Collateral is
free from and will be kept free from all liens, claims, security interests
and encumbrances;
(c) that no financing statement covering the Collateral or any proceeds thereof
is on file in favor of anyone other than Secured Party, but if such other
financing statement is on file, it will be terminated or subordinated;
(d) that all information supplied and statements made by Debtor in any
financial, credit or accounting statement or application for credit prior
to, contemporaneously with or subsequent to the execution of this Security
Agreement with respect to this transaction are and shall be true, correct,
valid and genuine in all material respects; and
(e) that Debtor has full authority to enter into this agreement and in so doing
it is not violating its charter or by-laws, any law or regulation or
agreement with third parties, and it has taken all such action as may be
necessary or appropriate to make this Security Agreement binding upon it.
7. DEBTOR'S AGREEMENTS.
Debtor agrees:
(a) to defend at Debtor's own cost any action, proceeding, or claim affecting
the Collateral;
(b) to pay reasonable attorneys' fees and other reasonable expenses incurred by
Secured Party in enforcing its rights against Debtor under this Security
Agreement;
(c) to pay all taxes, assessments, license fees and other public or private
charges levied or assessed against the Collateral unless the foregoing are
being contested
(d) that if a certificate of title be required or permitted by law, Debtor
shall obtain such certificate with respect to the Collateral, showing the
security interest of Secured Party thereon and in any event do everything
necessary or expedient to preserve or perfect the security interest of
Secured Party;
(e) that Debtor will not misuse, fail to keep in good repair, secrete or
without the prior written consent of Secured Party, sell, rent, lend,
encumber or transfer any of the Collateral notwithstanding Secured Party's
right to proceeds;
(f) that within 48 hours prior notice to Debtor Secured Party may enter upon
Debtor's premises or wherever the Collateral may be located at any
reasonable time to inspect the Collateral and Debtor's books and records
pertaining to the Collateral, and Debtor shall assist Secured Party in
making such inspection.
8. INSURANCE AND RISK OF LOSS.
All risk of loss, damage to or destruction of the Collateral shall at all times
be on Debtor. Debtor will procure forthwith and maintain at Debtor's expense
insurance against all risks of loss or physical damage to the Collateral for the
full insurable value thereof for the life of this Security Agreement and such
other insurance thereon in amounts and against such risks as Secured Party may
reasonably specify, and shall promptly deliver each policy to Secured Party with
a standard long-form mortgagee endorsement attached thereto showing loss payable
to Secured Party; and providing Secured Party with not less than 30 days written
notice of cancellation; each such policy shall be in form, terms and amount and
with insurance carriers reasonably satisfactory to Secured Party; Secured
Party's acceptance of policies in lesser amounts or risks shall not be a waiver
of Debtor's foregoing obligations. As to Secured Party's interest in such
policy, no act or omission of Debtor or any of its officers, agents, employees
or representatives shall affect the obligations of the insurer to pay the full
amount of any loss.
Should Debtor fail to furnish such insurance policy to Secured Party, or to
maintain such policy in full force, or to pay any premium in whole or in part
relating thereto, then Secured Party, without waiving or releasing any default
or obligation by Debtor, may (but shall be under no obligation to) obtain and
maintain insurance and pay the premium therefor on behalf of Debtor and charge
the premium to Debtor's indebtedness under this Security Agreement. The full
amount of any such premium paid by Secured Party shall be payable by Debtor upon
demand, and failure to pay same shall constitute an event of default under this
Security Agreement.
9. EVENTS OF DEFAULT; ACCELERATION.
A VERY IMPORTANT ELEMENT OF THIS SECURITY AGREEMENT IS THAT DEBTOR MAKE ALL ITS
PAYMENTS PROMPTLY AS AGREED UPON. IT IS ESSENTIAL THAT THE COLLATERAL REMAIN IN
GOOD CONDITION AND ADEQUATE SECURITY FOR THE INDEBTEDNESS. THE FOLLOWING ARE
EVENTS OF DEFAULT UNDER THIS SECURITY AGREEMENT WHICH WILL ALLOW SECURED PARTY
TO TAKE SUCH ACTION UNDER THIS PARAGRAPH AND UNDER PARAGRAPH 10 AS IT DEEMS
NECESSARY:
(a) any of Debtor's obligations to Secured Party under this Security Agreement
is not paid promptly when due;
Page 2 of 6
<PAGE> 3
(b) Debtor breaches any warranty or provision hereof, or of any note or of any
other instrument or agreement delivered by Debtor to Secured Party in
connection with this transaction;
(c) Debtor becomes insolvent or ceases to do business as a going concern;
(d) it is determined that Debtor has given Secured Party materially misleading
information regarding its financial condition;
(e) any of the Collateral is lost or destroyed and not adequately covered by
Insurance;
(f) a complaint in bankruptcy or for arrangement or reorganization or for
relief under any insolvency law is filed by or against Debtor and in the
case of any insolvency filing, not dismissed within 90 days after filing or
Debtor admits its inability to pay its debts as they mature;
(g) Collateral of Debtor is attached or a receiver is appointed for Debtor;
(h) Debtor defaults under the Credit Agreement dated September 29, 1995 between
Rural/Metro Corporation as Guarantor and First National Union Bank as
Lender.
IF DEBTOR SHALL BE IN DEFAULT HEREUNDER, THE INDEBTEDNESS DESCRIBED IN EACH
SCHEDULE AND ALL OTHER INDEBTEDNESS THEN OWING BY DEBTOR TO SECURED PARTY UNDER
THIS (COLLECTIVELY, THE "INDEBTEDNESS") SHALL, IF SECURED PARTY SHALL SO ELECT,
BECOME IMMEDIATELY DUE AND PAYABLE. After acceleration: the unpaid principal
balance of the indebtedness described in any Schedule shall bear interest at the
same rate as before acceleration until paid in full.
In no event shall the Debtor upon demand by Secured Party for payment of the
Indebtedness, by acceleration of the maturity thereof or otherwise, be obligated
to pay any interest in excess of the amount permitted by law. Any acceleration
of the Indebtedness, if elected by Secured Party, shall be subject to all
applicable laws, including laws relating to rebates and refunds of unearned
charges.
10. SECURED PARTY'S REMEDIES AFTER DEFAULT; CONSENT TO ENTER PREMISES.
UPON DEBTOR'S DEFAULT AND AT ANY TIME THEREAFTER, SECURED PARTY SHALL HAVE ALL
THE RIGHTS AND REMEDIES OF A SECURED PARTY UNDER THE ARIZONA UNIFORM COMMERCIAL
CODE AND ANY OTHER APPLICABLE LAWS, INCLUDING THE RIGHT TO ANY DEFICIENCY
REMAINING AFTER DISPOSITION OF THE COLLATERAL FOR WHICH DEBTOR HEREBY AGREES TO
REMAIN FULLY LIABLE. UPON DEBTOR'S DEFAULT AND AT ANY TIME THEREAFTER, DEBTOR
AGREES THAT SECURED PARTY, BY ITSELF OR ITS AGENT, MAY WITHOUT NOTICE TO ANY
PERSON AND WITHOUT JUDICIAL PROCESS OF ANY KIND, ENTER INTO ANY PREMISES OR UPON
ANY LAND OWNED, LEASED OR OTHERWISE UNDER THE REAL OR APPARENT CONTROL OF DEBTOR
OR ANY AGENT OF DEBTOR WHERE THE COLLATERAL MAY BE OR WHERE SECURED PARTY
BELIEVES THE COLLATERAL MAY BE, AND DISASSEMBLE, RENDER UNUSABLE AND/OR
REPOSSESS ALL OR ANY ITEM OF THE COLLATERAL, DISCONNECTING AND SEPARATING ALL
COLLATERAL FROM ANY OTHER PROPERTY AND USING ALL FORCE NECESSARY. Debtor
expressly waives all further rights to possession of the Collateral after
default and all claims for injuries suffered through or loss caused by such
entering and/or repossession other than those caused by the gross negligence or
willful misconduct of Secured Party or its agents, Secured Party may require
Debtor to assemble the Collateral and return it to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to both parties.
Secured Party may sell or lease the Collateral at a time and location of its
choosing provided that the Secured Party acts in good faith and in a
commercially reasonable manner. Secured Party will give Debtor reasonable notice
of the time and place of any public sale of the Collateral or of the time after
which any private sale or any other intended disposition of the Collateral is to
be made. Unless otherwise provided by law, the requirement of reasonable notice
shall be met if such notice is mailed, postage prepaid, to the address of Debtor
shown herein at least ten days before the time of the sale or disposition.
Expenses of retaking, holding, preparing for sale, selling and the like shall
include reasonable attorneys' fees and other reasonable legal expenses. Debtor
understands that Secured Party's rights are cumulative and not alternative.
11. WAIVER OF DEFAULTS; AGREEMENT INCLUSIVE.
Secured Party may in its sole discretion waive a default, or cure, at Debtor's
expense, a default. Any such waiver in a particular instance or of a particular
default shall not be a waiver of other defaults or the same kind of default at
another time. No modification or change in this Security Agreement or any
related note, instrument or agreement shall bind Secured Party unless in writing
signed by Secured Party. No oral agreement shall be binding.
12. FINANCING STATEMENTS; CERTAIN EXPENSES.
At the request of Secured Party, Debtor will execute any financing statements,
agreements or documents, in form satisfactory to Secured Party which Secured
Party may deem reasonably necessary or advisable to establish and maintain a
perfected security interest in the Collateral and will pay the reasonable cost
of filing or recording the same in all public offices deemed necessary or
advisable by Secured Party. Debtor also agrees to pay all reasonable costs and
expenses reasonably incurred by Secured Party in conducting UCC, tax or other
lien searches against the Debtor or the Collateral and such other fees as may be
agreed.
Page 3 of 6
<PAGE> 4
13. WAIVER OF DEFENSES ACKNOWLEDGMENT.
If Secured Party assigns this Security Agreement to a third party ("Assignee"),
then after such assignment:
(a) Debtor will make all payments directly to such Assignee at such place as
Assignee may from time to time designate in writing;
(b) Debtor agrees that it will settle all claims, defenses, setoffs and
counterclaims it may have against Secured Party directly with Secured Party
and will not set up any such claim, defense, setoff or counterclaim against
Assignee, Secured Party hereby agreeing to remain responsible therefor;
(c) Secured Party shall not be Assignee's agent for any purpose and shall have
no authority to change or modify this Security Agreement or any related
document or instrument; and
(d) Assignee shall have all of the rights and remedies of Secured Party
hereunder but none of Secured Party's obligations.
14. MISCELLANEOUS.
Debtor waives all exemptions. Any provisions hereof contrary to, prohibited by
or invalid under applicable laws or regulations shall be inapplicable and deemed
omitted herefrom, but shall not invalidate the remaining provisions hereof.
Debtor and Secured Party each hereby waive any right to a trial by jury in any
action or proceeding with respect to, in connection with, or arising out of this
Security Agreement, or any note or document delivered pursuant to this Security
Agreement. The Debtor shall have the right to prepay the indebtedness described
in any Schedule in full, but not in part, without any penalty or premium. DEBTOR
ACKNOWLEDGES RECEIPT OF A TRUE COPY AND WAIVES ACCEPTANCE HEREOF.
If Debtor is a corporation, this Security Agreement is executed pursuant to
authority of its Board of Directors. Except where the context otherwise
requires, "Debtor" and "Secured Party" include the heirs, executors or
administrators, successors or assigns of those parties; nothing herein shall
authorize Debtor to assign this Security Agreement or its rights in and to the
Collateral. If more than one Debtor executes this Security Agreement, their
obligations under this Security Agreement shall be joint and several.
If at any time this transaction would be usurious under applicable law, then
regardless of any provision contained in this Security Agreement or in any other
agreement made in connection with this transaction, it is agreed that:
(a) the total of all consideration which constitutes interest under applicable
law that is contracted for, charged or received upon this Security
Agreement or any such other agreement shall under no circumstances exceed
the maximum rate of interest authorized by applicable law and any excess
shall be credited to the Debtor; and
(b) If Secured Party elects to accelerate the maturity of, or if Secured Party
permits Debtor to prepay the indebtedness described in Paragraph 3, any
amounts which because of such action would constitute interest may never
include more than the maximum rate of interest authorized by applicable law
and any excess interest, if any, provided for in this Security Agreement or
otherwise, shall be credited to Debtor automatically as of the date of
acceleration or prepayment.
15. SALES OF COLLATERAL.
From time to time it will be necessary for the Debtor to sell individual items
of Collateral. In the event that the Debtor provides the Secured Party with a
written notice of its intention to sell an item of Collateral, Secured Party
will release its security interest in the Collateral in exchange for a partial
prepayment of the principal. No prepayment fee will apply to such partial
prepayment.
Page 4 of 6
<PAGE> 5
DATED:
--------------------
DEBTOR:
- -----------------------------------------------------------
Name of individual, corporation or partnership
By Title
------------------------------------------- -------------------------
If corporation, have signed by President, Vice President or Treasurer, and
give official title. If owner or partner, state which.
- ---------------------------------------------------------------
Address
- ---------------------------------------------------------------
City State Zip Code
SECURED PARTY:
- --------------------------------------------------------------
Name of individual, corporation or partnership
By Title
------------------------------------------------ -----------------------
If corporation, give official title. If owner or partner, state which.
- ---------------------------------------------------------------
Address
- ---------------------------------------------------------------
City State Zip Code
- -------------------------------------------------------------------------------
If Debtor is a partnership, enter:
Partners' names Home addresses
- --------------- --------------
NOTICE: DO NOT USE THIS FORM FOR TRANSACTIONS FOR PERSONAL, FAMILY OR HOUSEHOLD
PURPOSES. FOR AGRICULTURAL AND OTHER TRANSACTIONS SUBJECT TO FEDERAL OR STATE
REGULATIONS, CONSULT LEGAL COUNSEL TO DETERMINE DOCUMENTATION REQUIREMENTS.
Page 5 of 6
<PAGE> 6
AGRICULTURAL PURPOSES generally means farming, including dairy farming, but it
also includes the transportation, harvesting, and processing of farm, dairy, or
forest products if what is transported, harvested, or processed is farm, dairy,
or forest products grown or bred by the user of the equipment itself. It does
not apply, for instance, to a logger who harvests someone else's forest, or a
contractor who prepares land or harvests products on someone else's farm.
SPECIAL PROVISIONS INSTRUCTIONS - THE NOTATIONS TO BE ENTERED IN THE SPECIAL
PROVISIONS SECTION OF THIS DOCUMENT FOR USE IN ALABAMA, FLORIDA, GEORGIA, IDAHO,
NEVADA, NEW HAMPSHIRE, OREGON, SOUTH DAKOTA AND WISCONSIN ARE SHOWN IN THE
APPLICABLE STATE PAGES OF THE LOANS AND MOTOR VEHICLES MANUAL.
Page 6 of 6
<PAGE> 7
FLEET RENTAL RIDER TO MASTER SECURITY AGREEMENT
Rider to Master Security Agreement between W & W Leasing Company, Inc.
("Debtor") and
The CIT Group/Equipment Financing, Inc. ("Secured Party") dated
, ("Security Agreement").
Anything in the Security Agreement to which this Rider is annexed and made a
part to the contrary notwithstanding, Debtor and Secured Party agree:
1. RENTAL OF COLLATERAL BY DEBTOR.
The Debtor is engaged in the business of renting Collateral of the kind
described in the Schedules of Indebtedness and Collateral described in Paragraph
1 of this Security Agreement. Both Debtor and Secured Party intend Debtor to
rent this inventory Collateral, BUT SUBJECT AND SUBORDINATE TO THIS SECURITY
AGREEMENT and only in the regular course of business as Debtor normally rents
such inventory. Until default, Debtor may rent the Collateral or any part
thereof in its regular course of business but subject to this Security
Agreement. Debtor may remove the Collateral to other locations, without prior
consent of Secured Party. Debtor hereby agrees that Secured Party shall, at any
time and from time to time, after 48 hours prior notice to Debtor or Lessee, as
applicable, have full access to and the right to inspect the Collateral
hereunder whether such Collateral is located on Debtor's premises or on the
premises of any lessee to whom Debtor has leased any or all of the Collateral
hereunder; that, in no event shall Debtor remove or permit the Collateral to be
removed to a place other than the United States, exclusive of all Commonwealths,
Territories and Possessions, without the written consent of Secured Party, which
consent shall not be unreasonably withheld.
2. LEASES.
Debtor agrees that all leases of the Collateral shall include a provision
providing that Debtor may assign its interest in the Collateral without the
prior written consent of the lessee under such lease.
Dated:
-------------------------------
DEBTOR:
W & W LEASING COMPANY, INC.
- -------------------------------------
Name of individual, corporation or partnership
By Title
------------------------------------------------ --------------------
If corporation, have signed by President, Vice President or Treasurer, and
give official title. If owner or partner, state which.
SECURED PARTY:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By Title
----------------------------------------------- ---------------------
Page 1
<PAGE> 8
GUARANTY
To:
- --------------------------------------------------------------------
Address
- ---------------------------------------------------------------------
City State Zip Code
Rural/Metro Corporation, a Delaware corporation, requests you to extend credit
to or to purchase security agreements, leases, notes, accounts and/or other
obligations (herein generally termed "paper") of or from or otherwise to do
business with
- -------------------------------------------------------------------------------
Company City State
hereinafter called the "Company," and to induce you so to do and in
consideration thereof and of benefits to accrue to each of us therefrom, we, as
a primary obligor, unconditionally guarantee to you that the Company will fully
and promptly pay and perform all its present and future obligations to you,
whether direct or indirect, joint or several, absolute or contingent, secured or
unsecured, matured or unmatured and whether originally contracted with you or
otherwise acquired by you, irrespective of any invalidity or unenforceability of
any such obligation or the insufficiency, invalidity or unenforceability of any
security therefor; and agrees, without your first having to proceed against the
Company or to liquidate paper or any security therefor, to pay on demand all
sums due and to become due to you from the Company and all reasonable losses,
costs, attorneys' fees or expenses which may be suffered by you by reason of the
Company's default or default of any of the undersigned hereunder; and agrees to
be bound by and on demand to pay any deficiency established by a sale of paper
and/or security held, with or without notice to us. This guaranty is an
unconditional guarantee of payment and performance. We shall not be released or
discharged, either in whole or in part, by your failure or delay to perfect or
continue the perfection of any security interest in any property which secures
the obligations of the Company or us to you, or to protect the property covered
by such security interest.
No termination shall be effective except by notice sent to you by certified mail
return receipt requested naming a termination date effective not less than 90
days after the receipt of such notice by you; or affect any transaction effected
prior to the effective date of termination.
We waive: notice of acceptance hereof; presentment, demand, protest and notice
of nonpayment or protest as to any note or obligation signed, accepted, endorsed
or assigned to you by the Company; any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other claim which we
may now or hereafter have against the Company or any other person directly or
contingently liable for the obligations guaranteed hereunder, or against or with
respect to the Company's property (including, without limitation, property
collateralizing its obligations to you), arising from the existence or
performance of this guaranty; all exemptions laws and any other demands and
notices required by law; all setoffs and counterclaims; any and all defenses
based on suretyship or any other applicable law, including without limitation
all rights and defenses arising out of (i) an election of remedies by you even
though that election of remedies may have destroyed rights of subrogation and
reimbursement against the Company by operation of law or otherwise, (ii)
protections afforded to the Company pursuant to antideficiency or similar laws
limiting or discharging the Company's obligations to you, (iii) the invalidity
or unenforceability of this guaranty, (iv) the failure to notify us of the
disposition of any property securing the obligations of the Company, (v) the
commercial reasonableness of such disposition or the impairment, however caused,
of the value of such property, and (vi) any duty on your part (should such duty
exist) to disclose to us any matter, fact or thing related to the business
operations or condition (financial or otherwise) of the Company or its
affiliates or property, whether now or hereafter known by you.
You may at any time and from time to time, without our consent, without notice
to us and without affecting or impairing the obligation of any of us hereunder,
do any of the following:
(a) renew, extend (including extensions beyond the original term of the
respective item of paper), modify (including changes in interest rates),
release or discharge any obligations of the Company, of its customers, of
co-guarantors (whether hereunder or under a separate instrument) or of any
other party at any time directly or contingently liable for the payment of
any of said obligations;
(b) accept partial payments of said obligations;
(c) accept new or additional documents, instruments or agreements relating to
or in substitution of said obligations;
(d) settle, release (by operation of law or otherwise), compound, compromise,
collect or liquidate any of said obligations and the security therefor in
any manner;
(e) consent to the transfer or return of the security, take and hold
additional security or guaranties for said obligations;
Page 1 of 2
<PAGE> 9
(f) amend, exchange, release or waive any security or guaranty; or
(g) bid and purchase at any sale of paper or security and apply any proceeds or
security, and direct the order and manner of sale.
If a claim is made upon you at any time for repayment or recovery of any
amount(s) or other value received by you, from any source, in payment of or on
account of any of the obligations of the Company guaranteed hereunder and you
repay or otherwise become liable for all or any part of such claim by reason of:
(a) any judgment, decree or order of any court or administrative body having
competent jurisdiction; or
(b) any settlement or compromise of any such claim,
we shall remain liable to you hereunder for the amount so repaid or for which
you are otherwise liable to the same extent as if such amount(s) had never been
received by you, notwithstanding any termination hereof or the cancellation of
any note or other agreement evidencing any of the obligations of the Company.
This guaranty shall bind our administrators, representatives, successors, and
assigns, and shall inure to your successors and assigns, including, but not
limited to, any party to whom you may assign any item or items of paper, we
hereby waiving notice of any such assignment. All of your rights are cumulative
and not alternative.
BY EXECUTION OF THIS GUARANTY EACH GUARANTOR HEREUNDER AGREES TO WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ON ANY MATTER
WHATSOEVER ARISING OUT OF, IN CONNECTION WITH, OR RELATED TO THIS GUARANTY.
Executed .
-------------------------------------
CORPORATE NOTE: Enter exact name of corporation on first blank line,
GUARANTORS followed by city, state and zip code.
- ----------------------------------------------------------
Name of Corporation
- -----------------------------------------------------------------
City State Zip code
By Title
---------------------------------------------- -------------------
Have signed by President, Vice President or Treasurer.
- ----------------------------------------------------------------
Attest Secretary
Page 2 of 2
<PAGE> 10
SCHEDULE NO.
Schedule of Indebtedness and Collateral
Attached to and made a part of Master Security Agreement dated
, between the undersigned Secured Party and Debtor.
This Schedule of Indebtedness and Collateral incorporates the terms and
conditions of the above-referenced Master Security Agreement.
This is Originally Executed Copy No. of originally executed copies.
Only transfer of possession by Secured Party of Originally Executed Copy No. 1
shall be effective for purposes of perfecting an interest in this Schedule by
possession.
The equipment listed on this Schedule will be located at:
- -------------------------------------------------------------------------------
Address City State Zip Code
Debtor grants to Secured Party a security interest in the property described
below, along with all present and future attachments and accessories thereto and
replacements and proceeds thereof, including amounts payable under any insurance
policy, all hereinafter referred to collectively as "Collateral".
Collateral Description (Describe Collateral fully including make, kind of unit,
model and serial numbers and any other pertinent information.)
Debtor promises to pay Secured Party (i) the total PRINCIPAL sum of $
in (total number) principal payments of $
each, commencing on , and a like sum on
a like date of each month thereafter until fully paid, provided, however, that
the final payment shall be in the amount of the unpaid balance, PLUS
(ii) INTEREST payable monthly at the "Governing Rate" in effect from time to
time plus % on the unpaid principal balance, but in no event greater than
the highest rate permitted by relevant law in effect from time to time during
the term of this Security Agreement even if this Security Agreement shall state
a minimum rate of interest.
"Governing Rate" shall mean a rate equal to the higher of the LIBOR Rate or the
commercial paper rate.
Interest shall be computed on the basis of a year of 360 days.
Any change in the rate of interest based upon a change in the Governing Rate
shall take effect on an Adjustment Day.
As used herein: (i) "Adjustment Day" shall mean the day of each month
commencing ; (ii) "LIBOR Rate" means the rate for deposits in
U.S. Dollars for a period of days which appears on Telerate Page 3750 as of
11:00 a.m., London time, on the day that is two London Banking Days preceding
the applicable Adjustment Day. If such rate does not appear on the Telerate Page
3750, the rate for that Adjustment Day will be the last such rate that appeared
on Telerate Page 3750, provided that if such rate did not appear on Telerate
Page 3750 for a period of more than five London Banking Days prior to that
Adjustment Day, then the LIBOR Rate shall be determined from such source as
Secured Party shall determine; (iii) "London Banking Day" means any day on which
commercial banks are open for business (including dealings in foreign exchange
and foreign currency deposits) in London; (iv) "Telerate Page" means the display
page so designated on the Dow Jones Telerate Service (or such other page as may
replace that page on that service, or such other service as may be nominated as
the information vendor, for the purpose of displaying rates or prices for U.S.
deposits for a period of ; and (v) "commercial paper rate" shall mean the
average rate quoted by The Wall Street Journal or such other source as Secured
Party may determine for 30-day dealer commercial paper.
Page 1 of 2
<PAGE> 11
The rate of interest payable on the loan from the date such loan is made to the
first Adjustment Day is % per annum.
EXECUTED ON
---------------------------------
DEBTOR:
- ---------------------------------------------------
Name of individual, corporation or partnership
By Title
------------------------------------------------ -------------------
ACCEPTED ON
--------------------------
SECURED PARTY:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By Title
------------------------------------------------ --------------------
Page 2 of 2
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 21
LIST OF SUBSIDIARIES
NAME PLACE OF
ORGANIZATION
<S> <C>
Subsidiaries of Rural/Metro Corporation (Delaware):
Aid Ambulance at Vigo County, Inc. Indiana
Ambulance Transport Systems, Inc. New York
City Wide Ambulance Service, Inc. Ohio
Donlock, Ltd. Pennsylvania
Medical Emergency Devices and Services (MEDS), Inc. Arizona
Metro Care Corp. Ohio
MO-RO-KO, Inc. Arizona
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
R/M Partners, Inc. Delaware
RMFD of New Jersey, Inc. Delaware
Rural/Metro Communications Services, Inc. Delaware
Rural/Metro Corporation Arizona
Rural/Metro International, Inc. Delaware
Rural/Metro Mid-Atlantic, Inc. Delaware
Rural/Metro of Colorado, 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
United Medical Services, Inc. Washington
Subsidiaries of Rural/Metro Corporation (Arizona):
Coronado Health Services, Inc. Arizona
R/M Management Co., Inc. Arizona
R/M of Mississippi, Inc. Delaware
R/M Servicios de Salude e Incendios (Bolivia) S.A. (2%) Bolivia
RMC Corporate Center, L.L.C. (1%) Arizona
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
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Rural/Metro of South Carolina, Inc. Delaware
Rural/Metro of South Dakota, Inc. Delaware
Rural/Metro Protection Services, 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
Subsidiaries of R/M of Texas G.P., Inc.:
Rural/Metro of Texas, L.P. (99%) Delaware
Subsidiaries of Rural/Metro Texas, Inc.
Rural/Metro of Texas, L.P. (1%) Delaware
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. (1) 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.:
Georgia
E.M.S. Ventures, Inc. Delaware
Medi-Cab of Georgia, Inc.
2
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Subsidiaries of MO-RO-KO, Inc.:
Southwest Ambulance of Tucson, Inc. Arizona
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
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
RISC America Alabama Fire Safety Services, 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 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 of San Diego, Inc.:
3
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
San Diego Medical Services Enterprise, LLC (50%) California
Subsidiaries of R/M Management Co., Inc.:
R/M Servicios de Salud e Incendios (Bolivia) S.A. (2%) Bolivia
Subsidiaries of R/M Partners, Inc.:
Rural/Metro Mid-Atlantic II, Inc. (50%) Delaware
We Care Bus Transportation, Inc. (33%) New York
We Care Transportation, Inc. (33%) New York
Subsidiaries of Rural/Metro Mid-Atlantic II, Inc.:
Mobile Medical Transportation, Inc. Maryland
Subsidiaries of Mobile Medical Transportation, Inc.:
Choice American Ambulance Service, Inc. Virginia
Subsidiaries of Rural/Metro of Colorado, Inc.:
Rural/Metro of Central Colorado, Inc. Delaware
Subsidiaries of Ambulance Transport Systems, Inc.:
Keefe & Keefe, Inc. New York
Keefe & Keefe Ambulette, Ltd. New York
Subsidiaries of Keefe & Keefe, Inc.:
Multi-Cab, Inc. New Jersey
Multi-Care International, Inc. New Jersey
Subsidiaries of United Medical Services, Inc.:
Arrow Ambulance, Inc. Idaho
Subsidiaries of R/M of Mississippi, Inc.:
Rural/Metro of Mississippi, Inc. Delaware
Subsidiaries of RMC Insurance Ltd.:
RMC Corporate Center, L.L.C. (99%) Arizona
Subsidiaries of North Mississippi Ambulance Service, Inc.:
Rural/Metro Mid-South, L.P. (1%) Delaware
Subsidiaries of R/M of Tennessee G.P., Inc.:
Rural/Metro of Tennessee, L.P. (99%) Delaware
Rural/Metro of Mid-South, L.P. (99%) Delaware
4
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Subsidiaries of R/M of Tennessee L.P., Inc.:
Rural/Metro of Tennessee, L.P. (1%) Delaware
Subsidiaries of The Aid Ambulance Company, Inc.:
Rural/Metro of Indiana, L.P. (99%) Delaware
Rural/Metro of Indiana II, L.P. (99%) Delaware
Subsidiaries of The Aid Company, Inc.:
Rural/Metro of Indiana, L.P. (1%) Delaware
Subsidiaries of Aid Ambulance at Vigo County, Inc.:
Rural/Metro of Indiana II, L.P. (1%) Delaware
Subsidiaries of Rural/Metro International, Inc.:
Rural/Metro Argentina, L.L.C. Arizona
Rural/Metro of Argentina, Inc. Delaware
Rural/Metro Canadian Holdings, Inc. Delaware
Rural/Metro of Brasil, Inc. Delaware
Rural/Metro Brasil, L.L.C. Arizona
Rural/Metro of Netherlands Holdings, B.U. Netherlands
Rural/Metro of Argentina, S.A. (1%) Argentina
Subsidiaries of Rural/Metro Argentina, L.L.C.:
Rural/Metro Inversora, S.R.L. Argentina
Subsidiaries of Rural/Metro Canadian Holdings, Inc.:
Rural/Metro of Canada Company Nova Scotia
Subsidiaries of Rural/Metro of Canada Company:
Rural Metro of Ontario Company Nova Scotia
Subsidiaries of Rural/Metro of Ontario Company:
3012525 Nova Scotia Company Nova Scotia
Lindsay and District Ambulance Service Company Nova Scotia
Lakeshore Emergency Service Company Nova Scotia
Owen Sound Emergency Services Company Nova Scotia
Noel Ambulance Service Company Nova Scotia
Port Colborne & District Ambulance Service Company Nova Scotia
Subsidiaries of Rural/Metro Netherlands Holdings, B.V.:
Rural/Metro of Argentina, S.A. (99%) Argentina
Subsidiaries of Rural/Metro of Argentina, S.A.:
5
</TABLE>
(1) Merged with and into LaSalle Ambulance, Inc., effective August 10, 1998.
<PAGE> 6
<TABLE>
<S> <C>
Marlon S.A. Argentina
Peimu S.A. Argentina
Recor S.A. Argentina
Semercor S.A. Argentina
Subsidiaries of Rural/Metro Brazil, L.L.C.:
Line of Duty, Ltda (99%) Brazil
Subsidiaries of Rural/Metro of Brazil, Inc.:
Line of Duty, Ltda (1%) Brazil
6
</TABLE>
<PAGE> 1
Exhibit 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-K, into the
Company's previously filed Registration Statements File No.'s 33-76526;
33-80454; 33-88302; 333-2818; 333-07457; 333-37393; 333-39453; 333-51455;
333-62517; 333-62983; and 333-64139.
ARTHUR ANDERSEN LLP
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 6,511
<SECURITIES> 0
<RECEIVABLES> 224,155
<ALLOWANCES> 69,552
<INVENTORY> 13,128
<CURRENT-ASSETS> 190,644
<PP&E> 152,519
<DEPRECIATION> 59,974
<TOTAL-ASSETS> 535,452
<CURRENT-LIABILITIES> 66,406
<BONDS> 252,396
0
0
<COMMON> 144
<OTHER-SE> 177,629
<TOTAL-LIABILITY-AND-EQUITY> 535,452
<SALES> 475,558
<TOTAL-REVENUES> 475,558
<CGS> 0
<TOTAL-COSTS> 367,015
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 81,178
<INTEREST-EXPENSE> 14,082
<INCOME-PRETAX> 13,482
<INCOME-TAX> 5,977
<INCOME-CONTINUING> 7,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,505
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>
