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In a 13D filing on Rural Metro Corporation (Nasdaq: RURL), 11.4% holder Stadium Capital Management, LLC disclosed a letter to the board of directors expressing their dissatisfaction with RURL's delayed securities filings, inadequate investor communication by RURL's management and the inappropriate delay of the 2007 annual meeting of stockholders until February 2008. The firm urges the members of the Board to restore shareholder confidence by either explaining how RURL's existing management has addressed SCM's concerns, bringing in new management or pursuing a sale of RURL.

The firm changed their filing status from 13G 'passive' to 13D 'active' to indicate their more active role with the investment.

From the filing:

We have been patient, long-term investors, but you have lost our confidence. Our primary research continues to suggest that RURL has strong relationships in the communities in which it operates and highly regarded field personnel. We believe that there is value well in excess of the current share price, but repeated financial reporting, operational and communication blunders have both masked and potentially eroded this value. The board must restore shareholder confidence, by either convincing shareholders that present management has addressed these fundamental issues, bringing in new management, or pursuing a sale of the company. One way or another, we hope that you will take timely and decisive action to restore our confidence.


Copy of the Letter:

To The Directors of Rural Metro Corporation:

Stadium Capital Management, LLC ("SCM"), through its clients, Stadium Capital Partners, L.P., and Stadium Separate I, L.P., is a significant shareholder of Rural Metro Corporation ("RURL") with current ownership of 11.4%. We have been shareholders for over two years. Our approach to investing is to identify businesses that generate strong cash flows, conduct deep fundamental research, develop a view of long-term value and invest with a multi-year horizon. We enjoy being interactive with management teams, we try to be helpful when and if it is appropriate, and we are typically passive investors. Our investment in RURL, to this point, has been no exception to this pattern. However, given events of the past year, we feel compelled to voice our distress with RURL's current state of financial reporting, operational management and investor communication.

RURL's press release of September 14 announced, somewhat amazingly, its second delayed filing and associated restatement in the last three quarters. Aside from the fact that repeated restatements make a long-term analysis of any business virtually impossible, such a pattern suggests a fundamental lack of financial oversight at the management and board level. Additionally, while two missed filings in the span of three quarters is never excusable, in this credit environment it has the potential to be especially debilitating. We believe that the recent delays and restatements have led to meaningful destruction of shareholder value and must be addressed by the board.

Operationally, RURL's communication of its problems regarding uncompensated care has been equally unnerving. In RURL's third and fourth quarter 2006 press releases, management attributed increases in this metric (beyond the expected effects from rate hikes and higher transport volumes) to billing center consolidation and a specific slowing of collections from Arizona Medicaid and certain Medicare Advantage payers. To us and probably many other investors, these issues initially seemed both isolated and temporary. Recent communication has suggested that this is not the case. RURL has needed to re-engineer its collections process in every region in which it operates and address far-ranging issues such as staffing levels and location, contracting practices and technology requirements. We hope that these are the correct actions. Nevertheless, we can not help but conclude that management's initial communication of the uncompensated care issue reflected either a woefully inadequate understanding of the problem (and required solution) or a total misrepresentation (deliberate or otherwise) of the issue. Either answer destroys shareholder value and should be addressed by the board.

Finally, despite the confusion and frustration caused by RURL's repeated delays/restatements and weak financial performance, RURL has refused to provide investors with any guideposts to judge future financial performance. We are not suggesting that RURL issue quarterly guidance. Investors, however, should know management's medium and long-term goals for operating profitability and timetables for achieving them. With this, existing and prospective investors can value RURL's shares and the shareholders, and you as their representatives, will have tangible goals by which to evaluate management

We have been patient, long-term investors, but you have lost our confidence. Our primary research continues to suggest that RURL has strong relationships in the communities in which it operates and highly regarded field personnel. We believe that there is value well in excess of the current share price, but repeated financial reporting, operational and communication blunders have both masked and potentially eroded this value. The board must restore shareholder confidence, by either convincing shareholders that present management has addressed these fundamental issues, bringing in new management, or pursuing a sale of the company. One way or another, we hope that you will take timely and decisive action to restore our confidence.

On September 19, RURL issued a press release announcing the date of its 2007 annual meeting and that the board is planning to propose an "equity-based compensation plan" for a shareholder vote. The press release also disclosed that the board plans to meet with Accipiter Capital Management, LLC during its December board meeting. The press release was not detailed and therefore we cannot address the issues it raises in great length. We do, however, have the following general reaction to its contents.

First, given the company's performance, we are not inclined to support an "equity-based compensation plan" to "align the Company and its stockholders". The company has performed poorly. By proposing such a plan, we can only infer that the board believes that at least part of this poor performance is because the management team did not have enough incentive to perform well and this plan is designed to correct that problem. Put another way, the board must believe that the management team would be motivated to improve its performance if they just had some more of our ownership. Perhaps not surprisingly, we feel that the management team should have been performing at their maximum competence and effort level already and should continue to do so. If they have not, or do not intend to in the future without more of our equity, then we feel that they should be replaced.

Second, we are delighted that the board has invited Accipiter to meet with them. We have no window into the board or management team's relationship with Accipiter, but as Accipiter is a significant owner, we would hope that the board makes an effort to hear their input whenever it is reasonably possible. You may not agree with them, and we may not agree with them, but as their representatives, you absolutely must give them access. As our representatives, we request that you do.

Finally, we see no reason to wait until February 28, 2008 to have the 2007 Annual Meeting of Stockholders. You and we know that there are significant issues that need to be discussed and we would prefer to get that done as soon as possible. Obviously, given our point of view expressed above, there is no reason to wait for an "equity based compensation plan" proposal (you can propose that for a vote later if you must). We request that you set a date earlier and if necessary move up your meeting with Accipiter (assuming they can make themselves available), and any other significant shareholder, so that you can, if necessary, incorporate their input into your proposals.

Thank you for your attention.

Sincerely,
Stadium Capital Management, LLC
Source: Stadium Capital Expresses Dissatisfaction With Rural/Metro Corporation