<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-22056
RURAL/METRO CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 86-0746929
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8401 EAST INDIAN SCHOOL ROAD
SCOTTSDALE, ARIZONA
85251
(Address of principal executive offices)
(Zip Code)
(480) 606-3886
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ___
At November 10, 1999 there were 14,577,439 shares of Common Stock outstanding,
exclusive of treasury shares held by the Registrant.
<PAGE> 2
RURAL/METRO CORPORATION
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Statements
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Comprehensive Income 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About Market Risks 24
Part II. Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
</TABLE>
2
<PAGE> 3
RURAL/METRO CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1999 June 30, 1999
------------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 4,721 $ 7,180
Accounts receivable, net 195,970 185,454
Inventories 17,461 16,371
Prepaid expenses and other 11,900 13,630
--------- ---------
Total current assets 230,052 222,635
PROPERTY AND EQUIPMENT, net 95,668 95,032
INTANGIBLE ASSETS, net 238,288 240,360
OTHER ASSETS 22,865 21,880
--------- ---------
$ 586,873 $ 579,907
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 16,441 $ 17,782
Accrued liabilities 56,758 58,159
Current portion of long-term debt 8,057 5,765
--------- ---------
Total current liabilities 81,256 81,706
LONG-TERM DEBT, net of current portion 273,879 268,560
NON-REFUNDABLE SUBSCRIPTION INCOME 14,890 14,909
DEFERRED INCOME TAXES 9,376 9,438
OTHER LIABILITIES 179 205
--------- ---------
Total liabilities 379,580 374,818
--------- ---------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 8,230 8,250
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 149 148
Additional paid-in capital 138,177 137,792
Retained earnings 62,487 60,603
Cumulative translation adjustment (511) (465)
Treasury stock (1,239) (1,239)
--------- ---------
Total stockholders' equity 199,063 196,839
--------- ---------
$ 586,873 $ 579,907
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
3
<PAGE> 4
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
--------- --------
<S> <C> <C>
REVENUE
Ambulance services $ 116,897 $116,265
Fire protection services 13,063 12,643
Other 11,240 9,887
--------- --------
Total revenue 141,200 138,795
--------- --------
OPERATING EXPENSES
Payroll and employee benefits 76,865 73,898
Provision for doubtful accounts 20,410 19,897
Depreciation 6,160 5,876
Amortization of intangibles 2,160 2,397
Other operating expenses 26,024 23,720
Restructuring charge -- 2,500
--------- --------
Total expenses 131,619 128,288
--------- --------
OPERATING INCOME 9,581 10,507
Interest expense, net 5,436 5,142
Other (20) 48
--------- --------
INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 4,165 5,317
Provision for income taxes 1,740 2,255
--------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
A CHANGE IN ACCOUNTING PRINCIPLE 2,425 3,062
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE (541) --
--------- --------
NET INCOME $ 1,884 $ 3,062
========= ========
INCOME PER SHARE:
Basic --
Income before cumulative effect of
a change in accounting principle $ 0.17 $ 0.21
Cumulative effect of a change
in accounting principle (0.04) --
Net income $ 0.13 $ 0.21
========= ========
Diluted --
Income before cumulative effect of
a change in accounting principle $ 0.17 $ 0.21
Cumulative effect of a change
in accounting principle (0.04) --
Net income $ 0.13 $ 0.21
========= ========
AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 14,538 14,270
AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 14,671 14,520
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
((UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 1,884 $ 3,062
Adjustments to reconcile net income to cash provided by
(used in) operating activities
Cumulative effect of a change in accounting principle 541 --
Depreciation and amortization 8,320 8,273
Amortization of deferred compensation -- 58
Amortization of gain on sale of real estate (26) (26)
Provision for doubtful accounts 20,410 19,897
Undistributed earnings of minority shareholder (20) 48
Amortization of discount on Senior Notes 6 6
Change in assets and liabilities, net of effect
of businesses acquired
Increase in accounts receivable (30,926) (29,555)
Increase in inventories (1,090) (310)
(Increase) decrease in prepaid expenses and other 709 (1,701)
Increase (decrease) in accounts payable (1,341) 145
Increase (decrease) in accrued liabilities and other liabilities (1,009) 7,822
Increase (decrease) in nonrefundable subscription income (19) 166
Decrease in deferred income taxes (62) (3,223)
-------- --------
Net cash provided by (used in) operating activities (2,623) 4,662
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net 9,102 9,500
Repayment of debt and capital lease obligations (1,497) (1,940)
Issuance of common stock 386 --
-------- --------
Net cash provided by financing activities 7,991 7,560
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for businesses acquired -- (4,678)
Capital expenditures (6,796) (6,174)
Increase in other assets (985) (957)
-------- --------
Net cash used in investing activities (7,781) (11,809)
-------- --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE (46) (266)
-------- --------
INCREASE (DECREASE) IN CASH (2,459) 147
CASH, beginning of period 7,180 6,511
-------- --------
CASH, end of period $ 4,721 $ 6,658
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Fair market value of stock issued to employee benefit plan $ -- $ 1,933
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
RURAL/METRO CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1999 1998
------- -------
<S> <C> <C>
NET INCOME $ 1,884 $ 3,062
Foreign currency translation adjustments (46) (266)
------- -------
COMPREHENSIVE INCOME $ 1,838 $ 2,796
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE> 7
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do
not include all information and footnotes required by generally accepted
principles for complete financial statements.
(1) INTERIM RESULTS
In the opinion of management, the consolidated financial statements for
the three month periods ended September 30, 1999 and 1998 include all
adjustments, consisting only of normal recurring adjustments necessary
for a fair statement of the consolidated financial position and results
of operations.
The results of operations for the three month periods ended September
30, 1999 and 1998 are not necessarily indicative of the results of
operations for a full fiscal year. For further information, refer to
the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1999.
(2) CREDIT AGREEMENTS AND BORROWINGS
In March 1998, the Company issued $150.0 million of 7 7/8% Senior Notes
due 2008 (the Notes). 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 financial statements presented
below include the Consolidating Balance Sheets as of September 30, 1999
and June 30, 1999, the Consolidating Statements of Income for the three
months ended September 30, 1999 and 1998, and the Statements of Cash
Flows for the three months ended September 30, 1999 and 1998 of
Rural/Metro Corporation (Parent) and the guarantor subsidiaries
(Guarantors) and the subsidiaries which are not guarantors
(Non-guarantors). 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.
7
<PAGE> 8
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 2,639 $ 2,082 $ -- $ 4,721
Accounts receivable, net -- 173,545 22,425 -- 195,970
Inventories -- 16,333 1,128 -- 17,461
Prepaid expenses and other 531 9,715 1,654 -- 11,900
--------- --------- -------- --------- ---------
Total current assets 531 202,232 27,289 -- 230,052
PROPERTY AND EQUIPMENT, net -- 84,927 10,741 -- 95,668
INTANGIBLE ASSETS, net -- 157,665 80,623 -- 238,288
DUE FROM (TO) AFFILIATES 306,164 (245,983) (60,181) -- --
OTHER ASSETS 4,033 15,927 2,905 -- 22,865
INVESTMENT IN SUBSIDIARIES 161,523 -- -- (161,523) --
--------- --------- -------- --------- ---------
Total assets $ 472,251 $ 214,768 $ 61,377 $(161,523) $ 586,873
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ 9,916 $ 6,525 $ -- $ 16,441
Accrued liabilities 805 45,073 10,880 -- 56,758
Current portion of long-term debt 3,102 3,581 1,374 -- 8,057
--------- --------- -------- --------- ---------
Total current liabilities 3,907 58,570 18,779 -- 81,256
LONG-TERM DEBT, net of current portion 269,281 3,758 840 -- 273,879
NON-REFUNDABLE SUBSCRIPTION INCOME -- 14,732 158 -- 14,890
DEFERRED INCOME TAXES -- 8,411 965 -- 9,376
OTHER LIABILITIES -- 179 -- -- 179
--------- --------- -------- --------- ---------
Total liabilities 273,188 85,650 20,742 -- 379,580
--------- --------- -------- --------- ---------
MINORITY INTEREST -- -- -- 8,230 8,230
STOCKHOLDERS' EQUITY
Common stock 149 82 17 (99) 149
Additional paid-in capital 138,177 54,622 34,942 (89,564) 138,177
Retained earnings 62,487 74,414 6,187 (80,601) 62,487
Cumulative translation adjustment (511) -- (511) 511 (511)
Treasury stock (1,239) -- -- -- (1,239)
--------- --------- -------- --------- ---------
Total stockholders' equity 199,063 129,118 40,635 (169,753) 199,063
--------- --------- -------- --------- ---------
Total liabilities and stockholders' equity $ 472,251 $ 214,768 $ 61,377 $(161,523) $ 586,873
========= ========= ======== ========= =========
</TABLE>
8
<PAGE> 9
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ -- $ 5,379 $ 1,801 $ -- $ 7,180
Accounts receivable, net -- 164,700 20,754 -- 185,454
Inventories -- 15,238 1,133 -- 16,371
Prepaid expenses and other 531 11,648 1,451 -- 13,630
--------- --------- --------- --------- ---------
Total current assets 531 196,965 25,139 -- 222,635
PROPERTY AND EQUIPMENT, net -- 84,448 10,584 -- 95,032
INTANGIBLE ASSETS, net -- 159,159 81,201 -- 240,360
DUE FROM (TO) AFFILIATES 302,491 (245,964) (56,527) -- --
OTHER ASSETS 4,169 15,237 2,474 -- 21,880
INVESTMENT IN SUBSIDIARIES 156,690 -- -- (156,690) --
--------- --------- --------- --------- ---------
$ 463,881 $ 209,845 $ 62,871 $(156,690) $ 579,907
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ 11,101 $ 6,681 $ -- $ 17,782
Accrued liabilities 3,767 42,431 11,961 -- 58,159
Current portion of long-term debt -- 4,157 1,608 -- 5,765
--------- --------- --------- --------- ---------
Total current liabilities 3,767 57,689 20,250 -- 81,706
LONG-TERM DEBT, net of current portion 263,275 4,384 901 -- 268,560
NON-REFUNDABLE SUBSCRIPTION INCOME -- 14,890 19 -- 14,909
DEFERRED INCOME TAXES -- 8,473 965 -- 9,438
OTHER LIABILITIES -- 205 -- -- 205
--------- --------- --------- --------- ---------
Total liabilities 267,042 85,641 22,135 -- 374,818
--------- --------- --------- --------- ---------
MINORITY INTEREST -- -- -- 8,250 8,250
STOCKHOLDERS' EQUITY
Common stock 148 82 17 (99) 148
Additional paid-in capital 137,792 54,622 34,942 (89,564) 137,792
Retained earnings 60,603 69,500 6,242 (75,742) 60,603
Cumulative translation adjustment (465) -- (465) 465 (465)
Treasury stock (1,239) -- -- -- (1,239)
--------- --------- --------- --------- ---------
Total stockholders' equity 196,839 124,204 40,736 (164,940) 196,839
--------- --------- --------- --------- ---------
$ 463,881 $ 209,845 $ 62,871 $(156,690) $ 579,907
========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 10
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Ambulance services $ -- $ 96,147 $ 20,750 $ -- $ 116,897
Fire protection services -- 12,785 278 -- 13,063
Other -- 9,088 2,152 -- 11,240
------- --------- -------- ------- ---------
Total revenue -- 118,020 23,180 -- 141,200
------- --------- -------- ------- ---------
OPERATING EXPENSES
Payroll and employee benefits -- 62,158 14,707 -- 76,865
Provision for doubtful accounts -- 19,089 1,321 -- 20,410
Depreciation -- 5,554 606 -- 6,160
Amortization of intangibles -- 1,526 634 -- 2,160
Other operating expenses -- 20,580 5,444 -- 26,024
------- --------- -------- ------- ---------
Total expenses -- 108,907 22,712 -- 131,619
------- --------- -------- ------- ---------
OPERATING INCOME -- 9,113 468 -- 9,581
Interest expense, net 5,164 (277) 549 -- 5,436
Other -- -- -- (20) (20)
------- --------- -------- ------- ---------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES
AND CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE (5,164) 9,390 (81) 20 4,165
PROVISION (BENEFIT) FOR INCOME TAXES (2,169) 3,935 (26) -- 1,740
------- --------- -------- ------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE (2,995) 5,455 (55) 20 2,425
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE -- (541) -- -- (541)
------- --------- -------- ------- ---------
(2,995) 4,914 (55) 20 1,884
INCOME FROM WHOLLY-OWNED SUBSIDIARIES 4,879 -- -- (4,879) --
------- --------- -------- ------- ---------
NET INCOME (LOSS) $ 1,884 $ 4,914 $ (55) $(4,859) $ 1,884
======= ========= ======== ======= =========
Foreign currency translation adjustments -- -- (46) -- (46)
Comprehensive income (loss) from
wholly-owned subsidiaries (46) -- -- 46 --
------- --------- -------- ------- ---------
COMPREHENSIVE INCOME (LOSS) $ 1,838 $ 4,914 $ (101) $(4,813) $ 1,838
======= ========= ======== ======= =========
</TABLE>
10
<PAGE> 11
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
REVENUE
Ambulance services $ -- $ 93,306 $ 22,959 $ -- $116,265
Fire protection services -- 12,387 256 -- 12,643
Other -- 9,791 96 -- 9,887
------- -------- -------- ------- --------
Total revenue -- 115,484 23,311 -- 138,795
------- -------- -------- ------- --------
OPERATING EXPENSES
Payroll and employee benefits -- 60,090 13,808 -- 73,898
Provision for doubtful accounts -- 18,163 1,734 -- 19,897
Depreciation -- 5,442 434 -- 5,876
Amortization of intangibles 128 1,718 551 -- 2,397
Other operating expenses -- 19,166 4,554 -- 23,720
Restructuring charge -- 2,500 -- -- 2,500
------- -------- -------- ------- --------
Total expenses 128 107,079 21,081 -- 128,288
------- -------- -------- ------- --------
OPERATING INCOME (LOSS) (128) 8,405 2,230 -- 10,507
Interest expense, net 4,654 85 403 -- 5,142
Other -- -- -- 48 48
------- -------- -------- ------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES (4,782) 8,320 1,827 (48) 5,317
PROVISION (BENEFIT) FOR INCOME TAXES (2,008) 3,423 840 -- 2,255
------- -------- -------- ------- --------
(2,774) 4,897 987 (48) 3,062
INCOME FROM WHOLLY-OWNED SUBSIDIARIES 5,836 -- -- (5,836) --
------- -------- -------- ------- --------
NET INCOME (LOSS) $ 3,062 $ 4,897 $ 987 $(5,884) $ 3,062
======= ======== ======== ======= ========
Foreign currency translation
adjustments -- -- (266) -- (266)
Comprehensive income (loss)
from wholly-owned subsidiaries (266) -- -- 266 --
------- -------- -------- ------- --------
$ 2,796 $ 4,897 $ 721 $(5,618) $ 2,796
======= ======== ======== ======= ========
</TABLE>
11
<PAGE> 12
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 1,884 $ 4,914 $ (55) $(4,859) $ 1,884
Adjustments to reconcile net income to cash
provided by (used in) operating activities --
Depreciation and amortization -- 7,080 1,240 -- 8,320
Cumulative effect of a change in accounting principle -- 541 -- -- 541
Amortization of gain on sale of real estate -- (26) -- -- (26)
Provision for doubtful accounts -- 19,089 1,321 -- 20,410
Undistributed earnings of minority shareholder -- -- -- (20) (20)
Amortization of discount on Senior Notes 6 -- -- -- 6
Change in assets and liabilities --
Increase in accounts receivable -- (27,934) (2,992) -- (30,926)
(Increase) decrease in inventories -- (1,095) 5 -- (1,090)
(Increase) decrease in prepaid expenses and other -- 968 (259) -- 709
(Increase) decrease in due to/from affiliates (8,506) 19 3,654 4,833 --
Increase in accounts payable -- (1,185) (156) -- (1,341)
Increase (decrease) in accrued liabilities
and other liabilities (2,962) 3,034 (1,081) -- (1,009)
Increase (decrease) in non-refundable subscription
income -- (158) 139 -- (19)
Decrease in deferred income taxes -- (62) -- -- (62)
------- -------- ------- ------- --------
Net cash provided by (used in) operating
activities (9,578) 5,185 1,816 (46) (2,623)
------- -------- ------- ------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net 9,102 -- -- -- 9,102
Repayment of debt and capital lease obligations -- (1,202) (295) -- (1,497)
Issuance of common stock 386 -- -- -- 386
------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities 9,488 (1,202) (295) -- 7,991
------- -------- ------- ------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures -- (6,033) (763) -- (6,796)
(Increase) decrease in other assets 136 (690) (431) -- (985)
------- -------- ------- ------- --------
Net cash provided by (used in) investing
activities 136 (6,723) (1,194) -- (7,781)
------- -------- ------- ------- --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE (46) -- (46) 46 (46)
------- -------- ------- ------- --------
INCREASE (DECREASE) IN CASH -- (2,740) 281 -- (2,459)
CASH, beginning of period -- 5,379 1,801 -- 7,180
------- -------- ------- ------- --------
CASH, end of period $ -- $ 2,639 $ 2,082 $ -- $ 4,721
======= ======== ======= ======= ========
</TABLE>
12
<PAGE> 13
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Parent Guarantors Non-Guarantors Eliminating Consolidated
------ ---------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 3,062 $ 4,897 $ 987 $(5,884) $ 3,062
Adjustments to reconcile net income to cash
provided by (used in) operating activities --
Depreciation and amortization 128 7,160 985 -- 8,273
Amortization of deferred compensation 58 -- -- -- 58
Amortization of gain on sale of real estate -- (26) -- -- (26)
Provision for doubtful accounts -- 18,163 1,734 -- 19,897
Undistributed earnings of minority shareholder -- -- -- 48 48
Amortization of discount on Senior Notes 6 -- -- -- 6
Change in assets and liabilities,
net of effect of businesses acquired --
Increase in accounts receivable -- (27,683) (1,872) -- (29,555)
Increase in inventories -- (276) (34) -- (310)
Increase in prepaid expenses and other -- (1,226) (475) -- (1,701)
(Increase) decrease in due to/from affiliates (9,828) (1,286) 1,115 9,999 --
Increase (decrease) in accounts payable -- (2,096) 2,241 -- 145
Increase (decrease) in accrued liabilities and
other liabilities (2,660) 11,955 (1,473) -- 7,822
Increase (decrease) in non-refundable subscription
income -- 84 82 -- 166
Decrease in deferred income taxes -- (3,001) (222) -- (3,223)
------- -------- ------- ------- --------
Net cash provided by (used in) operating
activities (9,234) 6,665 3,068 4,163 4,662
------- -------- ------- ------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings on revolving credit facility, net 9,500 -- -- -- 9,500
Repayment of debt and capital lease obligations -- (1,745) (195) -- (1,940)
Issuance of common stock -- -- 4,429 (4,429) --
------- -------- ------- ------- --------
Net cash provided by (used in) financing
activities 9,500 (1,745) 4,234 (4,429) 7,560
------- -------- ------- ------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for businesses acquired -- (250) (4,428) -- (4,678)
Capital expenditures -- (5,245) (929) -- (6,174)
Increase in other assets -- 710 (1,667) -- (957)
------- -------- ------- ------- --------
Net cash used in investing activities -- (4,785) (7,024) -- (11,809)
------- -------- ------- ------- --------
EFFECT OF CURRENCY EXCHANGE RATE CHANGE (266) -- (266) 266 (266)
------- -------- ------- ------- --------
INCREASE IN CASH -- 135 12 -- 147
CASH, beginning of period -- 2,917 3,594 -- 6,511
------- -------- ------- ------- --------
CASH, end of period $ -- $ 3,052 $ 3,606 $ -- $ 6,658
======= ======== ======= ======= ========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Fair market value of stock issued to employee
benefit plan $ 1,933 $ -- $ -- $ -- $ 1,933
======= ======== ======= ======= ========
</TABLE>
13
<PAGE> 14
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) FINANCIAL INSTRUMENTs
The Company has entered into interest rate swap agreements to limit the
effect of increases in the interest rates on floating rate debt. The
swap agreements are contracts to exchange floating rate for fixed
interest payments periodically over the life of the agreements without
the exchange of the underlying notional amounts. The notional amounts
of interest rate agreements are used to measure interest to be paid or
received and do not represent the amount of exposure to credit loss.
The net cash amounts paid or received on the agreements are accrued and
recognized as an adjustment to interest expense.
In November 1998, the Company entered into an interest rate swap
agreement that originally expired in November 2003 with a provision for
the lending party to terminate the agreement in November 2000. The
interest rate swap agreement effectively converted $50.0 million of
variable rate borrowings to fixed rate borrowings. The Company paid a
fixed rate of 4.72% and received a LIBOR-based floating rate. In June
1999, the Company terminated the interest rate swap agreement and
received a termination fee of $604,000. Such amount is being amortized
as a reduction of interest expense on a straight-line basis through
November 2000.
(4) RESTRUCTURING CHARGE
During the three months ended September 30, 1998, the Company recorded
a non-recurring pre-tax charge of $2.5 million for severance payments
related to certain members of senior management who have left the
Company. During the years ended June 30, 1998 and 1997, the Company
recorded pre-tax charges totaling $7.8 million related to severance
payments. The charges related primarily to the cost of terminating
approximately 400 administrative employees throughout the Company, all
of which have been terminated as of September 30, 1999. As of September
30, 1999 and June 30, 1999, the balance of the allowance for severance
payments was $0.7 million and $1.3 million, respectively. The allowance
is included in accrued liabilities in the accompanying consolidated
balance sheets.
(5) CHANGE IN ACCOUNTING PRINCIPLE
In accordance with Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities, effective July 1, 1999, the Company was
required to change its accounting principle for organization costs.
Previously, the Company capitalized such costs and amortized them using
the straight-line method over five years. At June 30, 1999 such
unamortized costs totaled $933,000. In the first quarter of fiscal year
2000, the Company wrote-off its capitalized organization costs and will
expense any future organization costs as incurred. The write-off was
$541,000 (net of a tax benefit of $392,000) and has been reflected in
the Consolidated Statement of Income for the three months ended
September 30, 1999 as the "Cumulative Effect of a Change in Accounting
Principle" in accordance with APB No. 20.
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<PAGE> 15
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) EARNINGS PER SHARE
A reconciliation of the numerators and denominators (weighted average
number of shares outstanding) of the basic and diluted earnings per
share (EPS) computation for the three months ended September 30, 1999
and 1998 is a follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999 Three Months Ended September 30, 1998
------------------------------------- -------------------------------------
Income Share Per Share Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,884 14,538 $ 0.13 $3,062 14,270 $ 0.21
======= =======
Effect of stock options -- 133 -- 250
------ ------ ------ ------
Diluted EPS $1,884 14,671 $ 0.13 $3,062 14,520 $ 0.21
====== ====== ======= ====== ====== =======
</TABLE>
(7) SEGMENT REPORTING
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for
reporting information about operating segments in annual financial
statements and requires selected information about operating segments
in interim financial statements. It also established standards for
related disclosures about products and services and geographic areas.
Operating segments are defined as components of a business, for which
separate financial information is available, that management regularly
evaluates in deciding how to allocate resources and assess performance.
The Company operates in two business segments: Ambulance and Fire and
Other. The Company's reportable segments are strategic business units
that offer different services. They are managed separately based on the
fundamental differences in their operations.
The Ambulance segment includes emergency medical and general medical
transport ambulance services provided to patients on a
fee-for-service basis, on a non-refundable subscription basis and
through capitated contracts. The Ambulance segment also includes urgent
home medical care and ambulance services provided under capitated
service arrangements in Argentina.
The Fire and Other segment includes the following services: fire
protection and training, alternative transportation, home health care
services, urgent and primary care in clinics, dispatch, fleet and
billing.
The accounting policies of the operating segments are the same as those
described in Note 1 of Notes to Consolidated Financial Statements filed
with the Form 10-K for the fiscal year ended June 30, 1999. The Company
defines segment profit (loss) as total revenue less total operating
expenses and interest expense associated with the segment. The Company
defines segment assets as the sum of net accounts receivable, inventory
and net property and equipment associated with the segments.
Included in Corporate are general corporate expenses as well as the
pre-tax charge of $2.5 million related to severance payments recorded
during the three months ended September 30, 1998.
15
<PAGE> 16
RURAL/METRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information by operating segment is set forth below (in thousands):
<TABLE>
<CAPTION>
Three months ended September 30, 1999 AMBULANCE FIRE AND OTHER CORPORATE TOTAL
--------- -------------- --------- -----
<S> <C> <C> <C> <C>
Net revenues from external customers $116,897 $24,303 $ --- $141,200
Segment profit (loss) $ 6,594 $ 1,626 $(4,075) $ 4,145
Segment assets $264,259 $42,184 $ 2,656 $309,099
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1998 AMBULANCE FIRE AND OTHER CORPORATE TOTAL
--------- -------------- --------- -----
<S> <C> <C> <C> <C>
Net revenues from external customers $116,265 $22,530 $ --- $138,795
Segment profit (loss) $ 8,819 $ 2,714 $(6,168) $ 5,365
Segment assets $227,640 $40,164 $ 3,153 $270,957
</TABLE>
16
<PAGE> 17
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT RESULTS
Except for the historical information contained herein, this Report contains
forward looking statements that involve risks and uncertainties regarding future
business prospects, the value of our common stock, revenue, working capital,
accounts receivable collection, liquidity, cash flow, and capital needs that
could cause actual results to differ materially.
The health care industry in general and the ambulance industry in particular are
in a state of significant change. This makes us 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; revenue mix; 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; high
utilization of services by customers under capitated service arrangements;
competitive market forces; fluctuation in quarterly results; volatility of stock
price; dependence on key personnel; and anti-takeover effect of certain of our
charter provisions.
All references to "we", "our", "us" or "Rural/Metro" refer to Rural/Metro
Corporation, and its predecessors, operating divisions and subsidiaries.
This Report should be read in conjunction with our Report on Form 10-K for the
fiscal year ended June 30, 1999.
INTRODUCTION
We derive our revenue primarily from fees charged for ambulance and fire
protection services. We provide ambulance services in response to emergency
medical calls ("911" emergency ambulance services) and non-emergency transport
services (general transport services) to patients on a fee-for-service basis, on
a non-refundable subscription fee basis and through capitated contracts. Per
transport revenue depends on various factors, including the mix of rates between
existing service areas and new service areas and the mix of activity between
"911" emergency ambulance services and general medical transport services as
well as other competitive factors. Fire protection services are provided either
under contracts with municipalities, fire districts or other agencies or on a
non-refundable 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 our
ambulance service fee receipts. We establish 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. Our provision for doubtful accounts generally is higher with respect
to collections to be derived 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. We also have an
ambulance service contract structured as a public utility model in which our
services are paid on a monthly basis by the contracting agency.
Because of the nature of our domestic 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
17
<PAGE> 18
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 domestic ambulance service calls not resulting in transports
varies substantially depending upon the mix of general transport and "911"
emergency ambulance service calls in our service areas and is generally higher
in service areas in which the calls are primarily "911" emergency ambulance
service calls. Rates in our service areas take into account the anticipated
number of calls that may not result in transports. We do not separately account
for expenses associated with calls that do not result in transports. Revenue
generated under our capitated service arrangements in Argentina and contractual
agreements in Canada is included in ambulance services revenue.
Revenue generated under fire protection service contracts is recognized over the
term of the related contract. Subscription fees received in advance are deferred
and recognized over the term of the subscription agreement, which is generally
one year.
Other revenue consists primarily of fees associated with alternative
transportation, dispatch, fleet, billing, urgent and primary care services in
clinics, and home health care services and is recognized when the services are
provided.
Other operating expenses consist primarily of rent and related occupancy
expenses, maintenance and repairs, insurance, fuel and supplies, travel and
professional fees.
We have historically experienced, and expect to continue to experience,
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 our Arizona and Florida regions resulting from
the greater winter populations in those regions. Also, our Argentine operations
experience greater utilization of services by customers under capitated service
arrangements in the first and fourth fiscal quarters, as compared to the other
two quarters, when South America is in its winter season.
Public health conditions affect our operations differently in different regions.
For example, greater utilization of services by customers under capitated
service arrangements decreases our operating income. The same conditions
domestically, where we operate under fee-for-service arrangements, result in a
greater number of transports, increasing our operating income.
Income before cumulative effect of a change in accounting principle for the
three months ended September 30, 1999 was $2.4 million, or $0.17 per diluted
share as compared to $3.1 million, or $0.21 per diluted share for the three
months ended September 30, 1998. The operating results for the three months
ended September 30, 1999 were adversely affected by the magnitude of our
mobilization response to recent hurricanes and storms, which impacted our
regional operations in Texas, the Southeast and North Mid-Atlantic states. Our
disaster response teams as well as other fill-in personnel incurred significant
overtime to meet the needs of our service areas, while at the same time we lost
transport opportunities in those service areas due to reduced availability of
vehicles and personnel. The operating results for the three months ended
September 30, 1999 were also negatively impacted by reduced operating margins of
our Argentine operations. These operating margins were reduced due to
substantial increases in service utilization under our capitated service
arrangements and due to the impact of the economic recession in Argentina
combined with significant increases in service taxes on all medical services.
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<PAGE> 19
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
REVENUE
Total revenue increased $2.4 million, or 1.7%, from $138.8 million for the three
months ended September 30, 1998 to $141.2 million for the three months ended
September 30, 1999. Ambulance services revenue increased $0.6 million, or 0.5%,
from $116.3 million for the three months ended September 30, 1998 to $116.9
million for the three months ended September 30, 1999. Domestic ambulance
services revenue in areas served by us in both of the three month periods ended
September 30, 1999 and 1998 increased by 2.1%. The increase in domestic
ambulance services revenue was partially offset by a decrease in ambulance
services revenue in our Argentine operations resulting from decreases in
memberships under capitated service arrangements. The decrease in memberships
was attributable to the impact of the economic recession in Argentina combined
with significant increases in service taxes on all medical services.
Total domestic ambulance transports decreased by 23,000, or 7.0%, from 329,000
for the three months ended September 30, 1998 to 306,000 for the three months
ended September 30, 1999 due to our efforts to reduce non-emergency transports
in certain areas and improve the quality of our revenue. The effect on revenue
caused by the reduction in transports was more than offset by transports
generated through new contracting activity as well as increases in average
patient charges in other areas.
Fire protection services revenue increased by $0.5 million, or 4.0%, from $12.6
million for the three months ended September 30, 1998 to $13.1 million for the
three months ended September 30, 1999. Fire protection services revenue
increased due to rate increases for fire protection services and greater
utilization of our services under fee-for-service arrangements.
Other revenue increased $1.3 million, or 13.1%, from $9.9 million for the three
months ended September 30, 1998 to $11.2 million for the three months ended
September 30, 1999. Other revenue increased due to revenue associated with
urgent and primary care services provided in Argentina by a company that we
acquired in the third quarter of fiscal 1999. This increase was partially offset
by a decrease in alternative transportation services revenue due to our efforts
to reduce transports in certain areas and improve the quality of our revenue.
OPERATING EXPENSES
Payroll and employee benefit expenses increased $3.0 million, or 4.1%, from
$73.9 million for the three months ended September 30, 1998 to $76.9 million for
the three months ended September 30, 1999. This increase was primarily due to
the acquisition completed during the third quarter of fiscal 1999 and due to
higher average labor costs in certain service areas, partially attributable
to our mobilization response to the recent hurricanes and storms. We expect
these higher average labor costs to continue in the future, including the
increased costs associated with accounts receivable collection and with Health
Care Financing Administration (HCFA) compliance. Increased service utilization
in our Argentine operations also contributed to the increase in payroll and
employee benefit expenses. Payroll and employee benefits expense increased from
53.2% of total revenue for the three months ended September 30, 1998 to 54.4%
of total revenue for the three months ended September 30, 1999.
Provision for doubtful accounts increased $0.5 million, or 2.5%, from $19.9
million for the three months ended September 30, 1998 to $20.4 million for the
three months ended September 30, 1999. Provision for doubtful accounts increased
from 14.3% of total revenue for the three months ended September 30, 1998 to
14.5% of total revenue for the three months ended September 30, 1999 and was
19.2% of domestic ambulance service revenue for the three months ended September
30, 1998 and 1999. Net accounts receivable on non-integrated collection systems
currently represent 9.2% of total net accounts
19
<PAGE> 20
receivable at September 30, 1999. We will continue to review the benefits and
timing of integrating our two non-integrated billing centers.
Depreciation increased $0.3 million, or 5.1%, from $5.9 million for the three
months ended September 30, 1998 to $6.2 million for the three months ended
September 30, 1999, primarily as a result of increased property and equipment
from the acquisition completed during the third quarter of fiscal 1999.
Depreciation was 4.2% and 4.4% of total revenue for the three months ended
September 30, 1998 and 1999, respectively.
Amortization of intangibles decreased $0.2 million, or 8.3%, from $2.4 million
for the three months ended September 30, 1998 to $2.2 million for the three
months ended September 30, 1999. Amortization of intangibles was 1.7% and 1.5%
of total revenue for the three months ended September 30, 1998 and 1999,
respectively.
Other operating expenses increased approximately $2.3 million, or 9.7%, from
$23.7 million for the three months ended September 30, 1998 to $26.0 million for
the three months ended September 30, 1999, primarily due to increased expenses
associated with the operation of the company acquired in the third quarter of
fiscal 1999, as well as increased service utilization in our Argentine
operations. Other operating expenses increased from 17.1% of total revenue for
the three months ended September 30, 1998 to 18.4% of total revenue for the
three months ended September 30, 1999.
Interest expense increased $0.3 million from $5.1 million for the three months
ended September 30, 1998 to $5.4 million for the three months ended September
30, 1999. This increase was caused by higher debt balances.
Our effective tax rate was 42.0% for both of the three month periods ended
September 30, 1998 and 1999.
The cumulative effect of a change in accounting principle resulted in a $541,000
charge (net of a tax benefit of $392,000) and was related to our expensing of
previously capitalized organization costs in accordance with Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our 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 September 30, 1999, we had working capital of $148.8 million, including cash
of $4.7 million, compared to working capital of $140.9 million, including cash
of $7.2 million, at June 30, 1999.
During the three months ended September 30, 1999, our cash flow used in
operating activities was $2.6 million, resulting primarily from an increase in
accounts receivable of $30.9 million and decreases in accounts payables, accrued
liabilities and other liabilities totaling $2.3 million offset by net income for
the three month period ending September 30, 1999 of $1.9 million plus non-cash
expenses of depreciation and amortization of $8.3 million and provision for
doubtful accounts of $20.4 million. Cash flow provided by operating activities
was $4.7 million for the three months ended September 30, 1998.
Cash provided by financing activities was $8.0 million for the three months
ended September 30, 1999, primarily due to borrowings on the revolving credit
facility offset by repayments on other debt and capital lease obligations.
20
<PAGE> 21
Cash used in investing activities was $7.8 million for the three months ended
September 30, 1999, primarily because of capital expenditures and increases in
other assets.
Our gross accounts receivable as of September 30, 1999 and June 30, 1999 was
$230.8 million and $228.9 million, respectively. Our accounts receivable, net of
the allowance for doubtful accounts, was $196.0 million and $185.5 million as of
such dates, respectively. We believe that the increase in gross accounts
receivable is due to many factors including recent revenue growth, delays in
payments from certain third-party payors, particularly in certain of our
regional billing centers, and a general industry trend toward a lengthening
payment cycle of accounts receivable due from third-party payors. Delays in
receiving payments also contributed to an increase in the age of our accounts
receivable.
Our $200.0 million 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 1.75%. At September 30, 1999 the weighted
average interest rate was 7.1% on the revolving credit facility. Interest rates
and availability under the revolving credit facility depend upon our company
meeting certain financial covenants, including total debt leverage ratios, total
debt to capitalization ratios and fixed charge ratios. Approximately $122.6
million was outstanding on the revolving credit facility at September 30, 1999.
Availability on the facility was approximately $8.3 million at September 30,
1999. We expect to have funds available under the revolving credit facility of
approximately $28 million during the second quarter of fiscal 2000.
In February 1998, we 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 the
commercial paper rate plus 1.7%. At September 30, 1999 the weighted average
interest rate was 7.1% on the lease line of credit. Approximately $1.9 million
was outstanding on this line of credit at September 30, 1999.
In March 1998 we 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"). 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. We incurred expenses related to the
offering of approximately $5.3 million and will amortize these costs over the
life of the Notes. We recorded a $258,000 discount on the Notes and will
amortize this discount over the life of the Notes. Unamortized discount at
September 30, 1999 was $218,000 and this amount is recorded as an offset to
long-term debt in the consolidated financial statements. In April 1998
we 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 our company and are
unconditionally guaranteed on a joint and several basis by substantially all of
our domestic wholly-owned current and future subsidiaries. See Note 2 of Notes
to our Consolidated Financial Statements included in this Form 10-Q. The Notes
contain certain covenants that, among other things, limit our ability to incur
certain indebtedness, sell assets, or enter into certain mergers or
consolidations.
We expect that existing working capital, together with cash flow from operations
and additional borrowing capacity, will be sufficient to meet our operating and
capital needs for existing operations for the twelve months subsequent to
September 30, 1999. Our business growth occurs primarily through new business
contracts and acquisitions. We intend to finance any contracts or acquisitions
that we consummate through the use of cash from operations, credit facilities,
seller notes payable and the issuance of common stock. In addition, we may seek
to raise additional capital through public or private
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<PAGE> 22
debt or equity financings. The availability of these capital sources will depend
upon prevailing market conditions, interest rates, our financial condition and
the market price of our common stock.
The market price of our common stock impacts our ability to complete
acquisitions. We may be unwilling to utilize, or potential acquired companies or
their owners may be unwilling to accept, our common stock in connection with
acquisitions. In addition, the market price performance of our common stock may
make raising funds more difficult and costly. As a result of the decline in the
market price of our common stock in the fourth quarter of fiscal 1998 and the
failure of our stock price to increase since that time, the pace
of acquisitions utilizing our common stock has declined. Continued weakness in
the market price of our common stock could adversely affect our ability or
willingness to made additional acquisitions. Declines in the market price of our
common stock could cause previously acquired companies to seek adjustments to
purchase prices or other remedies to offset the decline in value.
MEDICARE REIMBURSEMENT
In January 1999, HCFA announced its intention to form a negotiated rule-making
committee to create a new fee schedule for Medicare reimbursement of ambulance
services. The committee convened in February 1999. In August 1999, HCFA
announced that the implementation of the new fee schedule as well as the
mandatory acceptance of Medicare assignment will be postponed to January 2001.
HCFA also announced rules which became effective in February 1999. These rules
require, among other things, that a physician's certification be obtained for
certain ambulance transports. We have implemented a program to comply with the
new rules
EFFECTS OF INFLATION AND FOREIGN CURRENCY EXCHANGE FLUCTUATIONS
Our results of operations for the periods discussed have not been affected
significantly by inflation or foreign currency fluctuations. Our revenue from
international operations is denominated primarily in the currency of the country
in which it is operating. At September 30, 1999 our balance sheet reflects a
$511,000 cumulative equity adjustment (decrease) from foreign currency
translation, which resulted from the weakening of the currencies of Canada and
Brazil and the effect it had on our investments in our Canadian operations and
our investment in certain property and equipment that we have deployed in
Brazil. Although we have 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 our business, financial
condition, cash flows and results of operations. We do not currently engage in
foreign currency hedging transactions. However, as we continue to expand our
international operations, exposure to gains and losses on foreign currency
transactions may increase. We may choose to limit such exposure by entering into
forward exchange contracts or engaging in similar hedging strategies.
YEAR 2000 COMPLIANCE
We have implemented a Year 2000 compliance program, utilizing both internal and
external resources, to ensure that our principal medical equipment, ambulance
and fire dispatch systems, and computer systems and applications will function
properly beyond 1999. Our assessment of this equipment and systems, both
internally developed and purchased from third-party vendors, is complete.
Included in this assessment is a formal communication program with our
significant vendors to determine the extent to which we are vulnerable to those
vendors who fail to remediate their own Year 2000 non-compliance.
We are highly dependent on vendor remediation and testing of vendor systems. The
results of the assessments and remediation efforts indicate that our principal
medical equipment, ambulance and fire dispatch systems, and computer systems and
applications are either Year 2000 compliant, have been upgraded, or in the case
of certain ambulance and fire dispatch systems, have been replaced in order to
obtain
22
<PAGE> 23
compliance. We continue to upgrade and replace non-compliant equipment and
systems and expect to complete such activities prior to January 1, 2000. We 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. If our medical equipment, ambulance and fire dispatch
systems, and computer systems and applications are not Year 2000 compliant, we
may not be able to respond to requests for ambulance and fire protection
services in a timely manner. This situation could adversely affect our
operations and we may incur unanticipated expenses to remedy any problems not
addressed by these compliance efforts.
We are dependent upon vendors who provide services such as electrical power,
water, fuel for vehicles and other necessary commodities. We also depend upon
the ability of telephone systems to be Year 2000 compliant in order for the
Company to receive incoming calls for service to our ambulance and fire dispatch
systems. The failure of telephone service providers to adequately provide
service could impact our ability to dispatch and respond to requests for
ambulance and fire protection services. 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 us for services provided. The
failure of any of these systems could adversely affect our business, financial
condition, cash flows and results of operations. We do not control these systems
and are dependent upon the service providers and third-party payors to remediate
any Year 2000 non-compliance related to their own systems.
We have completed our contingency plans in the event that our principal medical
equipment, ambulance and fire dispatch systems, computer systems and
applications, telephone systems, systems of third-party payors, or any other
components of our business operations fail to operate in compliance with the
Year 2000 date change.
The cost of our Year 2000 compliance program has not had and is not expected to
have a material impact on our results of operations, financial condition, or
liquidity. There can be no assurance, however, that we will not experience
material adverse consequences in the event that our Year 2000 compliance program
is not successful or that our vendors or third-party payors are not able to
resolve their Year 2000 compliance issues in a timely manner.
23
<PAGE> 24
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We have entered into interest rate swap agreements to limit the effect of
increases in the interest rates on floating rate debt. The swap agreements are
contracts to exchange floating rate for fixed interest payments periodically
over the life of the agreements without the exchange of the underlying notional
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. The net cash amounts paid or received on the agreements are accrued
and recognized as an adjustment to interest expense.
In November 1998, we entered into an interest rate swap agreement that
originally expired in November 2003 with a provision for the lending party to
terminate the agreement in November 2000. The interest rate swap agreement
effectively converted $50.0 million of variable rate borrowings to fixed rate
borrowings. We paid a fixed rate of 4.72% and received a LIBOR-based floating
rate. In June 1999, we terminated the interest rate swap agreement and received
a termination fee of $604,000. Such amount is being amortized as a reduction of
interest expense on a straight-line basis through November 2000.
24
<PAGE> 25
RURAL/METRO CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
We, Warren S. Rustand, our former Chairman of the Board and Chief Executive
Officer of the Company, James H. Bolin, our Vice Chairman of the Board, and
Robert E. Ramsey, Jr., our Executive Vice President and Director, have been
named as defendants in two purported class action lawsuits: 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. Reference is made to the
Company's most recently filed Form 10-K for the fiscal year ended June 30, 1999
regarding these legal proceedings instituted during the quarter ended September
30, 1998.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.16(g) Employment Agreement by and between
Registrant and John B. Furman,
effective July 29, 1999.
10.16(h) Change of Control Agreement by and
between Registrant and John B.
Furman, effective November 1, 1999.
10.16(i) Employment Agreement by and between
Registrant and Jack Brucker,
effective October 1, 1999.
27 Financial Data Schedules
(b) Reports on Form 8-K
On August 30, 1999 the Company filed a Form 8-K
disclosing its operating results for the fiscal
fourth quarter and the fiscal year ended June 30,
1999.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RURAL/METRO CORPORATION
Date: November 12, 1999 By /s/ Dean P. Hoffman
---------------------
Dean P. Hoffman, Vice President,
Financial Services
and Principal Accounting Officer
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
10.16(g) Employment Agreement by and between Registrant and John B.
Furman, effective July 29, 1999.
10.16(h) Change of Control Agreement by and between Registrant and
John B. Furman, effective November 1, 1999.
10.16(i) Employment Agreement by and between Registrant and Jack
Brucker, effective October 1, 1999.
27 Financial Data Schedules
</TABLE>
<PAGE> 1
Exhibit 10.16(g)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into this
November 1, 1999, by and between JOHN B. FURMAN ("Executive") and RURAL/METRO
CORPORATION, its subsidiaries, affiliates, joint ventures and partnerships
("Rural/Metro"). The Effective Date of this Agreement is July 29, 1999.
R E C I T A L S
A. The Board of Directors of Rural/Metro believes it is in the
best interests of Rural/Metro to continue to employ Executive as the President
and Chief Executive Officer of Rural/Metro.
B. Rural/Metro has decided to offer Executive an employment
agreement, the terms and provisions of which are set forth below.
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Executive will be employed as the President and 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 a 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.
1
<PAGE> 2
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.
2. COMPENSATION.
Initially, Executive's bi-weekly salary will be based upon
annual compensation of Three Hundred Ninety-Five Thousand Dollars ($395,000.00)
("Base Salary"). As of January 1, 2000, Executive's Base Salary shall be
increased to Four Hundred Twenty Thousand Dollars ($420,000.00). 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 2 be decreased.
3. MANAGEMENT INCENTIVE PROGRAM.
Commencing with the incentive program for the fiscal year
ending on June 30, 2000, 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.
Pursuant to the provisions of his current Employment
Agreement, Executive was granted 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 hereunder, which was
<PAGE> 3
July 29, 1999, 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. As provided in Executive's current Employment 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
thirty-six (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) 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
two (2) years 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.
<PAGE> 4
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.
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
<PAGE> 5
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 Five Thousand Dollars ($5,000) 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.
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.
<PAGE> 6
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 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; (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
<PAGE> 7
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 ninety (90) 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.
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.
<PAGE> 8
In the event Executive becomes "Disabled", Executive's
employment hereunder and Rural/Metro's obligation to pay Executive's Base Salary
(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 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
<PAGE> 9
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, except as otherwise provided
herein, will continue to be payable for a period of twenty-four (24) months
thereafter.
The Executive's Severance Benefits shall consist of the
continuation of the Executive's then Base Salary for a period of twenty-four
(24) months. 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 a period of twenty-four
(24) months. 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.
The Executive's Severance Benefits shall also consist of the
full and immediate vesting of all unvested stock options granted to the
Executive and such stock options will be immediately exercisable and remain
exercisable for twenty-four (24) months following the termination of the
Executive's employment for any of the reasons set forth in the first section of
this paragraph 9, notwithstanding any contrary terms in a Stock Option Agreement
between the
<PAGE> 10
Executive and Rural/Metro, whether entered into prior to or after the Effective
Date of this Agreement.
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 will cease if Executive elects to forego
future Severance Benefits pursuant to paragraph 12F in order to avoid any
further restrictions on his ability to engage in a competing business or to
solicit employees or clients. If Executive makes an election pursuant to
paragraph 12F, the Severance Benefits will cease as of the effective date of the
election. As a general rule, notwithstanding any contrary provision in any Stock
Option Agreement, Executive will not be allowed to exercise any options
following the effective date of an election made pursuant to paragraph 12F. Such
an election, however, shall have no effect on the vesting or exercisability of
the stock options granted to Executive by Rural/Metro pursuant to paragraph 4 of
his August 27, 1998 Employment Agreement, a portion of which are also referenced
in paragraph 4 of this Agreement.
Severance Benefits also 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
<PAGE> 11
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 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.
A. BENEFIT PLANS, INSURANCE, OPTIONS, ETC.
<PAGE> 12
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.
B. VACATION.
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. If Executive does not take
the full vacation available in any year, up to two (2) weeks may be carried over
to the next calendar year.
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"). 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,
<PAGE> 13
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> 14
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.
<PAGE> 15
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.
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
<PAGE> 16
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. ELECTION TO SHORTEN PERIOD.
Executive may elect to shorten the twenty-four (24)
month period referred to in subparagraphs C, D and E to any period of at least
twelve (12) months. In order to make this election, Executive must provide
Rural/Metro with written notice at least sixty (60) days prior to the expiration
of the shortened period. As provided in paragraph 9, if Executive makes this
election, any Severance Benefits provided by paragraph 9 will be discontinued as
of the effective date of the election.
For example, assume that Executive's employment is
terminated on November 1, 2000 under circumstances that entitle Executive to
receive Severance Benefits. Executive will be precluded from soliciting
Rural/Metro clients and employees and engaging in a competing business until
November 1, 2002. Executive may elect to begin engaging in a competing business,
and/or soliciting clients or employees, at any time on or after November 1, 2001
by making an election pursuant to this subparagraph F. If Executive chooses to
solicit employees or clients, or engage in a competing business effective as of
December 1, 2001,
<PAGE> 17
Executive must file the notice called for by this subparagraph at least sixty
(60) days before December 1, 2001.
G. AUTOMATIC REDUCTION OF PERIOD.
The twenty-four (24) month period referred to in
subparagraphs C, D and E will be shortened to twelve (12) months if Executive is
not entitled to receive Severance Benefits pursuant to paragraph 9 at the time
of his termination or employment.
H. 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.
I. 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.
<PAGE> 18
J. SURVIVAL.
The provisions of this paragraph shall survive the
termination of this Agreement.
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 as soon as possible but in no event 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.
<PAGE> 19
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 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 matter 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.
<PAGE> 20
The law of the State of Arizona shall govern the
interpretation and application of all of the provisions of this Agreement.
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
<PAGE> 21
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 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 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.
<PAGE> 22
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 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.
<PAGE> 23
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 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 , 1999.
-------- -----------
"EXECUTIVE" RURAL/METRO CORPORATION
By:
- --------------------------------- ---------------------------------
John B. Furman Cor Clement, Chairman
---------------------------------
Board of Directors
---------------------------------
<PAGE> 1
Exhibit 10.16(h)
________________, 1999
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") previously concluded 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 previously offered to you the special package
of benefits described in your September 17, 1998 Change of Control Agreement.
The Board has now decided to modify our September 17, 1998
Change of Control Agreement to provide you with the enhanced benefits described
below. Effective upon your execution of this Change of Control Agreement (the
"Agreement"), this Agreement will replace the September 17, 1998 Change of
Control Agreement.
Please bear in mind that the enhanced benefits described below
are being offered to you alone 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 Agreement which is enclosed, and return it to me on or
before , 1999.
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. ELIGIBILITY FOR SEVERANCE PAYMENT.
<PAGE> 2
John B. Furman
______________, 1999
Page 2
You will receive the "Severance Payment," as defined in
Section 3, if:
(a) Your employment with the Company is terminated
without "Cause" (as defined in Section 9) within two years following a Change of
Control; or
(b) You terminate your employment with the Company
for "Good Reason" (as defined in Section 8) within two years following a Change
of Control.
Notwithstanding the foregoing, no Severance Payment will be
payable if your employment is terminated for Cause, if you terminate your
employment without Good Reason (other than during the 30-day period referred to
above), or if your employment is terminated by reason of your "Disability" (as
defined in Section 12(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 if your employment is terminated
by you or the Company for any or no reason 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. COMPUTATION OF SEVERANCE PAYMENT.
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 22), any applicable law, or otherwise.
<PAGE> 3
John B. Furman
______________, 1999
Page 3
The Severance Payment will be paid in one lump sum within five
days following your termination of employment.
4. 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.
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.
<PAGE> 4
John B. Furman
______________, 1999
Page 4
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 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 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 Board for
purposes of this Agreement shall be final and binding on all parties.
5. BENEFITS CONTINUATION.
<PAGE> 5
John B. Furman
______________, 1999
Page 5
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.
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).
6. 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.
7. 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,
<PAGE> 6
John B. Furman
______________, 1999
Page 6
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.
(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
John B. Furman
______________, 1999
Page 7
successor or other statute of similar import shall not be deemed to be a Change
of Control for purpose of this Agreement.
8. 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 13 hereof.
(c) Any purported termination by Rural/Metro of your
employment that is not effected by a Notice of Termination pursuant to
Subsection 12 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.
9. CAUSE DEFINED.
<PAGE> 8
John B. Furman
______________, 1999
Page 8
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".
10. 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, subject to the exception noted below in the last paragraph of this Section
10, 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.
<PAGE> 9
John B. Furman
______________, 1999
Page 9
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 12. 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) 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
<PAGE> 10
John B. Furman
______________, 1999
Page 10
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.
The limitations of this Section 10 will not apply to you if
your "Uncapped Benefit" is at least 120% of your "Capped Benefit." For this
purpose, your "Uncapped Benefit" is the amount to which you will be entitled
pursuant to Sections 2 and 5, as applicable, without regard to the limitations
of this Section 10. Your "Capped Benefit" is the amount to which you will be
entitled pursuant to Sections 2 and 5, as applicable, after the application of
the limitations of this Section 10. The certified public accountant and/or
executive compensation consultants selected pursuant to this Section 10 will
calculate your Uncapped Benefit and your Capped Benefit.
11. TAX GROSS-UP.
If the ceiling imposed by Section 10 does not apply to you
because of the exception provided in the last paragraph of Section 10,
Rural/Metro will provide you with a "Gross-Up Payment" if an excise tax is
imposed on you pursuant to Section 4999 of the Code. Except as otherwise noted
below, this Gross-Up Payment will consist of a single lump sum payment in an
amount such that after payment by you of the "total presumed federal and state
taxes" and the excise taxes imposed by Section 4999 of the Code on the Gross-Up
Payment (and any interest or penalties actually imposed), you retain an amount
of the Gross-Up Payment equal to the remaining excise taxes imposed by Section
4999 of the Code on your Total Payments (calculated before the Gross-Up
Payment). For purposes of calculating your Gross-Up Payment, your actual federal
and state income taxes will not be used. Instead, we will use your "total
presumed federal and state taxes." For purposes of this Agreement, your "total
presumed federal and state taxes" shall be conclusively calculated using a
combined tax rate equal to the sum of the maximum marginal federal and
applicable state income tax rates and the hospital insurance (or "HI") portion
of F.I.C.A. Based on the rates in effect for 1996 for an Arizona resident, the
"total presumed federal and state tax rate" is 46.65% (39.6% federal income tax
rate plus 5.6%
<PAGE> 11
John B. Furman
______________, 1999
Page 11
Arizona state income tax rate plus 1.45% HI tax rate). The state tax rate for
your principal place of residence will be used and no adjustments will be made
for the deduction of state taxes on the federal return, any deduction of federal
taxes on a state return, the loss of itemized deductions or exemptions, or for
any other purpose.
All determinations concerning whether a Gross-Up Payment is
required pursuant to this Section and the amount of any Gross-Up Payment (as
well as any assumptions to be used in making such determinations) shall be made
by the legal counsel, certified public accountants, and/or a firm of recognized
executive compensation consultants (sometimes referred to collectively as
"Consultant") selected pursuant to Section 10. The Consultant shall provide you
and Rural/Metro with a written notice of the amount of the excise taxes that you
are required to pay and the amount of the Gross-Up Payment. The notice from the
Consultant shall include any necessary calculations in support of its
conclusions. All fees and expenses of the Consultant shall be borne by
Rural/Metro. Any Gross-Up Payment shall be made by Rural/Metro within 15 days
after the mailing of such notice.
As a general rule, the Consultant's determination shall be
binding on you and Rural/Metro. The application of the excise tax rules of
Section 4999, however, is complex and uncertain and, as a result, the Internal
Revenue Service may disagree with the Consultant concerning the amount, if any,
of the excise taxes that are due. If the Internal Revenue Service determines
that excise taxes are due, or that the amount of the excise taxes that are due
is greater than the amount determined by the Consultant, the Gross-Up Payment
will be recalculated by the Consultant to reflect the actual excise taxes that
you are required to pay (and any related interest and penalties). Any deficiency
will then be paid to you by Rural/Metro within 15 days of the receipt of the
revised calculations from the Consultant. If the Internal Revenue Service
determines that the amount of excise taxes that you paid exceeds the amount due,
you shall return the excess to Rural/Metro (along with any interest paid to you
on the overpayment) immediately upon receipt from the Internal Revenue Service
or other taxing authority.
Rural/Metro has the right to challenge any excise tax
determinations made by the Internal Revenue Service. If Rural/Metro agrees to
indemnify you from any taxes, interest and penalties that may be imposed upon
you (including any taxes, interest and penalties on the amounts paid pursuant to
Rural/Metro's indemnification agreement), you must cooperate fully with
Rural/Metro in connection with any such challenge. Rural/Metro shall bear all
costs associated with the challenge of any determination made by the Internal
Revenue Service and Rural/Metro shall control all such challenges. The
additional Gross-Up Payments called for by the preceding paragraph shall not be
made until Rural/Metro has either exhausted its (or your)
<PAGE> 12
John B. Furman
______________, 1999
Page 12
rights to challenge the determination or indicated that it intends to concede or
settle the excise tax determination.
You must notify Rural/Metro in writing of any claim or
determination by the Internal Revenue Service that, if upheld, would result in
the payment of excise taxes in amounts different from the amount initially
specified by the Consultant. Such notice shall be given as soon as possible but
in no event later than 15 days following your receipt of notice of the Internal
Revenue Service's position.
12. 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 19 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
<PAGE> 13
John B. Furman
______________, 1999
Page 13
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 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 19, (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.
<PAGE> 14
John B. Furman
______________, 1999
Page 14
13. 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.
14. 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.
15. 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.
16. MISCELLANEOUS.
<PAGE> 15
John B. Furman
______________, 1999
Page 15
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.
17. 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.
18. 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.
19. 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 10 and 12(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
<PAGE> 16
John B. Furman
______________, 1999
Page 16
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.
20. 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.
21. 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.
22. 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 3, and
benefits due pursuant to your Employment Agreement may reduce the
<PAGE> 17
John B. Furman
______________, 1999
Page 17
benefits due pursuant to Section 5. 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 10.
If there is any conflict between the provisions of this Agreement and your
Employment Agreement, the provisions of this Agreement shall control.
23. 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 canceled.
24. 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.
25. 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.
<PAGE> 18
John B. Furman
______________, 1999
Page 18
Sincerely,
--------------------------------
Cor Clement
Chairman, Board of Directors
Enclosure
<PAGE> 19
John B. Furman
______________, 1999
Page 19
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)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
the date set forth below, by and between Rural/Metro Corporation, its
subsidiaries, affiliates, joint ventures and partnerships ("Rural/Metro") and
Jack Brucker ("Executive"). The Effective Date of this Agreement is October 1,
1999.
RECITALS
A. The Board of Directors of Rural/Metro believes it is in the best
interests of Rural/Metro to continue to employ Executive as Senior Vice
President and Chief Operating Officer.
B. Rural/Metro has decided to offer Executive an employment agreement,
the terms and provisions of which are set forth below.
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED AS FOLLOWS:
1. POSITION AND DUTIES.
Executive will be employed as Senior Vice President and Chief
Operating Officer 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. The duties may change from time to time but initially will include,
but not be limited to, the following:
- Oversee all operational functions corporate-wide,
- Improve the efficiency and quality of the growing mix
of services by providing oversight to current staff
throughout the organization.
<PAGE> 2
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.
From the Effective Date of this Agreement through December 31,
1999, Executive's semimonthly salary will continue to be based on his
current annual compensation of Two Hundred Fifty Thousand Dollars ($250,000.00).
Beginning January 1, 2000, Executive's semimonthly salary will be based
on annual compensation of Two Hundred Eighty Thousand Dollars ($280,000.00).
Thereafter, the salary will be 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.
Nothing in this Agreement is intended to alter or modify the
Stock Option Agreements or the Change of Control Agreement previously entered
into by the parties, which shall continue in full force and effect following the
execution of this Agreement.
2
<PAGE> 3
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 begins on the Effective
Date and shall expire by its terms on September 30, 2001, 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
commencing on each October 1 and ending on the following September 30 (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 thirty (30) 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
3
<PAGE> 4
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 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
4
<PAGE> 5
$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.
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 Executives 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 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.
5
<PAGE> 6
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 thirty (30) days notice to Rural/Metro. If Executive terminates this
Agreement and his employment without Good Reason, Executive shall not be
entitled to receive Severance Benefits pursuant to paragraph 9.
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.
6
<PAGE> 7
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.
7
<PAGE> 8
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 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; or (b) for twelve (12) months.
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
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<PAGE> 9
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 alter 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 will be eligible to participate in the
Company's Stock Option Plan. This plan entails the granting of options to
buy Rural/Metro Common Stock at the fair market value at the date of grant
(generally granted at the August Board of Director's meeting). The grant
of options is made at the discretion of the Board of Directors.
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.
9
<PAGE> 10
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 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,
10
<PAGE> 11
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 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
11
<PAGE> 12
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 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
12
<PAGE> 13
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 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.
13
<PAGE> 14
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.
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,
14
<PAGE> 15
the court shall have the authority to re-write that portion of the Agreement it
deems unenforceable, to make it enforceable.
15. GOVERNING LAW.
The law of the State of Arizona shall govern the
interpretation and application of all of the provisions of this Agreement.
16. INDEMNITY.
Executive shall be indemnified in his position to the fullest
extent permitted or required by the laws of the State of Delaware.
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 before an independent mediator selected by the parties
pursuant to paragraph 17D. 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.
15
<PAGE> 16
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 17D. 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. Section
Section 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
16
<PAGE> 17
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. Section Section
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. Executive shall have
the first strike.
IN WITNESS WHEREOF, Rural/Metro and Executive have executed
this Agreement on this 20th day of October, 1999.
RURAL/METRO CORPORATION
By: /s/ JOHN B. FURMAN
-----------------------------
Title: President
---------------------------
JACK BRUCKER
/s/ JACK BRUCKER
----------------------------------
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS EXHIBIT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS
EXHIBIT SHALL NOT BE DEEMED FILED FOR PURPOSES OF SECTION 11 OF THE SECURITIES
ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934, OR OTHERWISE
SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A PART OF ANY
OTHER FILING WHICH INCORPORATES THIS REPORT BY REFERENCE, UNLESS SUCH OTHER
FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
</LEGEND>
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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<CASH> 4,721
<SECURITIES> 0
<RECEIVABLES> 230,764
<ALLOWANCES> 34,794
<INVENTORY> 17,461
<CURRENT-ASSETS> 230,052
<PP&E> 178,211
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<TOTAL-ASSETS> 586,873
<CURRENT-LIABILITIES> 73,199
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0
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<TOTAL-LIABILITY-AND-EQUITY> 586,873
<SALES> 141,200
<TOTAL-REVENUES> 141,200
<CGS> 0
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<LOSS-PROVISION> 20,410
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<INCOME-TAX> 1,740
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