<PAGE>
MARKED TO SHOW CHANGES
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1996
REGISTRATION NO. 333-03587
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
COINMACH LAUNDRY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 7215 11-3258015
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
----------------
55 LUMBER ROAD
ROSLYN, NEW YORK 11576
(516) 484-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT M. DOYLE
55 LUMBER ROAD
ROSLYN, NEW YORK 11576
(516) 484-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
RONALD S. BRODY, ESQ. WILLIAM M. HARTNETT, ESQ.
ANDERSON KILL OLICK & OSHINSKY, P.C. CAHILL GORDON & REINDEL
1251 AVENUE OF THE AMERICAS 80 PINE STREET
NEW YORK, NEW YORK 10020 NEW YORK, NEW YORK 10005
(212) 278-1000 (212) 701-3000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act Registration statement number of the earlier effective
registration statement for the same offering. [_] 333-
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] 333-
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.......... 4,600,000 shares $18.00 $82,800,000 $28,551.76
</TABLE>
(1) Includes 600,000 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) $24,983 of such registration fee was paid in connection with the initial
filing.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
COINMACH LAUNDRY CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K, Showing Location
in Prospectus of Information required by Part I of Form S-1
<TABLE>
<CAPTION>
<S> <C>
Item Number and Caption in Form S-1 Location or Caption in Prospectus
- ----------------------------------- ---------------------------------
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.................. Outside Front Cover Page of Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus........................................... Inside Front and Outside Back Cover Pages of
Prospectus; Available Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...................... Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data
4. Use of Proceeds......................................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price......................... Underwriting
6. Dilution................................................ Dilution
7. Selling Security Holders................................ Not Applicable
8. Plan of Distribution.................................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to Be Registered.............. Outside Front Cover Page of Prospectus; Prospectus
Summary; Description of Capital Stock
10. Interests of Named Experts and Counsel.................. Legal Matters; Experts
11. Information with Respect to Registrant.................. Outside Front Cover Page of the Registration
Statement; Prospectus Summary; Risk Factors; The
Company; Use of Proceeds; Dividend Policy;
Dilution; Capitalization; Unaudited Pro Forma
Financial Data; Selected Historical Consolidated
Financial Data; Management's Discussion and
Analysis of Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Certain Relationships and Related
Transactions; Description of Capital Stock; Shares
Eligible for Future Resale; Experts; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities......... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated June 19, 1996
PROSPECTUS
LOGO
--------
Coinmach
--------
Superior Laundry Services
4,000,000 SHARES
COINMACH LAUNDRY CORPORATION
COMMON STOCK
------------
All of the shares of voting Class A common stock, par value $.01 per share
(the "Common Stock"), offered hereby are being sold by Coinmach Laundry
Corporation ("Coinmach Laundry" and, together with its consolidated
subsidiaries, the "Company"). Prior to this offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price per share will be between $16.00 and $18.00. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. Approximately $17,688,000 of the estimated net proceeds to the
Company will be used to redeem preferred stock held by one of the Company's
principal stockholders. The Company has applied to list the Common Stock for
quotation on the Nasdaq National Market under the trading symbol "WDRY."
------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.SEE "RISK
FACTORS" BEGINNING AT PAGE 6.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting Discounts and Proceeds to
Price to Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............... $ $ $
- --------------------------------------------------------------------------------
Total(3)................ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 600,000 additional shares of Common Stock on the same
terms as set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------
The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that the delivery of the
shares of Common Stock will be made at the office of Lehman Brothers Inc., New
York, New York on or about July , 1996.
------------
LEHMAN BROTHERS
DILLON, READ & CO. INC.
LAZARD FRERES & CO. LLC
FIELDSTONE
FPCG SERVICES, L.P.
, 1996
<PAGE>
[LOGO]
--------
Coinmach
--------
Coinmach Laundry Corporation
Operating Regions
[REGIONAL MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the consolidated financial statements and related notes thereto, presented
elsewhere in this Prospectus. As used in this Prospectus, unless the context
otherwise requires, all references to the "Company" herein refer to Coinmach
Laundry Corporation and its consolidated subsidiaries and their respective
predecessors and subsidiaries, in each case as applicable. References to the
"Offering" shall refer to the offering of the Common Stock in the United States
and Canada by the underwriters of the Offering (the "Underwriters"). Except as
otherwise indicated herein, all information in this Prospectus (a) assumes no
exercise of the Underwriters' over-allotment option and (b) has been adjusted to
give effect to a reclassification and an approximate 23.0:1 stock split of the
Common Stock.
THE COMPANY
GENERAL
The Company, established in 1948, is a leading supplier of coin-operated
laundry equipment services for multi-family properties in the United States.
The Company leases laundry rooms from building owners and management companies,
installs and services the laundry equipment and collects the revenues generated
from the machines. The Company owns and operates over 245,000 coin-operated
washers and dryers on routes in over 26,000 buildings located in 28 states and
the District of Columbia. The Company's routes are located throughout the
Northeast, Mid-Atlantic, Southeast, South-Central and Mid-West regions of the
United States. Based upon its knowledge of the industry, management believes
that the Company is the second largest such supplier in the United States and
the largest in the eastern United States.
The Company's business strategy is to increase operating cash flow and
profitability through a combination of internal expansion and selective
acquisitions. Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers, (ii) converting owner-operated facilities
into Company managed facilities, and (iii) implementing selective price
increases within the Company's operating regions. The Company's acquisition
strategy is to acquire local, regional and multi-regional route businesses from
independent operators. Management believes that by pursuing its business
strategy the Company will be positioned to realize: (i) additional operating
leverage and economies of scale associated with expanding its installed base of
machines, (ii) reduced operating expenses through consolidation of overhead
functions and facilities, and (iii) reduced equipment and parts costs on a per
unit basis due to increased purchasing requirements.
In January 1995, management, with its equity sponsor, Golder, Thoma,
Cressey, Rauner, Fund IV, L.P. ("GTCR"), acquired the Company's Northeast
regional route business and initiated a strategy of growth through acquisitions.
This strategy was designed to increase the Company's installed machine base in
its existing operating regions and to provide the Company with a leading market
position in new regions. The Company has grown its installed base from 54,000
machines as of January 1995 to 245,000 machines as of May 1, 1996. Revenues and
EBITDA(1) have grown from $72.9 million and $13.6 million, respectively, for the
twelve months ended March 31, 1995 to $189.4 million and $56.2 million,
respectively, for the twelve months ended March 29, 1996, on a pro forma basis.
See "Unaudited Pro Forma Financial Data." These acquisitions have enabled the
Company to improve its operating margins and compete more aggressively for new
strategic contracts.
The coin-operated laundry services industry is characterized by stable cash
flows generated by long-term, renewable lease contracts with multi-family
property owners and management companies. Laundry service equipment is
installed and serviced in multi-family properties, including rental buildings,
condominium and cooperative associations and university and other institutional
housing. The coin-operated laundry services industry is fragmented nationally,
with many small, private and family-owned route businesses continuing to operate
throughout all major metropolitan areas. According to information provided by
the Multi-housing Laundry Association, the industry consists of over 280
independent operators. Based upon industry estimates, management believes there
are approximately 3.5 million machines installed in locations throughout the
United States, 2.5 million
-1-
<PAGE>
of which are managed by independent operators such as the Company and 1.0
million of which are operated by the owners of such locations.
Management believes that the Company maintains its strong market position
in each of its operating regions due to: (i) its long-standing reputation with
customers for providing reliable, quality service through the entire service
cycle (from installation to collection to service and maintenance), (ii) its
ability to manage information through its proprietary, fully-automated
management information and control systems (the "Integrated Computer Systems")
that coordinate its marketing efforts and monitor all aspects of its operations,
and (iii) its experienced senior management team.
RECENT DEVELOPMENTS
On April 1, 1996, the Company acquired the route business of Allied Laundry
Equipment Company, located in St. Louis, Missouri (the "Allied Acquisition"), as
part of its acquisition strategy and its plan to establish a larger market
presence in the Mid-West. The Allied Acquisition increased the Company's
installed base by approximately 24,000 machines. On a pro forma basis for the
year ending March 29, 1996, the Allied Acquisition contributed an increase of
approximately $3.3 million of EBITDA(1) and approximately $10.6 million of
revenue. In addition, the Company is evaluating several other local and
regional route acquisition opportunities. The Company has not, however, entered
into any definitive agreements or letters of intent for such prospective
acquisitions. Moreover, there can be no assurance that, subsequent to ongoing
negotiations and due diligence reviews, the Company will complete any such
acquisitions.
_________________
(1) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. Management believes
that EBITDA is widely used in the industry as a measure of a company's
operating performance. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
(i) operating income (as determined by generally accepted accounting
principles ("GAAP")) as an indicator of operating performance or (ii) cash
flows from operating, investing and financing activities (as determined by
GAAP) as a measure of liquidity. Given that EBITDA is not a measurement
determined in accordance with GAAP and is thus susceptible to varying
calculations, EBITDA as presented may not be comparable to other similarly
titled measures of other companies. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
-2-
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Company ............................... 4,000,000 shares
Total Common Stock and Non-Voting Common
Stock to be outstanding after the Offering ........................ 10,296,176 shares(1)
Common Stock to be outstanding after
the Offering ...................................................... 9,815,528 shares(1)
Non-Voting Common Stock, $.01 par value per
share (the "Non-Voting Common Stock") to be
outstanding after the Offering .................................... 480,648 shares
Proposed Nasdaq National Market Symbol ............................ "WDRY"
Use of Proceeds ................................................... The net proceeds to be received by the Company from the
Offering will be utilized by the Company: (i) to redeem the
Company's non-participating, non-voting preferred stock, par
value $.01 per share (the "Preferred Stock") for an
aggregate redemption price equal to $19,132,501 (see
"Description of Capital Stock -- The Reclassification and
Stock Split"), (ii) to pay GTCR IV, L.P. ("GTCR IV"),
the general partner of GTCR, a termination fee in an amount
equal to $500,000 in connection with the termination of the
Company Management Agreement (see "Certain Relationships and
Related Transactions -- Management and Consulting Services
Agreements"), (iii) to repay in full all outstanding
indebtedness under the Company's revolving credit facility
and (iv) for general corporate purposes, which may include
certain selected acquisitions or open market purchases from
time to time of the Company's outstanding indebtedness. See
"Use of Proceeds."
</TABLE>
- ----------------
(1) Does not include (i) 726,789 shares of Common Stock issuable upon exercise
of stock options outstanding after the Offering, of which 145,358 shares of
Common Stock will be issuable with respect to options that are exercisable
immediately after the Offering, and (ii) 1,090,183 shares of Common Stock
issuable upon exercise of options granted or to be granted pursuant to the
Company's 1996 Employee Stock Option Plan (the "1996 Stock Option Plan").
See Management -- Grant of Options; 1996 Employee Stock Option Plan."
-3-
<PAGE>
BACKGROUND
Coinmach Industries Co., L.P. ("Coinmach Industries") was established as
a private coin-operated laundry equipment services company in 1947. On January
31, 1995, The Coinmach Corporation ("TCC"), a company formed by GTCR, members of
the Company's senior management and certain other investors acquired all of the
partnership interests of Coinmach Industries and Super Laundry Equipment Co.,
L.P. from CIC I Acquisition Corp. ("CIC") (the "Coinmach Acquisition"). Solon
Automated Services, Inc. ("Solon") began as a private coin-operated laundry
equipment services business in 1948. On April 5, 1995, GTCR and substantially
all of the other stockholders of TCC formed the Company to acquire all of the
capital stock of Solon (the "Solon Acquisition"). On November 30, 1995, TCC
merged (the "Merger") with Solon and entered into a series of refinancing
transactions (the "Refinancing"), whereupon the surviving corporation changed
its name to "Coinmach Corporation." Coinmach Corporation ("Coinmach") is the
principal operating subsidiary of the Company. See "The Company -History."
RECLASSIFICATION
In connection with the Offering, the Company is simplifying its
capital structure by reclassifying its capital stock such that all seven classes
of the issued and outstanding common stock prior to the Offering will be
reclassified into one class of preferred stock and two classes of common stock
(voting and non-voting). See "Description of Capital Stock - The
Reclassification and Stock Split."
Prior to the Offering, holders of certain classes of the Company's
common stock (such classes being hereinafter referred to as the "Preferred
Shares") were entitled to receive, prior to participating ratably with respect
to dividends or distributions paid to holders of all classes of common stock:
(i) preferred dividends on such Preferred Shares in an amount equal to the
accrued yield (at a rate of 8% per annum, compounded quarterly) on their
original investment in such Preferred Shares (the "Unpaid Yield"); and (ii) an
amount equal to their original investment in such Preferred Shares (the
"Preferred Investment"). In order to preserve the Unpaid Yield and the Preferred
Investment for certain holders of Preferred Shares, the Company shall issue to
such holders shares of Preferred Stock representing: (i) the Unpaid Yield in an
aggregate amount of $1,793,439; plus (ii) the Preferred Investment in an
aggregate amount of $17,339,062. Those holders of Preferred Shares who are
members of the Company's management shall receive additional shares of Common
Stock in respect of their Unpaid Yield and Preferred Investment. All other
holders of Preferred Shares shall realize the economic value of their Unpaid
Yield and Preferred Investment through the Company's redemption of the Preferred
Stock from a portion of the proceeds of the Offering.
Additionally, all holders of Preferred Shares shall receive an
equivalent number of shares of Common Stock (or Non-Voting Common Stock)
pursuant to the reclassification contemplated hereby. See "Use of Proceeds" and
"Description of Capital Stock - The Reclassification and Stock Split."
-4-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(in thousands, except ratios and machine data)
The following table presents summary historical financial data of the
Company for the twelve months ended March 29, 1996 (which includes the combined
operations of Solon and TCC) and pro forma financial data of the Company for the
twelve months ended March 29, 1996 (which includes the combined operations of
Solon and TCC) giving effect to (i) the Offering, (ii) certain acquisitions,
including the Allied Acquisition, and (iii) operating efficiencies resulting
from the Merger, as if such transactions occurred at the beginning of the period
(or in the case of Balance Sheet Data, as of the date of such data). The
unaudited pro forma combined financial data are not necessarily indicative of
either future results of operations or results that might have been achieved if
the foregoing transactions had been consummated as of the indicated dates. The
financial data set forth below should be read in conjunction with the Company's
combined consolidated financial statements and the related notes thereto
presented elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Coinmach Laundry Corporation/(1)/
-----------------------------------
Pro Forma
Twelve Months Twelve Months
Ended March 29, Ended March 29,
1996 1996
----------------- ----------------
<S> <C> <C>
(Unaudited)
---------------
OPERATING DATA:
Revenues...................................... $178,789 $189,357
Laundry operating expenses.................... 123,441 129,891
General and administrative expenses........... 4,195 3,298
Depreciation and amortization................. 36,635 38,341
Operating income.............................. 12,318 17,827
Loss before extraordinary item................ (8,639) (5,958)
BALANCE SHEET DATA (AT END OF PERIOD):
Property and equipment, net................... $ 82,699 $ 90,899
Total assets.................................. 249,148 292,380
FINANCIAL RATIOS AND OTHER DATA (UNAUDITED):
Cash flows from operating activities.......... $ 24,403 $ 30,384
Cash used for investing activities............ (39,201) (40,837)
Cash from financing activities................ 23,882 23,882
EBITDA(2)..................................... 48,953 56,168
EBITDA margin(3).............................. 27.4% 29.7%
Operating margin(4)........................... 6.9% 9.4%
Capital expenditures.......................... 27,338 28,974
Number of machines (rounded).................. 221,000 245,000
</TABLE>
___________________
(1) Historical financial data for each of TCC (and its predecessors) and Solon
(for periods prior to April 5, 1995), in each case the predecessors of
Coinmach Laundry Corporation, are contained in the Selected Historical
Consolidated Financial Data and the financial statements and related notes
thereto presented elsewhere in this Prospectus.
(2) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. Management believes
that EBITDA is widely used in the industry as a measure of a company's
operating performance. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
(i) operating income (as determined by GAAP) as an indicator of operating
performance or (ii) cash flows from operating, investing and financing
activities (as determined by GAAP) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) EBITDA margin represents EBITDA as a percentage of revenues. Management
believes that EBITDA margin is a useful measure to evaluate the Company's
performance over various sales levels. EBITDA margin should not be
considered as an alternative for measurements determined in accordance with
GAAP.
(4) Operating margin represents operating income as a percentage of revenues.
-5-
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby.
Substantial Indebtedness
The Company will continue to have substantial indebtedness and debt
service requirements after the Offering. As of March 29, 1996, on a pro forma
basis after giving effect to the Offering, assuming no reductions to
indebtedness resulting from the application of the net proceeds therefrom, the
Company's indebtedness would have been approximately $202.8 million and
stockholders' equity $33.4 million.
The Company's level of indebtedness will have several important effects
on its future operations, including the following: (i) a significant portion of
the Company's cash flow from operations will be required to pay interest on its
indebtedness and will not be available for other purposes; (ii) the financial
covenants and other restrictions contained in certain of the financing
agreements governing the Company's indebtedness will require the Company to meet
certain financial tests and will limit its ability to borrow additional funds or
to dispose of assets; (iii) the Company's ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions and
general corporate purposes may be impaired; and (iv) the Company's ability to
adapt to changes in the coin-operated laundry equipment services industry and to
economic conditions in general could be limited. Coinmach Laundry is a holding
company that will be dependent upon its principal operating subsidiary,
Coinmach, as its primary source of revenue subsequent to the Offering. The
financial covenants contained in the financing agreements governing the
Company's indebtedness restrict Coinmach's ability to make dividends,
distributions or other payments to Coinmach Laundry. Additionally, the
Company's ability to meet its debt service obligations and to reduce its total
debt will be dependent upon its future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
An inability of the Company to comply with the financial covenants or
other conditions contained in the financing agreements governing the Company's
indebtedness could result in an acceleration of amounts due thereunder. If the
Company is unable to meet its debt service obligations, it could be required to
take certain actions such as reducing or delaying capital expenditures, selling
assets, refinancing or restructuring its indebtedness, selling additional equity
capital or other actions. There is no assurance that any of such actions could
be effected on commercially reasonable terms, if at all, or on terms permitted
under the applicable financing agreements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Historical Net Losses
In the past, the Company has experienced net losses. The Company
incurred a loss before extraordinary items of $6.1 million and $2.5 million for
the period commencing April 5, 1995 to September 29, 1995, and the six months
ended March 29, 1996, respectively. As of March 29, 1996, the Company had an
accumulated deficit of approximately $18.7 million. No assurance can be given
that net losses will not occur in future periods.
Dependence Upon Lease Renewals
The Company's business is highly dependent upon the renewal of its lease
contracts with property owners and management companies. The Company's business
strategy has historically focused on obtaining long-term, renewable lease
contracts. Management estimates that over 89% of its customers are subject to
long-term leases with initial terms of three to ten years. Management estimates
that although approximately 13% of the Company's leases expire each year, the
Company annually loses only 1-2% of its overall installed machine base to
competitors or owner-operators. These losses, however, do not take into account
and may be offset by, the addition of new locations to its installed base of
machines achieved through the Company's sales and marketing efforts. There can
be no assurance that the Company's high retention rate will continue or that its
new leases will contain the same renewal and related material terms. See
"Business -- Description of Operations -- Location Leasing."
-6-
<PAGE>
Risks of Acquisitions and the Failure to Integrate Acquired Businesses
As part of its business strategy, the Company will continue to evaluate
opportunities to acquire local, regional and multi-regional route businesses.
There can be no assurance that the Company will find attractive acquisition
candidates or effectively manage the integration of acquired business into its
existing business. If the expected operating efficiencies from such
transactions do not materialize, if the Company fails to integrate new
businesses into its existing business, or if the costs of such integration
exceed expectations, the Company's operating results and financial condition
could be adversely affected. Future acquisitions by the Company could result in
the incurrence of debt, the potentially dilutive issuance of equity securities
and the incurrence of contingent liabilities and amortization expenses related
to goodwill and other intangible assets, any of which could adversely affect the
Company's operating results and financial condition.
Capital Requirements
The Company must continue to make capital expenditures to maintain its
operating base, including investments in equipment and contract maintenance.
The Company spent approximately $27.3 million on capital expenditures for the
year ended March 29, 1996. While the Company estimates that it will generate
sufficient cash flow from operations to finance anticipated capital
expenditures, there can be no assurance that it will be able to do so.
Reduced Occupancy Levels
Extended periods of reduced occupancy can adversely affect the Company's
operations. In a period of occupancy decline, the Company could be faced with
reductions in revenues and cash flow from operations in certain areas. In past
periods of occupancy decline, management designed incentive programs that were
successful in maintaining stable profit margins by offering owners and
management companies financial incentives relating to increased occupancy levels
(and the use of laundry room facilities) in exchange for certain guaranteed
minimum periodic payments. Although the Company is geographically diversified,
there can be no assurance that the Company will maintain its revenue levels or
cash flow from operations in periods of low occupancy.
Historical Decline in Revenues
Due to previous capital constraints and debt service requirements, the
Company experienced declines in revenues from operations during certain periods
over the past three fiscal years. Growth in revenues is driven by a number of
factors, including market conditions, the size of the operating base of
machines, the number of installed machines, the ability to maintain and expand
the machine base through an appropriate level of capital expenditures (which was
limited in each of the last three fiscal years), and actual revenue generated on
a per-machine basis. The Company is continually monitoring and maintaining its
operating base by purchasing and maintaining equipment and pursuing its business
strategy of acquiring route businesses to increase operating leverage. There
can be no assurance that revenues from operations will increase or maintain
current levels in future periods.
Dependence on Key Personnel
The Company's continued success will depend largely on the efforts and
abilities of its executive officers and certain other key employees. The
Company does not maintain insurance policies with respect to such employees, and
the Company's operations could be affected adversely if, for any reason, such
officers or key employees do not remain with the Company. See
"Management."
Control by Principal Shareholder
Immediately after the Offering, GTCR will own approximately 44.25% of the
outstanding shares of Common Stock and Non-Voting Common Stock (before giving
effect to shares of Common Stock issuable upon exercise of options which are
currently vested and exercisable). Upon consummation of the Offering, GTCR will
enter into a Voting Agreement with each of the holders of Common Stock prior to
the Offering (the "Voting Agreement") that will give GTCR the ability to
designate for election a majority of the Company's directors and
-7-
<PAGE>
determine the outcome of substantially all issues submitted to the Company's
stockholders, including mergers, sales of all or substantially all of the
Company's assets and similar fundamental corporate changes.
Benefits to GTCR
Approximately $17,688,000 of the net proceeds to the Company from the
Offering will be used to redeem all of the shares (including all unpaid
dividends thereon) of Preferred Stock owned by GTCR. In addition, GTCR shall
receive $500,000 of the net proceeds to the Company from the Offering as
consideration for its termination of the Management and Consulting Services
Agreement (the "Company Management Agreement"), dated July 26, 1995, between the
Company and GTCR IV. See "Certain Relationships and Related Transactions."
Competition
The coin-operated laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. The
industry is fragmented nationally, with many small, private and family-owned
businesses operating throughout most major metropolitan areas. The Company
competes against many privately-owned businesses that may have greater or more
flexible financial resources than the Company.
Significant Intangible Assets
At March 29, 1996, approximately $103.8 million or 41.7% of the Company's
total assets were intangible assets consisting primarily of contract rights and
goodwill. Adjusted for the Offering and the Allied Acquisition, approximately
$111.2 million or 38.0% of the Company's total assets would have been intangible
assets as of March 29, 1996. In the event of a sale or liquidation, there can
be no assurance that the value of the Company's intangible assets would be
realized.
Dividend Policy
The Company has not declared or paid any cash dividends on its capital
stock and does not intend to pay cash dividends on its capital stock in the
foreseeable future. Declaration of dividends on the Common Stock will depend
upon, among other things, the Company's results of operations, financial
condition, capital requirements and general business condition. At the present
time, the Company's ability to pay dividends on the Common Stock is subject to
restrictions contained in certain of the Company's outstanding debt and
financing agreements. See "Dividend Policy."
Dilution
The proposed initial public offering price is substantially higher than
the book value per outstanding share of Common Stock. Accordingly, purchasers in
the Offering will suffer immediate and substantial dilution in net tangible book
value in the amount of $23.79 per share based on an assumed initial public
offering price of $17.00 per share (representing the midpoint of the estimated
range of the initial public offering price in the Offering). Additional dilution
will occur upon the exercise of outstanding options granted by the Company to
members of management and certain employees pursuant to the 1996 Stock Option
Plan. See "Dilution"; "Management -- 1996 Stock Option Plan."
Management Discretion Regarding Proceeds of the Offering
The Company has not yet allocated a substantial portion of the net
proceeds of the Offering to specific uses. Management will have broad
discretion as to the application of the Offering proceeds. Pending the
Company's use of such proceeds for general corporate purposes and possible
acquisitions, such proceeds will be placed in short-term, interest-bearing,
investment-grade debt securities, certificates of deposit or direct or
guaranteed obligations of the United States. It is possible that the return on
such investments will be less than that which would be realized were the Company
immediately to use such funds for other purposes.
-8-
<PAGE>
Environmental Regulation
The Company's business and operations are subject to federal, state and
local environmental laws and regulations that impose limitations on the
discharge of, and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of, certain materials,
substances and wastes. To the best of management's knowledge, there are no
existing or potential environmental claims against the Company, nor has the
Company received any notification of responsibility for, or any inquiry or
investigation regarding, any disposal, release or threatened release of any
hazardous material, substance or waste generated by the Company that is likely
to have a material adverse effect on the Company's business or financial
condition. However, the Company cannot predict with any certainty that it will
not in the future incur any liability under environmental laws and regulations
that could have a material adverse effect on the Company's business or financial
condition.
Anti-Takeover Provisions
Certain provisions of the Company's Second Amended and Restated
Certificate of Incorporation (the "Second Amended and Restated Certificate of
Incorporation") and the Second Amended and Restated Bylaws (the "Second Amended
and Restated Bylaws") may discourage, delay or make more difficult a change in
control of the Company, or prevent the removal of incumbent directors even if
some, or a majority, of the Company's stockholders were to deem such an attempt
to be in the best interest of the Company. Among other things, the Second
Amended and Restated Certificate of Incorporation allows the Board of Directors
of the Company (the "Board") to issue shares of preferred stock in the future
and fix the rights, privileges and preferences of those shares without any
further vote or action by the stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. While the
Company has no present intention to issue shares of preferred stock, any such
issuance could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. In addition,
the Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which could have the effect of delaying or
preventing a change in control of the Company. See "Description of Capital
Stock."
Shares Eligible for Future Sale; Registration Rights
Sales of substantial amounts of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Of the 10,296,176 shares of Common Stock and Non-Voting Common Stock
that will be outstanding following the Offering prior to giving effect to the
exercise of any options to purchase Common Stock granted by the Company,
4,000,000 shares of Common Stock offered hereby will be freely tradeable, except
those purchased by "affiliates" of the Company, as such term is defined under
Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"). The
remaining 6,296,176 outstanding shares of Common Stock and Non-Voting Common
Stock are considered "restricted securities" for the purpose of Rule 144 under
the Securities Act. The sale of these restricted securities, together with any
shares purchased in the Offering by affiliates, is limited by lock-up agreements
under which the holders of the restricted shares have agreed that they will not,
without the prior written consent of Lehman Brothers Inc., offer, sell, contract
to sell or otherwise dispose of their shares for a period of 180 days from the
date of this Prospectus. After expiration of such lock-up agreements, all of
the 6,296,176 restricted securities will be eligible for sale under Rule 144 of
the Securities Act. See "Shares Eligible for Future Sale."
Absence of Prior Public Market; Possible Volatility of Stock Price
Prior to the Offering, there has been no public market for the Common
Stock. Although the Company has applied to list the Common Stock on the Nasdaq
National Market, there can be no assurance that an active public market for the
Common Stock will develop or, if it does develop, that it will be sustained
after the completion of the Offering. The initial offering price will be
determined through negotiations between the Company and the Underwriters and may
not be indicative of the market price for the Common Stock after the Offering.
There can be no assurance that the market price of the Common Stock will not
decline below the initial public offering price. The trading price of the
Common Stock may be volatile and may fluctuate based upon a number of factors,
including business performance, announcements by the Company or changes in
general market conditions. See "Underwriting."
-9-
<PAGE>
THE COMPANY
GENERAL
The Company is a leading supplier of coin-operated laundry equipment
services for multi-family properties in the United States. The Company owns and
operates over 245,000 coin-operated washers and dryers on routes in over 26,000
buildings in 28 states and the District of Columbia. The Company operates in the
Northeast, Mid-Atlantic, Southeast, South-Central and Mid-West regions of the
United States. Based upon its knowledge of the industry, management believes
that the Company is the second largest such supplier in the United States and
the largest in the eastern United States.
The Company is a Delaware corporation with executive offices located
at 55 Lumber Road, Roslyn, New York 11576, and its telephone number is (516)
484-2300.
HISTORY
Coinmach Industries was established as a private, coin-operated
laundry equipment service company in 1947. On January 31, 1995, TCC (a company
formed by GTCR, members of the Company's senior management and certain other
investors) consummated the Coinmach Acquisition pursuant to which all of the
partnership interests of Coinmach Industries and Super Laundry Equipment Co.,
L.P. from CIC. In 1948, Solon began as a coin-operated laundry equipment service
business. On April 5, 1995, GTCR and substantially all of the other stockholders
of TCC formed the Company and consummated the Solon Acquisition pursuant to
which the Company acquired all of the capital stock of Solon. On November 30,
1995, TCC merged with Solon, whereupon the surviving corporation changed its
name to "Coinmach Corporation." Coinmach Corporation is the principal operating
subsidiary of the Company.
Prior to the transactions described above, on October 20, 1989, CIC, a
non-operating holding company, acquired, through a series of related
transactions, a controlling general partnership interest in Coinmach Industries
and all of the issued and outstanding capital stock of Super Laundry Equipment
Corp. (the "1989 Transaction"). CIC incurred approximately $44.0 million of
bank debt and approximately $31.5 million of subordinated indebtedness in
connection with the 1989 Transaction and subsequent related borrowings. As a
result of the 1989 Transaction and such subsequent borrowings, CIC's capital
structure became over-leveraged and unsustainable. Consequently, on December
15, 1993, CIC filed a voluntary prepackaged petition for reorganization under
Chapter 11 of the United States Bankruptcy Code (the "Plan"). On January 21,
1994, the United States Bankruptcy Court confirmed the Plan, which resulted in
ownership of CIC being transferred to its subordinated lenders. The Plan
provided for CIC's existing senior subordinated notes, junior subordinated
promissory notes, preferred stock and common stock to be exchanged for 87,000
shares of common stock of CIC valued at approximately $24.2 million.
The Merger and Refinancing
On November 30, 1995, in connection with the Merger, the Company
implemented the Refinancing, consisting of: (i) an exchange offer, (ii) a debt
offering, (iii) a new $35 million revolving credit facility (the "Revolving
Credit Facility"), (iv) repayment of Coinmach Industries' then-existing credit
facility and (v) repayment of certain other secured indebtedness of the Company.
The Company implemented the Refinancing to extend the maturity of its debt
obligations, repay indebtedness and improve its financial flexibility to pursue
its business strategy and achieve improved consolidated operating performance.
As of June 15, 1996, the Company had approximately $5.0 million of
indebtedness outstanding under the Revolving Credit Facility, $196.7 million of
issued and outstanding 11 3/4% Senior Notes due 2005 (the "Senior Notes"), and
$5.0 million of issued and outstanding 12 3/4% Senior Notes due 2001 (the "Old
Senior Notes").
-10-
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,000,000 shares
of Common Stock offered hereby are estimated to be approximately $62.2 million
(approximately $71.7 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $17.00 per
share (the midpoint of the estimated range). The Company intends to use such net
proceeds: (i) to redeem all of the Preferred Stock previously issued to GTCR and
certain other stockholders of the Company as part of the reclassification of the
Company's capital stock for an aggregate redemption price of $19,132,501, see
"Description of Capital Stock -- The Reclassification and Stock Split," (ii) to
pay GTCR IV, the general partner of GTCR, a termination fee in an amount equal
to $500,000 in connection with the termination of the Company Management
Agreement, see "Certain Relationships and Related Transactions -- Management and
Consulting Services Agreements," (iii) to repay in full approximately $5.0
million of indebtedness outstanding under the Revolving Credit Facility, and
(iv) for general corporate purposes, which may include certain selected
acquisitions or open market purchases from time to time of the Company's
outstanding indebtedness. Although the Company has had preliminary discussions
with respect to several acquisition opportunities, no agreement or understanding
with respect to any specific acquisition has been reached. There can be no
assurance that any such acquisitions will be made. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
Outstanding borrowings under the Revolving Credit Facility were
approximately $5.0 million as of June 15, 1996. Amounts under the Revolving
Credit Facility repaid with proceeds from the Offering may be re-borrowed, and
any such re-borrowing will be used for general corporate purposes, which may
include making certain selected acquisitions.
Other than as described above, the Company has no current specific
plan for the use of the net proceeds of the Offering. See "Risk Factors --
Management Discretion Regarding Proceeds of the Offering." The principal
purposes of the Offering are to (i) permit the Company to promptly take
advantage of favorable acquisition opportunities, as available, (ii) increase
the Company's financial flexibility and facilitate future access to public
markets and (iii) establish a public market for the Company's Common Stock. The
net proceeds from the Offering, pending their ultimate use, will be invested in
short-term, investment grade, interest-bearing securities, certificates of
deposit or direct or guaranteed obligations of the United States.
-11-
<PAGE>
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on the Common
Stock. The Company currently intends to retain its earnings to finance the
development and expansion of its business. The decision whether to apply
legally available funds to the payment of dividends on the Common Stock will be
made by the Board from time to time in its discretion, taking into account,
among other things, the Company's results of operations, financial condition,
capital requirements, contractual restrictions, any then existing or proposed
commitments for the use of available funds by the Company, the Company's
obligations with respect to any then outstanding class or series of its
preferred stock and other factors deemed relevant by the Board. The Company
does not anticipate paying any cash dividends on its Common Stock at any time in
the foreseeable future.
At the present time, dividend payments to the Company by its principal
operating subsidiary, Coinmach, are subject to restrictions contained in certain
of Coinmach's outstanding debt and financing agreements. Additionally, the
Company may in the future enter into other agreements or issue debt securities
or preferred stock that restrict the payment of cash dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources" and "Description of Capital Stock
- -- Payment of Dividends on the Common Stock."
-12-
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of March 29,
1996 was approximately $(105.1) million, or $(16.70) per share of Common Stock
(pro forma for the Reclassification). See "Description of Capital Stock -- The
Reclassification and Stock Split." Net tangible book value per share is equal to
the Company's total tangible assets less its total liabilities, divided by the
number of shares of Common Stock outstanding (pro forma for the Reclassification
as more fully described in "Description of Capital Stock --the Reclassification
and Stock Split"). After giving effect to the Offering, the Reclassification, an
approximate 23.0-to-1 stock split (the "Stock Split") and the application of the
estimated net proceeds therefrom (including the redemption of the Preferred
Stock), assuming an initial public offering price of $17.00 per share (the
midpoint of the estimated range), the pro forma net tangible book value
(deficit) of the Company as of March 29, 1996 would have been approximately
$(69.9) million, or $(6.79) per share. This adjustment represents an immediate
increase in net tangible book value of $9.91 per share to the existing
shareholders and an immediate net tangible book value dilution of $23.79 per
share to investors purchasing shares of Common Stock in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share................... $17.00
Net tangible book value (deficit) per share at March 29, 1996... $(16.70)
Increase in net tangible book value per share attributable to
new investors................................................. 9.91
---------
Pro forma net tangible book value (deficit) per share after the
Offering......................................................... (6.79)
----------
Dilution per share to new investors............................... $23.79
==========
</TABLE>
The foregoing computations assume no exercise of the Underwriters' over-
allotment option.
The following table summarizes, based on the assumptions set forth
herein, as of March 29, 1996, the number of shares of Preferred Stock, Common
Stock and Non-Voting Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and by new stockholders purchasing shares in the Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 6,296,176 61.2% $18,835,836 21.7% $ 2.99
New investors(1)....... 4,000,000 38.8% 68,000,000 78.3% 17.00
--------------------------------------------
Total............... 10,296,176 100.0% $86,835,836 100.0%
============================================
</TABLE>
The computations in the tables set forth above exclude (i) an aggregate
of 145,358 shares of Common Stock issuable upon exercise of that portion of the
non-qualified stock options granted by the Company to MCS Capital, Inc., an
entity beneficially owned by Stephen R. Kerrigan (the "MCS Capital Options"),
and to Robert M. Doyle, Michael E. Stanky, John E. Denson, David Siegel, A.
Daniel Osborne, James N. Chapman and certain other individuals (the "Additional
Options"), in each case, which are vested and currently exercisable, (ii)
581,431 shares of Common Stock reserved for issuance upon exercise of the
portion of the MCS Capital Options and the Additional Options, in each case,
which are not currently vested, and (iii) 1,090,183 shares of Common Stock
reserved for issuance under the 1996 Stock Option Plan, none of which shares
will be outstanding upon completion of the Offering. To the extent any of the
foregoing options excluded from the computations above are exercised in the
future, there will be further dilution to the purchasers of Common Stock in the
Offering. See "Management - 1996 Stock Option Plan - Additional Management
Options"
_____________________
(1) Excludes additional shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 29, 1996 on (i) an actual basis, after giving effect to the
Reclassification and the Stock Split and (ii) as adjusted, to give effect to (a)
the sale by the Company of 4,000,000 shares of Common Stock in the Offering, at
an assumed initial public offering price of $17.00 per share (the midpoint of
the estimated range of the initial public offering price), and (b) the
application of the net proceeds therefrom. This table should be read in
conjunction with the unaudited pro forma financial data and the combined and
consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1996
-----------------------------
ACTUAL AS ADJUSTED FOR
THE OFFERING
-----------------------------
<S> <C> <C>
($ IN THOUSANDS)
Short-term debt, including current maturities of long-term debt(1)............... $ -- $ --
=============================
Long-term debt:
11 3/4% Senior Notes due 2005.................................................. $196,655 $196,655
Revolving Credit Facility(2)................................................... -- --
12 3/4% Senior Notes due 2001.................................................. 5,000 5,000
Other long-term debt........................................................... 1,110 1,110
-----------------------------
Total long-term debt......................................................... 202,765 202,765
Stockholders' equity (deficit):
Preferred Stock, $.01 par value: 1,000 shares authorized and no
shares issued and outstanding actual; 1,000 shares authorized and
no shares issued and outstanding as adjusted.................................. -- --(3 )
Common Stock, $.01 par value: 15,000,000 shares authorized and
5,713,182 shares issued and outstanding actual; 15,000,000 shares
authorized and 9,815,528 shares issued and outstanding as adjusted(4)......... 57 98
Non-Voting Common Stock, $.01 par value: 1,000,000 shares authorized and
480,648 shares issued and outstanding actual; 1,000,000 shares authorized
and 480,648 shares issued and outstanding as adjusted(5)...................... 5 5
Additional paid-in capital.............................................. 17,841 60,463
Accumulated deficit..................................................... (18,719) (18,780)
Less Management Loans.......................................................... (492) (445)
-----------------------------
Total stockholders' equity (deficit)......................................... (1,308) 41,341
-----------------------------
Total capitalization............................................................. $201,457 $244,106
=============================
</TABLE>
____________________
(1) See Note 5 to the Company's Combined Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) At March 29, 1996, on a pro forma basis after giving effect to the Offering
and the application of the net proceeds therefrom, the Company would have
had $35.0 million of unused borrowing capacity under the Revolving Credit
Facility. See "Management's Discussion and Analysis of Financial and
Condition and Results of Operations - Liquidity and Capital Resources."
(3) The Preferred Stock was issued by the Company to certain holders of certain
classes of the Company's common stock in connection with the
Reclassification. Approximately $19,132,501 of the estimated net proceeds
to the Company from the Offering will be used to redeem the Preferred
Stock. See "Use of Proceeds", "Description of Capital Stock -- Preferred
Stock" and "Description of Capital Stock -- The Reclassification and Stock
Split."
(4) As of March 29, 1996, excludes (i) an aggregate of 726,789 shares of Common
Stock issuable upon exercise of the MCS Capital Options and the Additional
Options after the Offering, of which 145,358 shares of Common Stock will be
issuable with respect to the options that are exercisable immediately after
the Offering and (ii) excludes up to 1,090,183 shares of Common Stock
issuable upon exercise of options granted or to be granted pursuant to the
1996 Stock Option Plan. See "Management -- 1996 Stock Option Plan; --
Additional Management Options."
(5) Shares of Non-Voting Common Stock are not being sold in the Offering. See
"Description of Capital Stock."
-14-
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma balance sheet as of March 29, 1996,
gives effect to the Allied Acquisition, the Offering and the application of the
proceeds therefrom as if such transactions occurred as of March 29, 1996, and
the unaudited pro forma combined statement of operations of the Company for the
year ended March 29, 1996, gives effect to the Offering and the application of
the proceeds therefrom as if such transactions occurred on April 5, 1995. For
information regarding the Offering, see "Use of Proceeds."
The pro forma adjustments are based upon currently available information
as well as upon certain assumptions that management believes are reasonable.
The Allied Acquisition was accounted for as a purchase with assets recorded at
their estimated fair market value. There can be no assurance that the actual
adjustments will not differ significantly from the pro forma adjustments
reflected in the pro forma financial information.
The unaudited pro forma combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should
be read in conjunction with the historical consolidated financial statements of
the Company, Solon and TCC (or their respective predecessors), together with the
related notes thereto, presented elsewhere in this Prospectus.
-15-
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
March 29, 1996
(in thousands)
<TABLE>
<CAPTION>
Historical
Basis of Pro Forma Adjustments
Assets of ---------------------------
Company Businesses Purchase Other Pro Forma
Historical Acquired Accounting --------- Combined
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents...................... $ 19,858 $ -- $(15,600) (a) $ 61,740 (d) $ 46,865
(19,133) (e)
Receivables, net............................... 5,758 5,758
Inventories and prepayments.................... 7,084 7,084
Advance payments to location owners............ 20,320 20,320
Property and equipment, net.................... 82,699 8,000 200 (a) 90,899
Contract rights, net........................... 59,745 7,400 (a) 67,145
Goodwill, net.................................. 44,071 44,071
Other assets................................... 9,613 625 (a) 10,238
-------- ----------- -------- -------- --------
Total assets................................ $249,148 $8,000 $ (7,375) $ 42,607 $292,380
======== =========== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
LIABILITIES
Accounts payable and accrued liabilities....... $ 28,767 $ -- $ 625 (a) $ -- $ 29,392
12 3/4% Senior Notes due 2001.................. 5,000 5,000
11 3/4% Senior Notes due 2005.................. 196,655 196,655
Other long-term debt........................... 1,110 1,110
Deferred income taxes.......................... 18,924 (42) (f) 18,882
-------- ------- -------- -------- --------
Total liabilities........................... 250,456 625 (42) 251,039
-------- ------- -------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock and capital in excess of
par value...................................... 17,903 56 (b) 60,566
(19,133) (c)
61,740 (e)
Preferred Stock................................ -- 19,133 (c) --
(19,133) (e)
Net equity of acquired businesses.............. -- 8,000 (8,000) (a) --
Accumulated deficit............................ (18,719) (61) (f) (18,780)
-------- ------------ ---------- -------- --------
(816) 8,000 (8,000) 42,602 41,786
Loans to management............................ (492) (56) (b) (445)
103 (f)
-------- ------------ ---------- -------- --------
Total stockholders' equity (deficit)........ (1,308) 8,000 (8,000) 42,649 41,341
-------- ----------- ---------- -------- --------
Total liabilities and stockholders' equity $249,148 $8,000 $ (7,375) $ 42,607 $292,380
(deficit)................................... ======== =========== ========== ======== ========
</TABLE>
See "Notes to Unaudited Pro Forma Balance Sheet."
-16-
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(in thousands)
(a) Reflects allocation of purchase prices aggregating $15,600 for route
acquisitions on April 1 and April 9, 1996. The acquisitions were accounted
for as purchases. Preliminary purchase price allocations to property and
equipment and contract rights are based on fair value using a methodology
consistent with the acquisitions of Solon and Coinmach. Property and
equipment of $8,200 will be depreciated over useful lives of 3 to 8 years
and contract rights will be amortized over 15 years. Additionally, the
Company entered into a covenant not to compete payable in annual
installments over five years.
(b) Reflects Common Stock purchases by certain management personnel subsequent
to March 29, 1996 and related loans.
(c) Reflects issuance of Preferred Stock in connection with the
Reclassification.
(d) Reflects as set forth in the following table the Offering and the
application of the proceeds.
Gross proceeds from issuance of 4,000,000 shares of
Common Stock at the midpoint of the estimated
range of the initial public offering price......... $68,000
Deduct transaction fees and expenses:
Transaction fees.................................... $4,760
Expenses........................................... 1,000
GTCR termination fee............................... 500 6,260
------- --------
Net cash to the Company $61,740
========
(e) Reflects retirement of Preferred Stock.
(f) Reflects forgiveness of principal amounts due in 1996 on loans to
management of $103, less income tax benefits of $42.
-17-
<PAGE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
Year Ended March 29, 1996
(in thousands; except per share amounts)
<TABLE>
<CAPTION>
Company Historical Pro Forma Adjustments
------------------------------------ -----------------------------------
April 5, 1995 Six Months Purchase Other Pro Forma
to Ended Acquired Accounting Combined
Sept. 29, 1995 March 29, 1996 Businesses
------------------- ---------------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................... $89,719 $89,070 $10,568 $-- $ -- $189,357
Laundry operating expenses. 62,905 60,536 7,800 (850) (f) 129,891
(500) (g)
General and administrative
expenses.................. 2,351 1,844 -- (1,000) (f) 3,298
103 (h)
Restructuring costs........ 2,200 -- -- (2,200) (i) --
Depreciation............... 9,498 9,392 1,508 (420) (b) 19,978
Amortization............... 8,925 8,820 -- 493 (c) 18,363
125 (d)
--------------------- --------------- ----------- ------- ------------- ---------------
Operating Income........... 3,840 8,478 1,260 (198) 4,447 17,827
Interest expense........... 11,818 11,999 517 473 (j) 24,807
--------------------- --------------- ----------- ------- ------------- ---------------
(Loss) income before
income taxes and
extraordinary
item..................... (7,978) (3,521) 743 (198) 3,974 (6,980)
--------------------- --------------- ----------- ------- ------------- ---------------
Provision for income taxes:
Currently payable.... 420 50 363 (81) (e) -- 752
Deferred...... (2,282) (1,048) (73) 1,629 (k) (1,774)
--------------------- --------------- ----------- ------- ------------- ---------------
(1,862) (998) 290 (81) 1,629 (1,022)
--------------------- --------------- ----------- ------- ------------- ---------------
(Loss) income before
extraordinary item........ $(6,116) $(2,523) $ 453 $(117) $ 2,345 $ (5,958)
===================== =============== =========== ======= ============= ===============
(Loss) per share before
extraordinary item........ $(0.81) $(0.33) $(0.57)
===================== =============== ===============
</TABLE>
See "Notes to Unaudited Pro Forma Combined Statements of Operations."
-18-
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
(in thousands)
(a) Represents historical operating results for the year ended December 31,
1995 of businesses acquired on April 1 and April 9, 1996.
(b) Represents the difference in historical depreciation of businesses acquired
of $1,508 and the depreciation of $1,088 on purchase price allocated to
property and equipment by the Company with useful lives of 3 to 8 years.
(c) Represents amortization of purchase price allocated to contract rights.
Contract rights are amortized over 15 years.
(d) Represents amortization of covenant not to compete which has a term of 5
years.
(e) Reflects income tax impact of purchase accounting adjustments.
(f) On September 29, 1995, management implemented cost savings programs
affecting corporate financial and administrative functions and regional
operations which amounted to $2,000 and $1,700, respectively, on an annual
basis. The development of cost savings programs was a direct result of the
plan to combine the two companies pursuant to the Merger that was
consummated on November 30, 1995. The $2,000 cost savings arise principally
as personnel cost savings resulting from the closing of Solon's corporate
office in Philadelphia, Pennsylvania and relocation to Roslyn, New York.
The $1,700 cost savings are personnel cost savings resulting from reduction
and consolidation of regional operations. One half of the cost savings were
recognized during the six months ended March 29, 1996.
(g) Reflects cost savings of $500 for the businesses acquired which resulted
from consolidation of administrative functions in Roslyn, New York
consisting primarily of personnel cost savings.
(h) Reflects forgiveness of principal amount due in 1996 on loans to
management.
(i) Reflects the exclusion of restructuring costs of $2,200.
(j) The following table presents a reconciliation of pro forma interest
expense:
<TABLE>
<CAPTION>
Year Ended
March 29, 1996
----------------
<S> <C>
Historical interest expense.............................................. $ 24,334
--------
Add:
Interest on 11 3/4% Senior Notes due 2005............................. 23,107
Amortization of deferred financing costs on new debt:
11 3/4% Senior Notes due 2005....................................... 479
Revolving Credit Facility........................................... 26
Deduct:
Interest on retired 12 3/4% Senior Notes due 2001 and 13 3/4% Senior
Subordinated Debentures due 2002.................................... (10,742)
Interest on Solon revolving credit facility........................... (126)
Interest on TCC revolving credit facility............................. (3,121)
Interest on 11 3/4% Senior Notes due 2005 from November 30, 1995 to
March 29, 1996...................................................... (7,529)
Interest of acquired business......................................... (517)
Amortization of deferred financing costs on retired debt:
12 3/4% Senior Notes due 2001 and 13 3/4% Senior Subordinated
Debentures due 2002............................................... (409)
Original issue discount on 13 3/4% Senior Subordinated Debentures
due 2002.......................................................... (125)
Solon revolving credit facility..................................... (28)
TCC revolving credit facility....................................... (383)
Amortization of deferred financing costs on new debt from
November 30, 1995 to March 29, 1996.............................. (159)
----------------
Pro forma adjustment..................................................... 473
----------------
Pro forma interest expense............................................... $ 24,807
================
</TABLE>
(k) Represents income tax impact of on other pro forma adjustments.
-19-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables present summary historical consolidated financial
information of the Company and its subsidiaries. Such tables include the
combined consolidated financial information of the Company for the six month
period ended September 29, 1995 and the six months ended March 29, 1996, giving
effect to the Solon Acquisition, the Coinmach Acquisition, the Merger and the
Refinancing. Also included in such tables is summary historical consolidated
financial information of (i) TCC and its predecessor, including the two month
period ended March 31, 1995, the one month period ended January 31, 1995, and
fiscal years ended December 31, 1994, 1993, 1992 and 1991 and (ii) Solon,
including the six month period from October 1, 1994 to April 4, 1995, and fiscal
years ended September 30, 1994, 1993, 1992 and 1991. The financial data set
forth below should be read in conjunction with each of TCC's, Solon's and the
Company's audited historical consolidated financial statements and the related
notes thereto presented elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THE COMPANY(1)
(in thousands, except ratios)
Six Months Six Months Twelve Months
Ended Ended Ended
September 29, 1995 March 29, 1996 March 29, 1996
------------------- --------------- ---------------
OPERATING DATA:
<S> <C> <C> <C>
Revenues................................ $ 89,719 $ 89,070 $178,789
Laundry operating expenses.............. 62,905 60,536 123,441
General and administrative expenses..... 2,351 1,844 4,195
Depreciation and amortization........... 18,423 18,212 36,635
Restructuring costs..................... 2,200 -- 2,200
-------- -------- --------
Operating income........................ 3,840 8,478 12,318
Interest expense........................ 11,818 11,999 23,817
Income taxes (benefits)................. (1,862) (998) (2,860)
-------- -------- --------
Loss before extraordinary item.......... (6,116) (2,523) (8,639)
Extraordinary loss (net of taxes)(2).... -- 8,925 8,925
-------- -------- --------
Net loss................................ $ (6,116) $(11,448) $(17,564)
======== ======== ========
Net loss per share...................... $(0.81) $(1.52) $(2.32)
BALANCE SHEET DATA (AT END OF PERIOD):
Property and equipment, net............. $ 80,706 $ 82,699
Total assets............................ 241,433 249,148
Total debt.............................. 176,415 202,765
Stockholders' equity (deficit).......... 10,140 (1,308)
FINANCIAL RATIOS AND OTHER DATA (UNAUDITED):
Cash flow from operating activities..... $ 12,066 $ 12,337 $ 24,403
Cash used for investing activities...... (25,039) (14,162) (39,201)
Cash from financing activities.......... 12,510 11,372 23,882
EBITDA(3)............................... 22,263 26,690 48,953
EBITDA margin(4)........................ 24.8% 30.0% 27.4%
Capital expenditures(5)................. 13,119 14,219 27,338
____________________
</TABLE>
(1) Historical financial data for each of TCC (and its predecessors) and Solon
(for periods prior to April 5, 1995), in each case the predecessors of
Coinmach Laundry Corporation, are contained in the Selected Historical
Financial Data and the financial statements and related notes thereto
presented elsewhere in this Prospectus.
(2) Extraordinary loss on the early extinguishment of debt on November 30, 1995.
Extraordinary loss is $1.18 per share.
(3) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. Management believes
that EBITDA is widely used in the industry as a measure of a company's
operating performance. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
(i) operating income (as determined by GAAP) as an indicator of operating
performance or (ii) cash flows from operating, investing and financing
activities (as determined by GAAP) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) EBITDA margin represents EBITDA as a percentage of revenues.
(5) Capital expenditures include additions to property and equipment and advance
rental payments to location owners.
-20-
<PAGE>
The TCC fiscal year end was March 31. TCC's predecessor had a fiscal
year end of December 31, thus creating a three-month transition period. On
January 31, 1995, TCC was formed by certain of the Company's current owners, and
accordingly, periods prior to and after January 31, 1995 are reflected in their
financial statements as predecessor and successor periods, respectively.
<TABLE>
<CAPTION>
THE COINMACH CORPORATION ("TCC")
----------------------------------------------------------------------
Predecessor(1) Successor(1)
(in thousands)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(in thousands, except ratios and machine data)
One Month Two Months
Ended Ended
Years Ended December 31, January 31, March 31,
----------------------------------------------------------------------
1991 1992 1993 1994 1995 1995
-------- -------- -------- -------- -------- -------
OPERATING DATA:
Revenues................................... $ 71,595 $ 72,172 $ 71,859 $ 73,857 $ 5,879 $11,515
Laundry operating expenses................. 53,289 53,163 52,805 54,737 4,229 8,951
General and administrative expenses........ 6,483 5,712 5,570 4,938 450 799
Depreciation and amortization.............. 15,463 16,755 15,256 14,504 980 2,144
-------- -------- -------- -------- -------- -------
Operating income (loss).................... (3,640) (3,458) (1,772) (322) 220 (379)
Interest expense........................... 9,990 9,573 10,509 4,012 395 774
Other expense (income)..................... (611) -- -- 1,341 -- --
Income taxes............................... 12 (4) 17 27 -- 2
-------- -------- -------- -------- -------- -------
Loss before extraordinary gain............. (13,031) (13,027) (12,298) (5,702) (175) (1,155)
Extraordinary gain(2)...................... -- -- -- 20,420 -- --
-------- -------- -------- -------- -------- -------
Net income (loss).......................... $(13,031) $(13,027) $(12,298) $ 14,718 $ (175) $(1,155)
======== ======== ======== ======== ======== =======
BALANCE SHEET DATA (AT END OF PERIOD):
Property and equipment, net................ $ 21,045 $ 19,030 $ 17,293 $ 16,285 $ 16,120 $24,330
Total assets............................... 61,933 52,114 47,443 36,924 36,069 61,035
Total debt................................. 77,945 76,409 75,827 42,184 41,800 42,351
Stockholders' equity (deficit)............. (39,398) (53,995) (68,003) (13,416) (13,591) 9,729
FINANCIAL RATIOS AND OTHER DATA (UNAUDITED):
Cash flow from operating activities........ $ 7,221 $ 7,613 $ 7,736 $ 8,724 $ 1,197 $ 73
Cash used for investing activities......... (6,187) (5,124) (6,119) (6,577) (611) (990)
Cash from (used for) financing activities.. (1,405) (1,945) (1,405) (2,547) (411) (327)
EBITDA(3).................................. 11,823 13,297 13,484 14,182 1,200 1,765
Capital expenditures....................... 5,632 4,884 5,879 6,571 576 990
</TABLE>
____________________
(1) The term "Predecessor" refers to the period in time prior to the Coinmach
Acquisition and consists of CIC and TCC. The term "Successor" refers to the
period in time after the Coinmach Acquisition. Successor is presented on a
different basis of accounting and therefore, is not comparable to the
Predecessor. The Successor period reflects the effects of purchase
accounting, whereby assets and liabilities were adjusted to their estimated
fair values at the date of the Coinmach Acquisition.
(2) Extraordinary gain on the early extinguishment of debt in 1994.
(3) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. Management believes
that EBITDA is widely used in the industry as a measure of a company's
operating performance. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
(i) operating income (as determined by GAAP) as an indicator of operating
performance or (ii) cash flows from operating, investing and financing
activities (as determined by GAAP) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
-21-
<PAGE>
The fiscal year end of Solon was the Friday closest to September 30. On
April 5, 1995, the voting stock of Solon was acquired by the Company, and
accordingly, periods prior to and after April 5, 1995 are reflected as
predecessor and successor periods, respectively, in their financial statements.
<TABLE>
<CAPTION>
SOLON(1)
---------------------------------------------
Predecessor(2)
---------------------------------------------
(in thousands)
---------------------------------------------
October 1,
Years Ended September 30, 1994 to
--------------------------------------------- April 4,
1991 1992(3) 1993 1994 1995
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues.................................................. $105,268 $104,311 $104,888 $104,553 $52,207
Laundry operating expenses................................ 67,665 67,138 67,420 66,418 33,165
General and administrative expenses....................... 2,773 3,125 2,576 2,839 1,539
Depreciation and amortization............................. 18,878 20,745 21,002 21,347 10,304
Restructuring costs....................................... -- -- -- -- --
-------- -------- -------- -------- -------
Operating income.......................................... 15,952 13,303 13,890 13,949 7,199
Interest expense.......................................... 15,888 15,857 17,453 18,105 8,928
-------- -------- -------- -------- -------
Income (loss) before income taxes and extraordinary item.. 64 (2,554) (3,563) (4,156) (1,729)
-------- -------- -------- -------- -------
Provision (benefit) for income tax:
Currently payable..................................... 100 200 400 200 270
Deferred.............................................. 2,412 (616) (1,168) 2,562 (220)
-------- -------- -------- -------- -------
2,512 (416) (768) 2,762 50
-------- -------- -------- -------- -------
Loss before extraordinary item............................ (2,448) (2,138) (2,795) (6,918) (1,779)
Extraordinary item (net of tax)(4)........................ -- (833) -- -- (848)
-------- -------- -------- -------- -------
Net loss.................................................. $ (2,448) $ (2,971) $ (2,795) $ (6,918) $(2,627)
======== ======== ======== ======== =======
BALANCE SHEET DATA (AT END OF PERIOD):
Property and equipment, net............................... $ 52,123 $ 50,679 $ 50,593 $ 48,727 --
Total assets.............................................. 147,972 155,827 150,402 143,589 --
Total debt................................................ 118,315 128,737 128,299 128,487 --
Stockholders' equity (deficit)............................ 2,022 1,004 (1,636) (8,721) --
FINANCIAL RATIOS AND OTHER DATA (UNAUDITED):..............
Cash flow from operating activities....................... $ 16,814 $ 11,842 $ 16,547 $ 17,914 $10,216
Cash used for investing activities........................ (7,946) (16,168) (18,500) (16,763) (6,537)
Cash from (used for) financing activities................. (9,691) 10,272 (636) (270) (1,068)
EBITDA(5)................................................. 34,830 34,048 34,892 35,296 17,503
Capital expenditures(6)................................... 15,919 16,563 18,556 16,779 6,944
</TABLE>
____________________
(1) Certain amounts have been reclassified to conform the presentation above
with TCC.
(2) The term "Predecessor" refers to the period in time prior to the Solon
Acquisition.
(3) Fiscal year 1992 was a 53-week year. All other fiscal years were 52-week
years.
(4) Extraordinary loss on early extinguishment of debt in 1992 and change of
control in the Solon Acquisition on April 5, 1995.
(5) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. Management believes
that EBITDA is widely used in the industry as a measure of a company's
operating performance. However, EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to either
(i) operating income (as determined by GAAP) as an indicator of operating
performance or (ii) cash flows from operating, investing and financing
activities (as determined by GAAP) as a measure of liquidity. Given that
EBITDA is not a measurement determined in accordance with GAAP and is thus
susceptible to varying calculations, EBITDA as presented may not be
comparable to other similarly titled measures of other companies. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(6) Capital expenditures include additions to property and equipment and advance
rental payments to location owners.
-22-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is principally engaged in the business of supplying coin-
operated laundry equipment services for multi-family properties in 28 states and
the District of Columbia with locations throughout the Northeast, Mid-Atlantic,
Southeast, South-Central and Mid-West regions of the United States.
The Company's most significant revenue source is derived from its routes,
which are comprised of over 245,000 coin-operated washing machines and dryers.
The Company provides coin-operated laundry equipment services to locations by
leasing designated laundry rooms in buildings, typically on a long-term,
renewable basis. In return for the exclusive right to provide laundry equipment
services, most of the Company's leases provide for commission payments to the
location owners. Commission expense (also referred to as rent expense), the
largest single expense item, is included in laundry operating expenses and
represents the payments to location owners. Commissions may be fixed amounts or
a percentage of revenues and are generally paid monthly. Also included in
laundry operating expenses are the cost of sales associated with Super Laundry
Equipment Corp. ("Super Laundry"), a wholly-owned subsidiary of Coinmach and the
cost of servicing and collections in the route business, including payroll,
parts, vehicles and other related items.
In addition to commission payments to location owners, many of the
Company's leases require the Company to make advance rental payments or bonuses
to the location owners. These advance payments or bonuses are capitalized and
amortized over the life of the lease.
On January 31, 1995, in connection with the acquisition of Coinmach
Industries and Super Laundry Equipment Co., L.P., certain asset values,
primarily contract rights and fixed assets, were recorded at their then fair
market value, adjusted to reflect a pro rata allocation of the excess of fair
value of net assets acquired, based on an independent appraisal, over the
purchase price.
On November 30, 1995, TCC merged with Solon through an exchange of stock,
whereupon the surviving corporation, changed its name to Coinmach Corporation.
Both Solon and TCC were under common ownership commencing April 5, 1995. The
Merger was accounted for in a manner similar to a pooling of interests.
In connection with the Refinancing, the Company issued a total of
approximately $196.7 million of Senior Notes which enabled the Company to, among
other things, extend the maturity of its debt obligations, retire the remaining
debt of TCC and provide additional working capital. On November 30, 1995, the
Company also entered into the Revolving Credit Facility, which provides for
borrowings of up to a maximum of $35 million.
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the condensed consolidated financial statements and related notes thereto
included elsewhere in this Prospectus.
-23-
<PAGE>
Coinmach Laundry Corporation
SIX MONTHS ENDED MARCH 29, 1996 COMPARED TO SIX MONTHS ENDED MARCH 31, 1995
This discussion below should be read in conjunction with the following
table which combines the predecessor period for the six months ended March 31,
1995 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
March 29, 1996 Six Months Ended March 31, 1995
----------------------------------
(Predecessor)(1),(2)
(Successor)(1) TCC Solon Combined
----------------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Revenues............................. $ 89,070 $35,789 $52,207 $87,996
Laundry operating expenses........... 60,536 28,253 33,165 61,418
General and administrative expenses.. 1,844 1,345 1,539 2,884
Depreciation and amortization........ 18,212 6,009 10,304 16,313
-------- ------- ------- -------
Operating income (loss).............. 8,478 182 7,199 7,381
Interest expense, net................ 11,999 2,464 8,928 11,392
Other expense........................ -- 1,341 -- 1,341
-------- ------- ------- -------
Loss before extraordinary item (3,521) (3,623) (1,729) (5,352)
and income taxes...................
Income tax (benefit) expense......... (998) 4 50 54
-------- ------- ------- -------
Loss before extraordinary item....... (2,523) (3,627) (1,779) (5,406)
Extraordinary item, net of tax....... (8,925) -- (848) (848)
-------- ------- ------- -------
Net loss............................. $(11,448) $(3,627) $(2,627) $(6,254)
======== ======= ======= =======
____________________
</TABLE>
(1) The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not
comparable to the Predecessor.
(2) Certain reclassifications have been made to conform to the 1996
presentation.
Revenues of approximately $89.1 million for the six months ended March 29,
1996 were approximately $1.1 million, or 1.2% higher than combined revenues for
the prior year's corresponding period. The improvement in revenues consisted
primarily of increased revenues from Super Laundry of approximately $2.5
million. Such improvement was partially offset by a decrease of approximately
$1.4 million in revenues from routes. The average machine base for the six
months ended March 29, 1996 was approximately 1.4% lower than the average
machine base during the six months ended March 31, 1995. The decrease in the
machine base was primarily the result of constraints on available capital prior
to the Merger. From September 30, 1995, through March 29, 1996, the Company
successfully implemented a program to maintain its base of installed machines
and eliminate any additional erosion. The effect of the decreased number of
machines was partially offset by increased revenue per machine from price
increases.
Laundry operating expenses decreased by approximately $0.9 million, or
1.4%, to approximately $60.5 million. The decrease is primarily the result of
decreased expenses of approximately $0.8 million related to implementation of
cost savings programs in the Company's field operations and a decrease in
commission expense of approximately 2.3%. These decreases were partially offset
by an increase in the cost of sales related to the increased volume of Super
Laundry.
General and administrative expenses decreased by approximately $1.0
million, or 36.1%, to approximately $1.8 million, primarily due to the
consolidation of corporate staff by closing Solon's Philadelphia, Pennsylvania
office and combining its operations into the Company's existing facility in
Roslyn, New York on September 29, 1995.
Depreciation and amortization increased by approximately $1.9 million or
11.6% due primarily to purchase accounting adjustments resulting from the Solon
Acquisition.
-24-
<PAGE>
Interest expense increased by approximately $0.6 million or 5.3% to
approximately $12.0 million. Approximately $1.8 million of such increase was
due primarily to the increased debt level that resulted from the Refinancing on
November 30, 1995 and December 14, 1995. Offsetting this increase is
approximately $0.8 million of decrease in interest expense due to the decrease
in the effective interest rate as the result of the Refinancing. The increased
debt resulted in an excess cash balance of approximately $12.3 million, which
excess is contemplated to be used for working capital purposes and for future
acquisition opportunities.
CIC recorded a non-cash charge of $1.3 million in 1994 relating to the
imputed value of an equity conversion feature related to management loans
pursuant to CIC's plan of reorganization. Such feature was surrendered in
connection with the Coinmach Acquisition.
The extraordinary item for the period ending March 29, 1996, consist of
costs related to the extinguishment of debt in connection with the Refinancing.
The extraordinary item for the six months ended March 31, 1995, consist of costs
related to the change in control in connection with the Solon Acquisition.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization) is used by management and certain investors as an indicator of
a company's historical ability to service debt. Management believes an increase
in EBITDA is an indication of improved ability to service existing debt,
potential future increases in debt or capital requirements. EBITDA was
approximately $26.7 million for the six months ended March 29, 1996, compared to
approximately $23.7 million for the corresponding period in 1995.
The Company's effective income tax rate differs from the amount computed by
applying the U.S. federal statutory rate to loss before income taxes as a result
of state taxes and permanent book/tax differences (largely goodwill
amortization).
SIX MONTHS ENDED SEPTEMBER 29, 1995 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1994
The discussion below should be read in conjunction with the following table
which combines the Predecessor period for the six months ended September 30,
1994 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended September 30, 1994
------------------- --------------------------------------
September 29, 1995 (Predecessor)(1),(2)
(Successor)(1) TCC Solon Combined
------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues............................. $89,719 $37,154 $51,577 $88,731
Laundry operating expenses........... 62,905 28,576 32,337 60,913
General and administrative expenses.. 2,351 1,123 1,444 2,567
Depreciation and amortization........ 18,423 7,576 10,966 18,542
Restructuring costs.................. 2,200 -- -- --
------- ------- ------- -------
Operating income (loss).............. 3,840 (121) 6,830 6,709
Interest expense, net................ 11,818 2,214 9,053 11,267
------- ------- ------- -------
Loss before income taxes............. (7,978) (2,335) (2,223) (4,558)
Income tax (benefit) expense......... (1,862) 24 3,208 3,232
------- ------- ------- -------
Net Loss............................. $(6,116) $(2,359) $(5,431) $(7,790)
======= ======= ======= =======
____________________
</TABLE>
(1) The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not
comparable to the Predecessor.
(2) Certain reclassifications have been made to conform to the 1995
presentation.
Revenues of approximately $89.7 million for the six months ended September
29, 1995 were approximately $1.0 million, or 1.1% higher than combined revenues
for the prior year's corresponding period. The improvement in revenues
consisted primarily of increased revenues from Super Laundry of approximately
$1.3 million. Such improvement was partially offset by a decrease of
approximately $0.3 million in revenues from routes, primarily due to a 2.0%
decline in the average number of laundry machines on location, due to
constraints on capital prior to the Merger. The effect of the decreased number
of machines was partially offset by increased revenue per machine of
approximately 1.6% primarily due to price increases.
-25-
<PAGE>
Laundry operating expenses increased by approximately $2.0 million, or
3.3%, to $62.9 million. This increase is comprised of a $1.0 million increase
in the cost of sales related to the increase in Super Laundry revenue. The
remaining increase is primarily the result of the method of accounting for
installation costs applied in the Successor period. This increase is the result
of increased cost of sales related to the increased volume of Super Laundry. In
addition, the Company's commission expense decreased by approximately 1.0%.
General and administrative expenses decreased by approximately $0.2
million, or 8.4% primarily due to a decrease in the corporate staff.
The Company provided for one-time restructuring costs of approximately $2.2
million to cover severance payments to certain of Solon's management,
administrative and regional personnel, costs to relocate Solon's financial and
administrative functions to Roslyn, New York, costs to integrate certain
financial and operating systems, and costs related to the consolidation of
certain of Solon's regional offices.
Interest expense increased by approximately $0.6 million or approximately
4.9%. This increase is primarily due to an increase in the interest rate on
TCC's revolver, which was based on prime rate.
EBITDA (earnings before deductions for interest, income taxes, depreciation
and amortization) is used by management and certain investors as an indicator of
a company's historical ability to service debt. Management believes an increase
in EBITDA is an indication of improved ability to service existing debt,
potential future increases in debt or capital requirements. EBITDA was
approximately $24.5 million, before the deduction for restructuring costs, for
the six months ended September 29, 1995, compared to approximately $25.3 million
for the corresponding period in 1994. The 1995 results include periods prior to
the Merger, the closing of the corporate office and the field reorganization.
The Company's effective income tax rate differs from the amount computed by
applying the U.S. federal statutory rate to loss before income taxes as a result
of state taxes and permanent book/tax differences (primarily goodwill
amortization).
TCC (and CIC, its Predecessor)
THREE MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1994
The discussion of three months ended March 31, 1995 is based on
management's combination of the one month ended January 31, 1995 for TCC's
predecessor and the two months ended March 31, 1995 for TCC.
Although the Coinmach Acquisition was completed during this period,
management does not believe there was a material impact on TCC's day to day
operations and thus believes the combination of the two periods is appropriate.
Despite the change in accounting basis, management believes it can make a
meaningful comparison to the prior year's comparable three month period.
Revenues were $17.4 million for the three month period ended March 31,
1995, a decrease of $0.9 million or 5.0% compared to the three month period
ended March 31, 1994. This decrease was primarily the result of a decrease in
Super Laundry revenues of approximately $1.2 million, which was due to the
timing of completed contracts. Super Laundry recognizes revenue on a completed
contract basis. During the three months ended March 31, 1995, Super Laundry
completed fewer contracts than in the corresponding period in the prior year.
This shortfall was eliminated in the subsequent quarter. Increases in route
revenues of approximately $0.3 million, primarily due to increased revenue per
machine of approximately 1%, partially offset this shortfall. The increase in
revenue per machine was primarily due to TCC's price review program whereby vend
prices are regularly monitored and price increases or decreases are instituted
with the goal of maximizing revenue per machine.
Laundry operating expenses decreased by $0.4 million or 2.7% to $13.2
million as compared to the three month period ended March 31, 1994. The
decrease in Super Laundry revenues resulted in a corresponding reduction in
laundry operating expenses of approximately $0.8 million. Offsetting this
decrease is an increase in commission expense of approximately $0.2 million,
which is based on increased route revenues. The remaining increase of $0.2
million is due to a general increase in expenses.
General and administrative expenses were generally unchanged for the two
periods.
-26-
<PAGE>
Depreciation and amortization expense decreased in the three month period
ended March 31, 1995 by $0.5 million compared to the three month period ended
March 31, 1994. The decrease was primarily the result of purchase accounting
adjustments associated with the Coinmach Acquisition.
As a result of the above, operating loss was approximately $0.2 million for
each period.
Interest expense for the three month period ended March 31, 1995 increased
by $0.3 million or 30.9% compared to the three month period ended March 31,
1994, primarily due to an increase in the effective interest rate to
approximately 11% from approximately 8%, due to the increase in the prime rate.
Income taxes were insignificant in both periods and resulted from state and
local taxes. TCC had no Federal income tax benefit in either period because of
the valuation allowances established against deferred tax assets generated from
net operating losses.
FISCAL YEAR ENDED DECEMBER 31, 1994 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1993
Revenues were $73.9 million in fiscal 1994, an increase of $2.0 million or
2.8% compared to fiscal 1993. The favorable change is attributable to
improvements in Super Laundry of approximately $1.5 million and improvements in
route operations of approximately $0.5 million. The increase in Super Laundry
revenue is primarily the result of access to more attractive financing options
for Super Laundry customers. The increase in route revenues is due to a 3.8%
increase in revenue per machine, partially offset by a 1% decrease in the
machine base. The increase in revenue per machine was primarily due to the
Company's price review program.
Laundry operating expenses increased by $1.9 million or 3.7% to $54.7
million as compared to fiscal 1993. The increase is attributed to costs
associated with the increase in Super Laundry revenue and increased laundry
operating expenses of the route operations.
General and administrative expenses decreased by $0.6 million or 11.3% in
fiscal 1994 compared to fiscal 1993 due to decreased salaries, benefits and
professional fees.
Depreciation and amortization expense decreased in fiscal 1994 by $0.8
million or 4.9% compared to fiscal 1993. The decrease was primarily the result
of certain assets acquired in the 1989 Transaction becoming fully depreciated in
fiscal 1994.
As a result, operating loss decreased by $1.5 million to $0.3 million or
81.8% for the year ended December 31, 1994.
Income taxes were insignificant in both periods and resulted from state and
local taxes. CIC had no Federal income tax benefit in either period because of
the valuation allowances established against deferred tax assets generated from
net operating losses.
Interest expense for fiscal 1994 decreased by $6.5 million or 61.8%
compared to fiscal 1993 primarily due to the conversion of subordinated notes to
common stock pursuant to CIC's prepackaged bankruptcy plan of reorganization
filed on December 15, 1993. This decrease was partially offset by an increase
of $0.3 million in interest expense resulting from an increase in interest rates
on its long term debt obligations.
CIC recorded a non-cash charge of $1.3 million in 1994 relating to the
imputed value of an equity conversion feature related to management loans
pursuant to CIC's plan of reorganization. Such feature was surrendered in
connection with the Coinmach Acquisition.
CIC recognized an extraordinary gain of $20.4 million on the early
extinguishment of debt in 1994 in connection with CIC's plan of reorganization.
-27-
<PAGE>
Solon
FISCAL YEAR ENDED SEPTEMBER 29, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1994
The discussion should be read in conjunction with the following table which
combines the Predecessor and Successor periods for fiscal 1995 (in thousands).
<TABLE>
<CAPTION>
Fiscal Year Ended September 29, 1995
------------------------------------
April 5, October 1, Fiscal Year
1995 to 1994 to Ended
September 29, April 4, September 30,
1995 1995 Total 1994
----------------- -------------- --------- ------------------
Successor(1) Predecessor(1) Predecessor(1),(2)
<S> <C> <C> <C> <C>
Revenues......................................... $89,719 $52,207 $141,926 $104,553
Laundry operating expenses....................... 62,905 33,165 96,070 66,527
Depreciation and amortization.................... 18,423 10,304 28,727 21,347
General and administrative expenses.............. 2,458 1,539 3,997 2,839
Gain on sale of equipment........................ -- -- -- (109)
Restructuring costs.............................. 2,200 -- 2,200 --
-------------------- ---------- ------------ ----------
Operating income................................. 3,733 7,199 10,932 13,949
Interest expense, net............................ 11,541 8,928 20,469 18,105
-------------------- ---------- ------------ ----------
Loss before income taxes and extraordinary item.. (7,808) (1,729) (9,537) (4,156)
-------------------- ---------- ------------ ----------
Provision (benefit) for income taxes:
Currently payable.............................. 420 270 690 200
Deferred....................................... (2,282) (220) (2,502) 2,562
-------------------- ---------- ------------ ----------
(1,862) 50 (1,812) 2,762
-------------------- ---------- ------------ ----------
Loss before extraordinary item................... (5,946) (1,779) (7,725) (6,918)
Extraordinary item, net of income taxes of $0.... -- 848 848 --
-------------------- ---------- ------------ ----------
Net loss......................................... $(5,946) $(2,627) $ (8,573) $ (6,918)
==================== ========== ============ ==========
____________________
</TABLE>
(1) The term "Predecessor" refers to the period in time prior to the Solon
Acquisition. The term "Successor" refers to the period in time after the
Solon Acquisition and includes the historical results of Solon which have
been restated to include the pooling of interests of TCC. Successor is
presented on a different basis of accounting and therefore, is not
comparable to the Predecessor.
(2) Certain reclassifications have been made to conform to the 1995
presentation.
-28-
<PAGE>
Excluding revenues of TCC of $38.5 million for the Successor period,
revenues of $103.4 million for fiscal 1995 were $1.1 million or 1.1% lower than
revenues for fiscal 1994. A favorable change of approximately $1.8 million in
revenues resulting from increases in revenue per machine was offset by
approximately $2.9 million in losses caused by a decline in the average number
of laundry machines on location. The decline in the average number of laundry
machines on location was primarily due to the lack of available capital prior to
the Refinancing. Revenue per machines rose slightly primarily because of price
increases and improved occupancy levels in the Southeast and South-Central
regions.
Excluding laundry operating expenses of TCC of $29.8 million for the
Successor period, laundry operating expenses of $66.3 million for fiscal 1995
were $0.2 million or 0.3% lower than laundry operating expenses for fiscal 1994.
Commissions expense decreased by approximately $1.0 million due to lower
revenues and a reduction in the average commissions rate from 44.7% of revenues
during fiscal 1994 to 44.1% of revenues during fiscal 1995. The decrease in the
commissions rate was primarily attributable to Solon's ongoing commission
control programs and a shift away from higher commission locations primarily in
the Washington, D.C. Metropolitan area. Laundry operating expenses other than
commissions expense rose by approximately $0.8 million in fiscal 1995 compared
to fiscal 1994 primarily due to inflationary increases.
Excluding depreciation and amortization expenses of TCC of $5.5 million for
the Successor period, depreciation and amortization increased by $1.9 million or
8.6% for fiscal 1995, compared to the prior year. The increase was due
primarily to purchase accounting adjustments resulting from the Solon
Acquisition.
Excluding general and administrative expenses of TCC of $0.9 million for
the Successor period, general and administrative expenses of $3.1 million for
fiscal 1995 were $0.3 million or 10.7% higher than such expenses for fiscal
1994. General and administrative expenses include a charge of approximately
$0.3 million for the cost of a severance agreement with the former chief
executive officer of Solon.
Solon provided for one-time restructuring costs of approximately $2.2
million to cover severance payments to certain of Solon's management,
administrative and regional personnel, costs to relocate Solon's financial and
administrative functions to Roslyn, New York, costs to integrate certain
financial and operating systems, and costs related to the consolidation of
certain of Solon's regional offices.
Excluding interest expense of TCC of $2.7 million for the Successor period,
interest expense for fiscal 1995 decreased by $0.3 million or 1.7% compared to
the prior year primarily due to an increase in interest income, and to a lesser
extent, a decrease in interest caused by a repurchase and retirement of $1.0
million of the Old Senior Notes in November 1994.
Solon's income tax benefit was $1.8 million in fiscal 1995 compared to a
tax provision of $2.8 million for fiscal 1994. As further discussed in the
consolidated financial statements, the tax provision for fiscal 1994 included a
$3.7 million charge to establish a valuation allowance for previously recorded
deferred tax assets. The deferred tax asset of $2.0 million recorded in the
Successor period does not reflect a valuation allowance because the loss can be
utilized against the deferred tax liabilities in the carryforward periods. In
addition to this benefit, Solon's effective income tax rate differs from the
amount computed by applying the U.S. federal statutory rate to loss before
income taxes as a result of state taxes and permanent book/tax differences.
Solon incurred costs aggregating $0.8 million in connection with the Solon
Acquisition, including a total of $0.4 million in lump sum payments made to
fourteen management employees pursuant to certain contractual arrangements
relating to the acquisition. The total costs have been reflected as an
extraordinary item in the financial statements.
FISCAL YEAR ENDED SEPTEMBER 30, 1994 COMPARED TO FISCAL YEAR ENDED OCTOBER 1,
1993
Revenues were $104.6 million in fiscal 1994, a decrease of $0.3 million or
0.4% compared to fiscal 1993. The unfavorable change in revenues consisted of
approximately a $1.2 million increase due to increases in revenue per machine
offset by a $1.6 million decrease in revenues caused by a decline in the average
number of machines on location. Price increases and improved occupancy levels
in apartment buildings in the Carolinas, Georgia and Texas were the primary
reasons for the increases in revenue per machine. Severe winter weather in the
mid-Atlantic states and more significantly a decline in the average number of
machines on location due primarily to competitive pressures in the Washington,
D.C. Metropolitan area were responsible for the offsetting decline in revenues.
-29-
<PAGE>
Laundry operating expenses decreased by $1.0 million or 1.5% to $66.4
million in fiscal 1994 as compared to fiscal 1993. The decline was primarily
the result of lower revenues and a reduction in the average commission rates as
a percentage of revenues from 45.4% in fiscal 1993 to 44.7% in fiscal 1994. The
decrease in the commission rate was primarily attributable to Solon's ongoing
commission control programs. Additionally, a gain on divestiture of $0.1
million was netted against these expenses in fiscal 1994.
General and administrative expenses increased by $0.3 million or 10.2% in
fiscal 1994 compared to fiscal 1993 primarily due to adjustments totalling
approximately $0.4 million in fiscal 1993 related to a re-evaluation of certain
accrual and other liability balances.
Depreciation and amortization increased in fiscal 1994 approximately $0.3
million or 1.6% compared to fiscal 1993 primarily as a result of a higher level
of capital expenditures in fiscal 1993.
Interest expense for fiscal 1994 increased by $0.7 million or 3.7% compared
to fiscal 1993. The increase was due primarily to the expiration of an interest
rate exchange agreement in fiscal 1993 in which a benefit of $0.5 million was
realized in fiscal 1993 reducing Solon's interest expense. Additionally,
borrowing costs on Solon's revolving line of credit were somewhat higher in
fiscal 1994 over fiscal 1993 due to higher average balances borrowed.
Solon's income tax provision was 2.8 million in 1994 as compared to an
income tax benefit of $0.8 million recorded in 1993. As further discussed in
the consolidated financial statements, the tax provision for 1994 includes a
$3.7 million charge to establish a valuation allowance for previously recorded
deferred tax assets. In addition to this charge, Solon's effective income tax
rate differs from the amount computed by applying the U.S. federal statutory
rate to loss before income taxes as a result of state taxes and permanent
book/tax differences (primarily goodwill amortization).
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed. The Company
will adopt Statement No. 121 in the first quarter of fiscal year 1997 and, based
on current circumstances, does not believe the effect of the adoption will be
material.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", is effective for fiscal years beginning after December 15,
1995. Statement No. 123 provides companies with a choice to follow the
provisions of Statement No. 123 in determination of stock-based compensation
expense or to continue with the provisions of APB 25, "Accounting for Stock
Issued to Employees." The Company will continue to follow APB 25 and will
provide pro forma disclosures as required by Statement No. 123 in the March 28,
1997 notes to the consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have substantial indebtedness and debt service
requirements. At March 29, 1996, the Company had outstanding long-term debt of
approximately $202.8 million and stockholders' deficit after restructuring
charges and writeoffs related to the Merger and the Refinancing of approximately
$1.3 million. As of June 15, 1996, the Company had approximately $5.0 million
outstanding under the Revolving Credit Facility.
FINANCING ACTIVITIES
Coinmach Senior Notes
In connection with the Refinancing, the Company issued 11 3/4% Senior Notes
due 2005 pursuant to the terms of an indenture, dated as of November 30, 1995,
between Coinmach and Shawmut Bank Connecticut, National Association, as amended
by the First Supplemental Indenture, dated as of December 11, 1995, between
Coinmach and Fleet Bank of Connecticut (formerly known as Shawmut Bank
Connecticut, National Association) (as amended, the "Indenture") in an aggregate
principal amount of $196,655,000. In April 1996, pursuant to a registration
statement declared effective by the Commission on March 28, 1996, the Company
consummated a
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<PAGE>
registered exchange offer, which expired on April 29, 1996, pursuant to which
all issued and outstanding 11 3/4% Senior Notes due 2005 were exchanged for
Series B 11 3/4% Senior Notes due 2005. The Company also has $5 million of 12
3/4% Senior Notes due 2001 issued and outstanding that were not exchanged in the
exchange offer.
The Senior Notes, which mature on November 15, 2005, are unsecured senior
obligations of Coinmach and are redeemable, at Coinmach's option, in whole or in
part at any time or from time to time, on and after November 15, 2000, upon not
less than 30 nor more than 60 days notice, at the redemption prices set forth in
the Indenture, plus, in each case, accrued and unpaid interest thereon, if any,
to the date of redemption.
The Indenture contains a number of restrictive covenants and agreements
including covenants with respect to the following matters: (i) limitation on
Indebtedness (as defined in the Indenture); (ii) limitation on restricted
payments (in the form of the declaration or payment of certain dividends or
distributions on the capital stock of Coinmach or its subsidiaries, the
purchase, redemption or other acquisition of any capital stock of Coinmach, the
voluntary prepayment of subordinated Indebtedness, or an Investment (as defined
in the Indenture) in any other person); (iii) limitation on transactions with
affiliates; (iv) limitation on liens; (v) limitation on sales of assets; (vi)
limitation on sale and leaseback transactions; (vii) limitation on conduct of
business; (viii) limitations on dividends and other payment restrictions
affecting subsidiaries; and (ix) limitations on consolidations, mergers and
sales of substantially all of Coinmach's assets.
The events of default under the Indenture include provisions that are
typical of senior debt financings. Upon the occurrence and continuance of
certain events of default, the trustee or the holders of not less than 25% in
aggregate principal amount of outstanding Senior Notes may declare all unpaid
principal and accrued interest on all of the Senior Notes to be immediately due
and payable.
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Senior Notes will have the right to require that Coinmach
purchase all or a portion of such holder's Senior Notes pursuant to the offer
described in the Indenture, at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase.
Revolving Credit Facility
On November 30, 1995, Coinmach entered into the Revolving Credit Facility
with Heller Financial, Inc. ("Heller"), as amended on December 9, 1995, pursuant
to which Heller agreed, subject to a borrowing base, to lend on a revolving
basis to Coinmach up to a maximum of $35 million for an initial period of five
years. Of that $35 million, Heller may extend up to $3 million of letter of
credit accommodations to Coinmach. Additionally, availability under the
Revolving Credit Facility is reduced by an amount equal to a pro-rated portion
of one semi-annual interest payment on the Senior Notes.
Interest on Coinmach's borrowings under the Revolving Credit Facility is
payable monthly in arrears at a rate per annum of no greater than (i) LIBOR plus
2.50% or (ii) the Base Rate (as defined in the Revolving Credit Facility) plus
1.00%. Coinmach is obligated to pay an unused line fee in an amount equal to
0.5% of unused availability payable monthly in arrears.
Indebtedness under the Revolving Credit Facility is secured by all of the
Company's real and personal property. The Company has guaranteed the
indebtedness under the Revolving Credit Facility and pledged to Heller its
interests in all of the issued and outstanding shares of capital stock of
Coinmach. In addition to customary restrictive covenants and agreements, the
Revolving Credit Facility contains certain covenants including, but not limited
to, a minimum fixed charge coverage ratio, limitations on indebtedness,
guarantees, capital expenditures, mergers and acquisitions, dividends, stock
repurchases, management fees, transactions with affiliates and investments.
The Revolving Credit Facility contains certain events of default, including
the following: (i) the failure of Coinmach to pay any of its obligations under
the Revolving Credit Facility when due or within five days after the due date;
(ii) certain failures by Coinmach to pay principal or interest on indebtedness
or certain breaches or defaults by Coinmach of certain indebtedness, in each
case after any applicable grace period; (iii) certain defaults by Coinmach in
the performance or observance of the agreements or covenants under the Revolving
Credit Facility or related agreements, beyond any applicable cure period; (iv)
the falsity in any material respect of certain of Coinmach's representations or
warranties under the Revolving Credit Facility; (v) certain judgments against
Coinmach; or (vi) certain events of bankruptcy or insolvency of Coinmach or the
Company.
-31-
<PAGE>
OPERATING ACTIVITIES
The Company's level of indebtedness will have several important effects on
its future operations including the following: (i) a significant portion of the
Company's cash flow from operations will be required to pay interest on its
indebtedness and will not be available for other purposes; (ii) the financial
covenants and other restrictions contained in certain of the financing
agreements governing the Company's indebtedness will require the Company to meet
certain financial tests and will limit its ability to borrow additional funds or
to dispose of assets; (iii) the Company's ability to obtain additional financing
in the future for working capital, capital expenditures, acquisitions and
general corporate purposes may be impaired; and (iv) the Company's ability to
adapt to changes in the coin-operated laundry equipment services industry and to
economic conditions in general could be limited. Coinmach Laundry is a holding
company that will be dependent upon its principal operating subsidiary,
Coinmach, as its primary source of revenue subsequent to the Offering. At March
29, 1996, no amounts were outstanding under the Revolving Credit Facility. The
interest rate as of March 29, 1996 was 9.25%.
The expenses of the Company include significant amounts of depreciation and
amortization (approximately $36.6 million for the twelve months ended March 29,
1996) which have the effect of reducing net income but not operating cash flow.
In accordance with generally accepted accounting principles, a significant
amount of the purchase price of businesses acquired by the Company is allocated
to "contract rights", which costs are amortized over periods of up to 15 years.
Although such accounting treatment has a favorable effect on cash flow by
reducing taxes, it also reduces net income. The Company expects to continue
this practice with future acquisitions so as to maximize cash flows through the
recognition of related smaller net income caused by the increased amortization.
Such a practice will be employed until the purchase price has been fully
amortized.
The Company anticipates that it will continue to utilize cash flow from its
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the twelve months ended March 29, 1996 were approximately $27.3
million, including approximately $2.1 million of non-recurring costs associated
with the consolidation of certain of the Company's facilities and a capital
replacement program designed to offset deficiencies resulting from prior capital
constraints. The Company instituted the capital replacement program to upgrade
certain equipment of the Company formerly maintained by Solon. The Company is
not subject to contractual commitments to vendors with respect to any material
portion of the capital expenditures anticipated for the next twelve months.
Under the terms of the Revolving Credit Facility, the Company is obligated to
incur capital expenditures to maintain and repair equipment in varying amounts
up to $14 million per year after April 1, 1996. On a pro forma basis, after
giving effect to all route acquisitions consummated through May 1996 as if such
transactions occurred at the beginning of such period, the Company spent $29.0
million on capital expenditures for the year ended March 29, 1996. The Company
anticipates that capital expenditures, including those relating to maintaining
its existing installed machine base, will be approximately $25 million for the
twelve months ending March 28, 1997. Management believes that the Company has
adequate resources to address such capital requirements in the near future.
The Company's working capital requirements are, and will continue to be,
minimal since a significant portion of the Company's operating expenses are not
paid until after cash is collected from the installed machines. In connection
with the Refinancing, the Company is required to make semi-annual cash interest
payments on the Senior Notes, and will be required to make monthly interest
payments under the Revolving Credit Facility. Management believes that the
Company's future operating activities will generate sufficient cash flow to
repay borrowings under the Senior Notes and the Revolving Credit Facility or
permitted refinancings thereof. An inability of the Company, however, to comply
with covenants or other conditions contained in the Indenture or in the
Revolving Credit Facility could result in an acceleration of the amounts due
thereunder. If the Company is unable to meet its debt service obligations, it
could be required to take certain actions such as reducing or delaying capital
expenditures, selling assets, refinancing or restructuring its indebtedness,
selling additional equity capital or other actions. There is no assurance that
any of such actions could be effected on commercially reasonable terms, if at
all, or on terms permitted under the Revolving Credit Facility or the Indenture
or that the assets of the Company would be sufficient to repay in full such
indebtedness and other indebtedness of the Company if such indebtedness were to
be accelerated.
INFLATION AND SEASONALITY
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
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<PAGE>
BUSINESS
OVERVIEW
The Company, established in 1948, is a leading supplier of coin-operated
laundry equipment services for multi-family properties in the United States.
The Company leases laundry rooms from building owners and management companies,
installs and services the laundry equipment and collects the revenues generated
from the machines. The Company typically sets pricing for the use of the
machines on location, and the owner or property manager maintains the premises
and provides utilities such as gas, electricity and water.
The Company's existing customer base is comprised of landlords, property
management companies, and owners of rental apartment buildings, condominiums and
cooperatives, university and institutional housing and other multi-family
properties. The Company owns and operates over 245,000 coin-operated washers
and dryers on routes in over 26,000 buildings located in 28 states and the
District of Columbia. The Company's routes are located throughout the
Northeast, Mid-Atlantic, Southeast, South-Central and Mid-West regions of the
United States. Management believes, based on its knowledge of the industry,
that the Company is the second largest supplier of coin-operated laundry
equipment services for multi-family buildings in the United States and the
largest in the eastern United States.
The Company coordinates its regional operations from its headquarters in
Roslyn, New York. While financial and administrative activities of the Company
are located in Roslyn, operating activities, including sales, service and
collections, are conducted through its regional offices. The following table
sets forth certain information relating to the Company's regional operations on
a pro forma basis for the year ended March 29, 1996:
<TABLE>
<CAPTION>
MID-
NORTHEAST ATLANTIC SOUTHEAST SOUTH-CENTRAL MID-WEST TOTAL
---------------- ------------- ------------------ ---------------- --------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
States NY, NJ, CT D.C., MD, VA, WV, NC, SC, TX, LA, FL, IL, IA, SD, NE
PA, DE GA, KY, AL, TN AK, MS, OK MO, KS, IN, MI
Approximate Revenue (in
millions)................ $76.6 $30.8 $24.9 $46.5 $10.6 $189.4
Employees................... 242(2) 87 109 199 52(1) 689(2)
____________________
</TABLE>
(1) Represents employees hired by the Company on April 2, 1996, in connection
with the Allied Acquisition.
(2) Includes 40 executive, financial and administrative personnel at the
Company's headquarters located in Roslyn, New York.
BUSINESS STRATEGY
The Company's business strategy is to increase operating cash flow and
profitability through a combination of internal expansion and selective
acquisitions. Internal expansion is comprised of: (i) increasing the installed
machine base by adding new customers, (ii) converting owner-operated facilities
to Company managed facilities, and (iii) implementing selective price increases
within the Company's operating regions. The Company's acquisition strategy is
to acquire additional local, regional and multi-regional route businesses from
independent operators. Management believes that by pursuing its business
strategy the Company will be positioned to realize: (i) additional operating
leverage and economies of scale associated with expanding its installed base of
machines, (ii) reduced operating expenses through consolidation of overhead
functions and facilities, and (iii) reduced equipment and parts costs on a per
unit basis due to increased purchasing requirements.
In January 1995, management, with its equity sponsor, GTCR, acquired the
Company's Northeast regional route business and initiated a strategy of growth
through acquisitions. This strategy was designed to increase the installed
machine base in its existing operating regions and to provide the Company with a
leading market position in new regions. Since January 1995, the Company has
grown its installed base from 54,000 machines to 245,000 machines as of May 1,
1996. Revenues and EBITDA (earnings before deductions for income taxes,
depreciation and amortization) have grown from $72.9 million and $13.6 million,
respectively, for the twelve months ended March 31, 1995, to $189.4 million and
$56.2 million, respectively, for the twelve months ended March 31, 1996, on a
pro forma basis. See "Unaudited Pro Forma Financial Data." These acquisitions
have enabled the Company to improve its operating margins and compete more
aggressively for new strategic contracts.
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<PAGE>
Internal Expansion
New Locations. The Company's aggressive sales and marketing efforts focus
-------------
on two areas of expansion within its existing operating regions. The Company's
primary means of internal expansion is by marketing the Company's products and
services to building managers and property owners whose leases with other
laundry equipment servicers are near expiration. Many large customers require
competitive bids for expiring lease contracts. The Company's Integrated Computer
Systems track information on the lease expirations of its competitors. The
Company secures leases with these buildings through effective data management on
competition, its ability to quickly coordinate and target its marketing efforts,
aggressive bidding for new contracts and its long standing industry reputation
for prompt and reliable service.
Conversions. Management believes, based on industry estimates, that there
-----------
are approximately 1.0 million machines installed in locations that are managed
by owner-operators. Building owners or managers can forgo significant cash
outlays by contracting with the Company to purchase, service and maintain
laundry equipment. Accordingly, in conjunction with its Integrated Computer
Systems, the Company aggressively pursues building owners and managers to
convert from owner-operated laundry facilities. The Company offers a full range
of services from the design, construction and installation of new laundry
facilities to the refurbishment of existing facilities. Management believes
these services provide a competitive advantage in securing new customers.
Price Increases. In addition to growing the Company's installed base of
---------------
machines, management regularly reviews its pricing policies and procedures under
all existing leases. Management expects that the Company should realize
increases in revenue and cash flow from operations through selective price
increases and other pricing procedures in the forthcoming year, provided,
however, that due to competition and certain other factors beyond the Company's
control, there can be no assurance that such increases will occur. The leases
at 58% of the Company's locations allow price increases without corresponding
adjustments in rental payments or commissions.
Management believes that its strategy of growth within its existing
operating regions will result in additional economies of scale and operating
efficiencies associated with an expanded machine base.
Selective Acquisitions
The Company intends to capitalize on opportunities inherent within the
fragmented laundry services industry through selective acquisitions of local,
regional and multi-regional route businesses. In particular, there are numerous
private, family-owned businesses that may lack the financial resources to
provide advance rental payments, install new equipment, make laundry room
improvements or otherwise compete effectively with larger independent operators
such as the Company to secure new or renewal locations. Consequently, such
independent operators, many of which are undergoing generational ownership
changes, may represent potential acquisition opportunities for the Company
within its operating regions.
Management believes the Company is well positioned to capitalize on such
opportunities for growth and expansion due to its operating efficiencies, its
access to capital resources, and senior management's extensive experience and
relationships in the industry. The Company evaluates potential acquisitions
based on important criteria, including the size of the business (in terms of
revenues and machine base), the geographic concentration of the business, market
penetration, service history, customer relations, existing contract terms and
other potential operating efficiencies and cost savings. The Company considers
three types of acquisition candidates: (i) small local route operators
(including owner-operators); (ii) regional route operators; and (iii) large,
multi-regional route operators.
Local route operators. The purchase of small, local operators (businesses
---------------------
operating within one of the Company's existing regions) results in lowering the
target's existing cost structure through the complete absorption of the machine
base into the Company's operations. The Company expects to evaluate
opportunities to acquire route businesses from independent operators to further
increase operating leverage within its operating regions. In many regions, the
Company may be able to acquire routes adjacent to its existing areas of
operation without incurring significant incremental operating, collection,
security, service and maintenance costs.
Regional route operators. A regional acquisition provides the opportunity
------------------------
to improve the Company's cash flow by eliminating duplicative corporate and
administrative functions, reducing capital expenditures through improved
purchasing power and implementing the Company's Integrated Computer Systems.
The Allied Acquisition, completed on April 1, 1996, represented such an
acquisition, which management estimates will result in cost savings of
approximately $0.5 million annually. The Company completed the Allied
Acquisition as part of its acquisition strategy and its plan to establish a
larger market presence in the Midwest. This acquisition increased
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the Company's installed machine base by approximately 24,000 machines. On a pro
forma basis for the period ending March 29, 1996, the Allied Acquisition
contributed an increase of approximately $3.3 million of EBITDA (earnings before
deductions for income taxes, depreciation and amortization) and approximately
$10.6 million of consolidated revenue.
Multi-regional route operators. The acquisition of a large, multi-regional
------------------------------
route operator may result in a number of operating efficiencies, including,
significant cost savings through the elimination of duplicative financial and
administrative functions and related fixed costs. In addition, the increased
volume of equipment purchases may result in reduced per unit capital
expenditures. Moreover, as is the case with all types of acquisitions, the
Company's Integrated Computer Systems would be utilized to provide further
operating efficiencies and related cost savings. The combination of Solon and
TCC on November 30, 1995, is an example of a multi-regional acquisition and has
resulted in approximately $3.7 million of annual cost savings. In addition to
the cost savings, the combination of Solon and TCC enabled the Company to
significantly increase its operating base, add several experienced regional
managers to its management team, penetrate new markets as a leader in each of
the acquired regions and become the second largest supplier of coin-operated
laundry equipment services in the United States.
INDUSTRY
The coin-operated laundry services industry is fragmented nationally with
many small, private and family-owned route businesses continuing to operate
throughout all major metropolitan areas. According to information provided by
the Multi-housing Laundry Association, the industry is comprised of over 280
independent operators. Based upon industry estimates, management believes there
are approximately 3.5 million machines installed throughout the United States,
2.5 million of which are managed by independent operators such as the Company
and 1.0 million of which are managed by owner-operators. Despite the overall
fragmentation of the industry, there are currently three companies including the
Company with significant operations in multiple regions throughout the United
States. Management believes that its two major multi-regional competitors are
strongest in California and Chicago, Illinois, where the Company currently has a
minimal presence.
The industry is highly capital intensive and requires prompt and reliable
service. The majority of capital costs are incurred upon procurement of new
contracts. Such initial costs include replacing or repairing existing washers
and dryers, refurbishing laundry rooms and making advance rental payments to
secure long-term, renewable leases. After the initial expenditures, ongoing
working capital requirements are minimal, as machines operate for many years if
serviced properly, and variable costs are paid out of revenues collected from
the machines.
Historically, the industry has been characterized by stable demand and has
proven to be resistant to changing market conditions and general economic
cycles. Management believes that this is due to the consistent demand for
laundry services by building occupants. In addition, the Company has
experienced consistent pricing increases of approximately 2-3% per year on a
revenue per machine basis; however, there can be no assurance that the Company
will achieve such increases in the future.
Management believes that the industry's consistent and predictable revenue
and cash flow from operations are primarily due to: (i) the long-term nature of
location leases; (ii) the stable demand for laundry services; and (iii) minimal
ongoing working capital requirements.
DESCRIPTION OF OPERATIONS
The principal aspects of the Company's operations include: (i) location
leasing, (ii) service, (iii) remanufacturing, (iv) security, (v) information
management and (vi) sales and marketing.
Location Leasing
The Company's leases provide the Company the exclusive right to operate and
service the laundry equipment, including repairs and maintenance. The Company
typically sets pricing for the use of the machines on location, and the property
owner or manager maintains the premises and provides utilities such as gas,
electricity and water.
In return for the exclusive right to provide laundry equipment services,
most of the Company's leases provide for monthly commission payments to the
location owners. Under the majority of leases, these commissions are based on a
percentage of the cash collected from the laundry machines. Many of the
Company's leases require the Company to make advance rental payments or bonuses
to the location owner in addition to commissions. The Company's leases
typically include provisions that allow for unrestricted price increases, a
right of first refusal (an
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<PAGE>
opportunity to match competitive bids at the expiration of the lease term) and
termination rights if the Company does not receive minimum net proceeds from a
contract. The Company has some flexibility in negotiating its leases and,
subject to regional competitive factors, may vary the terms and conditions of a
lease, including commission rates and lease bonuses. The Company evaluates each
lease opportunity through its Integrated Computer Systems which are designed to
achieve certain targeted levels of profitability.
Management estimates that over 89% of its locations are subject to long-
term leases with initial terms of three to ten years. Of the remaining
locations not subject to long term leases, the Company believes that it has
retained a majority of such customers through long-standing relationships and
intends to continue to service such customers. Approximately 67% of the
Company's leases renew automatically, and the Company has a right of first
refusal on termination in approximately 56% of its leases. The Company's
automatic renewal clause typically provides that, if the building owner fails to
take any action prior to the end of the original lease term or any renewal term,
the lease will automatically renew on substantially similar terms. As of March
31, 1996, the Company's leases have an average remaining life to maturity of 42
months.
Management estimates that approximately 13% of its leases expire each year.
Although the timing of lease renewals may not coincide with the applicable
expiration dates of such leases, management believes that, with respect to the
13% of leases scheduled to expire each year, approximately 75% of such leases
are retained by the Company through its lease renewal efforts. Additionally,
with respect to the remaining 25% of such leases scheduled to expire each year,
the Company historically has determined not to pursue approximately one-half of
these leases due to profitability concerns. The remaining half of these leases
scheduled to expire each year (or approximately 1-2% of the Company's installed
machine base) are lost to competitors or owner-operators. These losses,
however, do not take into account the Company's addition of new locations to its
installed base of machines achieved through its sales and marketing efforts.
Service
The Company's employees deliver, install, service and collect from coin-
operated washers and dryers in laundry facilities at its leased locations.
The Company's fleet of 270 radio-equipped service vehicles allows the quick
dispatch of service technicians in response to both computer-generated (for
preventive maintenance) and customer-generated service calls. On a daily basis,
the Company receives and responds to approximately 1,000 service calls.
Management estimates that less than 1% of the Company's machines are out of
service on any given day. The ability to reduce machine down time, especially
during peak usage, serves to enhance revenue and improve the Company's
reputation with its customers.
In a business that emphasizes prompt and efficient service, management
believes that the Company's Integrated Computer Systems provide a significant
competitive advantage in terms of responding promptly to customer needs.
Computer-generated service calls for preventive maintenance are based on
previous service history, repeat service call analysis and monitoring of all
serviced areas. These operations coordinate the Company's radio-equipped
service vehicles that allow the Company to address customer needs quickly and
efficiently.
Remanufacturing
The Company's remanufacturing operations provide approximately one-third of
its annual machine installation requirements. The Company rebuilds and
reinstalls a portion of its machines at approximately one-third the cost of
acquiring new machines, providing significant cost savings. Remanufactured
machines are restored to virtually new condition with the same estimated average
life and service requirements as new machines. Machines that can no longer be
remanufactured are stripped and added to the Company's inventory of spare parts,
generating additional cost savings.
Since January 1995, the Company has consolidated the number of
remanufacturing facilities from twelve local facilities to three larger,
regional facilities, providing for consistency in machine quality and efficient
operations strategically located to service each of its operating regions.
Management believes the Company will be able to remanufacture a comparable
number of machines despite the reduction in the number of such facilities.
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<PAGE>
Security
Management believes that it provides the highest level of security control
in the laundry equipment services industry. The Company utilizes numerous
precautionary procedures with respect to cash collection, including frequent
alteration of collection patterns, extensive monitoring of collections and other
control mechanisms. The Company practices stringent employee standards and
screening procedures with prospective employees. Employees responsible for or
who have access to the collection of funds are tested randomly and frequently.
Additionally, the Company's security department performs trend and variance
analyses of daily collections by location. Security personnel monitor
locations, conduct investigations, and implement additional security procedures
as necessary.
Information Management
Management believes that the Company's proprietary Integrated Computer
Systems significantly enhance its operating efficiencies as well as its sales
and marketing efforts. The Integrated Computer Systems provide speed and
accuracy throughout the entire service cycle by integrating the functions of
service call entry, dispatching service personnel, parts and equipment
purchasing, installation, distribution and collection. Management is able to
obtain daily, monthly, quarterly and annual reports on location performance,
coin collection, service and sales activity by salesperson.
Management also believes that the Integrated Computer Systems enhance the
Company's ability to successfully integrate acquired businesses into its
existing operations. With the Solon Acquisition, the Company initiated a
comprehensive systems review and upgrade throughout the operating regions. To
date, the collection phase of the upgrade, which has the greatest impact on
revenue enhancement and cost reduction, has been implemented over approximately
50% of the Company's machine base. Management anticipates this phase of the
integration will be completed by September 1996. Management believes that a
regional acquisition, such as the Allied Acquisition, can be fully integrated
within 60-90 days.
In addition to coordinating all aspects of the service cycle, the Company's
Integrated Computer Systems track contract performance which indicate unreported
machine failure or pilferage and provide data to forecast future equipment
failures. Data on machine performance is used by the sales staff to forecast
revenue by location. The purchasing department tracks bids on the Company's
equipment requirements to support an aggressive competitive bidding process.
The Integrated Computer Systems also provide the sales staff with an extensive
database essential to the Company's marketing strategy to obtain new business
through competitive bidding or owner-operator conversion opportunities.
Sales and Marketing
The Company markets its products and services through a sales staff with an
average industry experience of over ten years. The principal responsibility of
the sales staff is to solicit and negotiate lease arrangements with building
owners and managers. All sales personnel are paid commissions that comprise 50%
or more of their annual compensation. Selling commissions are based on a
percentage of a location's annualized earnings before interest and taxes.
Management believes that its sales staff is among the most competent and
effective in the industry. Sales personnel must be proficient with the
application of sophisticated financial analyses to achieve their targeted goals
in securing location contracts and renewals.
The Company's marketing strategy emphasizes service excellence offered by
its experienced, highly skilled personnel and its quality equipment that
maximizes efficiency and revenue and minimizes machine down-time. Additionally,
the Integrated Computer Systems monitor performance, repairs and maintenance, as
well as the profitability of locations on a daily basis. The Company's sales
staff targets potential lease locations by utilizing its Integrated Computer
Systems' extensive database that provides information on the Company's, as well
as its competitors' locations. All sales activity, from sale entries to data on
service and installation is recorded and monitored daily on a custom-designed,
computerized sales planner.
No single customer represents more than 2% of the Company's revenues or
installed machine base. In addition, the Company's ten largest customers taken
together account for less than 10% of the Company's revenues.
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<PAGE>
COMPETITION
The coin-operated laundry equipment services industry is highly
competitive, capital intensive and requires reliable, quality service. Despite
the overall fragmentation of the industry, there are currently three companies
including the Company with significant operations in multiple regions throughout
the United States. Management believes that the Company's two major multi-
regional competitors, Web Service Company, Inc. and Macke Laundry Service, L.P.,
are strongest in California and Chicago, Illinois, respectively, where the
Company currently has a minimal presence.
SUPER LAUNDRY
Super Laundry Equipment Corp., a wholly owned subsidiary of Coinmach, is a
construction and laundromat equipment distribution company. Super Laundry's
business consists of constructing complete turnkey laundromat retail stores,
retrofitting existing laundromat retail stores, distributing exclusive lines of
commercial coin and non-coin machines and parts, and selling service contracts.
The construction of laundromats and related equipment sales constitute in excess
of 95% of the revenues of Super Laundry. Super Laundry's customers generally
enter into sales contracts whereby Super Laundry will construct and equip a
complete laundromat operation, including location identification, construction,
plumbing, electrical wiring and all required permits. Super Laundry generated
$17.2 million in revenues and $2.6 million in EBITDA (earnings before deductions
for income taxes, depreciation and amortization) for the year ended March 29,
1996.
FACILITIES
As of May 1996, the Company leases 16 offices in its various operating
regions for sales and service activities. The Company presently maintains a
facility that functions as its headquarters in Roslyn, New York, leasing
approximately 40,000 square feet on a month-to-month basis, however, such
leasing arrangement may only be terminated by the Company or its landlord upon 6
months notice. Management believes the Company can readily lease equivalent
office space on similar terms if necessary. The Company's Roslyn facility is
used for general corporate purposes, as well as for remanufacturing and
warehouse space for the Northeast operating region. The Company has the option
to purchase the Roslyn facility, which it presently does not intend to exercise.
The Company also leases approximately 30,000 square feet in Elkridge, Maryland
for sales, and warehouse space for the Mid-Atlantic region.
The Company is in the process of establishing a corporate development
office and relocating certain members of management to Charlotte, North Carolina
for the purpose of pursuing the Company's acquisition strategy.
EMPLOYEES
As of May 1996, the Company employed 689 full time employees. Hourly
workers in the Northeast region are represented by Local 966, affiliated with
the International Brotherhood of Teamsters (the "Union"). Management believes
that the Company has maintained a good relationship with the Union employees and
has never experienced a work stoppage since its inception. The current labor
contract with the Union expires in September 1996.
On June 5, 1996, the International Union of Electronic and Electrical
Workers filed a petition with the National Labor Relations Board ("NLRB")
seeking to represent a unit of approximately 55 Company employees based in
Elkridge, Maryland. The NLRB has scheduled an election on July 24, 1996 to
resolve this representation issue. If such unionization were to occur, the
Company's flexibility in dealing with its employees would be restricted, which
could result in an increase in its labor costs.
The Company has no relationship with other unions.
LEGAL PROCEEDINGS
The Company has been named as a defendant in a number of legal actions
arising in the ordinary course of its business. Although the amount of any
liability that could arise with respect to these actions can not be accurately
predicted, management believes that any such liability, individually or in the
aggregate, will not have a material adverse effect on the Company.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company are:
Name Title Age
---- ----- ---
Stephen R. Kerrigan.. Chairman of the Board and Chief Executive 42
Officer, Director
Mitchell Blatt....... President, Chief Operating Officer, Director 44
Robert M. Doyle...... Chief Financial Officer, Senior Vice President 39
Treasurer, Secretary
John E. Denson....... Senior Vice President -- Corporate 58
Development
Michael E. Stanky.... Senior Vice President 44
R. Daniel Osborne.... Area Vice President 40
David A. Siegel...... Area Vice President 38
Bruce V. Rauner...... Director 40
James N. Chapman..... Director 34
Pursuant to the terms of a Stockholders Agreement (the "SAS Stockholders
Agreement"), dated July 26, 1995, amended and restated as of November 30, 1995,
among the Company, GTCR and the stockholders of the Company at such time (the
"SAS Stockholders"), the right of certain of the SAS Stockholders to elect
members of the Board as set forth therein automatically terminates upon an
initial public offering of the Company's common stock having an aggregate
offering value of at least $25 million. Upon the consummation of the Offering,
holders of the Common Stock of the Company prior to the Offering, who, after
consummation of the Offering will own in the aggregate approximately 61.2% of
the outstanding Common Stock, will enter into the Voting Agreement, providing
for, among other things, the designation and nomination of directors of the
Company by such stockholders. Pursuant to the Voting Agreement, each of the
stockholders party to such agreement will agree to vote its shares in favor of
the individuals designated below and to cause such individuals to be selected as
nominees to the Board, in accordance with the Bylaws of the Company, as amended,
with the effect that, at any given time, the directors of the Company shall be
comprised of: (i) two individuals designated by GTCR, (ii) two members of the
Company's management or employees or officers of the Company, in each case,
designated by the holders of a majority of the Common Stock held by the
executive officers (the "Executives") of the Company, which individuals
initially shall be Stephen R. Kerrigan (the "Management Director") and Mitchell
Blatt, (iii) one individual to be jointly designated by GTCR and the Management
Director, who initially shall be James N. Chapman, and (iv) in the case of newly
created directorships, such other individuals as may be designated by a majority
of the Board. The SAS Stockholders Agreement will terminate upon consummation of
the Offering.
The Board will be divided into three classes as nearly equal in number as
possible. Following consummation of the Offering, the Company expects to appoint
two additional directors who are not employees or affiliates of the Company. At
each annual meeting of stockholders, successors to the class of directors whose
term expires at such meeting will be elected to serve for three-year terms or
until their successors are duly elected and qualified. The Board has the power
to appoint the officers of the Company. Each officer will hold office for such
terms as may be prescribed by the Board and until such person's successor is
chosen and qualified or until such person's death, resignation or removal.
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<PAGE>
BACKGROUND AND EXPERIENCE
Mr. Kerrigan has been Chief Executive Officer of the Company since April,
1996, and of Coinmach since November, 1995. Mr. Kerrigan was President and
Treasurer of Solon and the Company from April, 1995 until April, 1996, and Chief
Executive Officer of TCC from January, 1995, until November, 1995. Mr. Kerrigan
was appointed Chairman of the Board of the Company in April, 1995 and of
Coinmach in November, 1995. Mr. Kerrigan has been a director of the Company's
predecessor, TCC, since January, 1995 and of Solon since April, 1995. Mr.
Kerrigan served as Vice President and Chief Financial Officer of TCC's
predecessor from 1987 until 1994. Mr. Kerrigan was an executive officer of CIC
which filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in 1993.
Mr. Blatt has been President and Chief Operating Officer of the Company
since April, 1996 and of Coinmach since November, 1995 and its predecessor, TCC,
since January, 1995. Mr. Blatt has been a director of the Company and Coinmach
since November, 1995. Mr. Blatt joined Coinmach's predecessor as Vice
President-General Manager in 1982 and was Vice President and Chief Operating
Officer from January 1988 to February 1994. Mr. Blatt was an executive officer
of CIC, which filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code in 1993.
Mr. Doyle has been Chief Financial Officer, Senior Vice President and
Secretary of the Company since April, 1996 and Chief Financial Officer, Senior
Vice President, Treasurer and Secretary of Coinmach since November, 1995. Mr.
Doyle served as Vice President, Treasurer and Secretary of Coinmach's
predecessor since January, 1995. Mr. Doyle joined Coinmach's predecessor in
1987 as Controller. In 1988, he became Director of Accounting, and was promoted
in 1989 to Vice President and Controller. Mr. Doyle was an executive officer of
CIC which filed a voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in 1993.
Mr. Denson has been Senior Vice President of the Company since April, 1996
and of Coinmach since November, 1995. Mr. Denson was Senior Vice President,
Finance of Solon from June, 1987 until the Merger. He has served as an officer
of Solon under various titles since 1973. He served as a director and Co-Chief
Executive Officer of Solon from November, 1994 to April, 1995.
Mr. Stanky has been Senior Vice President of the Company since April, 1996
and of Coinmach since November, 1995. Mr. Stanky has been Senior Vice President
of Solon since July, 1995. He joined Solon in 1976 as a sales manager. Mr.
Stanky served Solon in various capacities since 1976, and in 1985 was promoted
to Area Vice President responsible for the South-Central Region. Mr. Stanky
served as a Co-Chief Executive Officer from November, 1994 to April, 1995.
Mr. Osborne has been Area Vice President of the Company since April, 1996
and of Coinmach since November, 1995. Mr. Osborne has served Solon in various
capacities since 1987. In July, 1995, he was promoted to Area Vice President
responsible for the Southeast Region.
Mr. Siegel has been Area Vice President of the Company since April, 1996
and of Coinmach since November, 1995. Mr. Siegel joined Solon in 1985 as a
sales manager. Mr. Siegel served Solon in various capacities since 1985, and in
August, 1995 was promoted to Area Vice President responsible for the Mid-
Atlantic Region.
Mr. Rauner has been a Director of the Company since April, 1995, Coinmach
since November, 1995 and its predecessor, TCC, since January, 1995. Mr. Rauner
serves as a director of ERO, Inc., COREStaff, Inc. and Polymer Group, Inc. Mr.
Rauner has been a Principal and General Partner with GTCR since 1984, where he
is responsible for originating and making new investments, monitoring portfolio
companies and recruiting and training associates.
Mr. Donnini has been a Director of the Company since April, 1995, Coinmach
since November 1995 and its predecessor, TCC, since January, 1995. Mr. Donnini
serves as a director of Polymer Group, Inc. Mr. Donnini has been a Principal of
GTCR since 1993. From 1991 to 1993, Mr. Donnini was an Associate with GTCR.
Mr. Chapman has been a Director of the Company since April, 1995, Coinmach
since November 1995 and its predecessor, TCC, since January, 1995. Mr. Chapman
was a Principal of Fieldstone Private Capital Group, L.P. from its inception in
1990 through May 30, 1996.
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<PAGE>
Mr. Cerri will become a Director of the Company upon consummation of the
Offering. Mr. Cerri formed Capstone Management Resources, Inc. in 1990, a
consulting firm that provides operations advice on leveraged transactions. Mr.
Cerri serves as Chairman of the Board of Directors of [Alinabal Inc.]
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the other four most highly compensated executive
officers (the "Named Executive Officers") of the Company whose total annual
compensation and bonus exceeded $100,000 during the fiscal years ended September
30, 1994 and 1995 in the case of Solon, and December 31, 1994 and 1995, in the
case of TCC, each a predecessor of the Company, and the fiscal year ended March
29, 1996, in the case of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------
Name and Principal Occupation Fiscal Salary ($) Bonus ($) All other
Year(1) Compensation(2)
- ----------------------------------- ------------ ------------ ---------- -----------------
<S> <C> <C> <C> <C>
Stephen R. Kerrigan 1996 215,000 400,000 13,024(3)
Chief Executive Officer 1995 195,607 91,250 12,478(3)
1994 202,481 --- 15,705(3)
Mitchell Blatt 1996 215,000 112,500 22,849(4)
President, Chief Operating Officer 1995 194,469 91,250 19,254(4)
1994 198,506 --- 21,505(4)
Robert M. Doyle 1996 110,577 62,500 2,338(5)
Senior Vice President 1995 96,069 25,000 1,781(5)
1994 80,351 --- 3,723(5)
John E. Denson 1996 125,300 25,000 2,233(6)
Senior Vice President 1995 125,299 --- 68,867(6)
1994 124,500 33,590 4,136(6)
Michael E. Stanky 1996 141,425 37,500 1,253(7)
Senior Vice President 1995 129,646 --- 65,255(7)
1994 125,100 57,256 2,360(7)
</TABLE>
_________________________
(1) Due to a change in the Company's fiscal year in 1995, fiscal year 1996 has
been pro-rated as necessary to reflect the applicable compensation for such
period.
(2) The Company has not previously offered and presently does not have a long
term incentive program. The Company does not presently intend to offer any
such program to its executive officers or other employees.
(3) Includes club membership fees for fiscal years 1996, 1995 and 1994 of
$4,600 each year; expense allowances for fiscal years 1996, 1995 and 1994
of $3,596, $3,052 and $8,705, respectively; use of a company car for fiscal
years 1996, 1995 and 1994 of $2,688, $2,688 and $2,400, respectively; and
contribution by TCC to the Company Profit Sharing Plan for fiscal years
1996 and 1995 of $2,140 and $2,138, respectively; in each case for Mr.
Kerrigan.
(4) Includes club membership fees for fiscal years 1996, 1995 and 1994 of
$10,000 each year; expense allowances for fiscal years 1996, 1995 and 1994
of $7,310 and $6,091 and $10,105, respectively; use of a company car for
fiscal years 1996, 1995 and 1994 of $3,417, $1,025 and $1,400,
respectively; and contribution by TCC to the Company Profit Sharing Plan
for fiscal years 1996 and 1995 of $2,122 and $2,138, respectively; in each
case for Mr. Blatt.
(5) Includes use of a company car for fiscal years 1996, 1995 and 1994, of
$1,004, $712 and $3,723, respectively; and contribution by TCC to the
Company Profit Sharing Plan for fiscal years 1996 and 1995 of $1,334 and
$1,069, respectively; in each case for Mr. Doyle.
(6) Includes use of a company car for fiscal years 1996, 1995 and 1994, of
$1,150, $4,200 and $4,136, respectively; and contributions by Solon to the
Solon Retirement Savings Plan for fiscal years 1996 and 1995 of $1,083 and
$2,167, respectively; in each case for Mr. Denson. It also includes a
$62,500 lump sum payment to Mr. Denson on April 6, 1995 due to a change in
control of Solon.
(7) Includes contributions by Solon to the Solon Retirement Savings Plan for
fiscal years 1996, 1995 and 1994 of $1,253, $2,505 and $2,360,
respectively, for Mr. Stanky. It also includes a $62,750 lump sum payment
to Mr. Stanky on April 6, 1995 due to a change in control of Solon.
-41-
<PAGE>
EMPLOYMENT CONTRACTS
Employment Agreements of Stephen R. Kerrigan, Mitchell Blatt and Robert M.
Doyle. On January 31, 1995, TCC and each of Stephen R. Kerrigan, Mitchell Blatt
and Robert M. Doyle (each, a "Senior Manager"), entered into Senior Management
Agreements (the "Senior Management Agreements"). In connection with the Merger,
the obligations of TCC under the Senior Management Agreements were assumed by
the Company and certain amendments to such agreements were effected pursuant to
the Omnibus Agreement, dated as of November 30, 1995 (the "Omnibus Agreement").
The Senior Management Agreements provide for annual base salaries of $225,000,
$225,000 and $100,000 for each of Messrs. Kerrigan, Blatt and Doyle,
respectively, which amounts are reviewed annually by the Board. In 1996, the
Board approved increases in annual salaries for each of Messrs. Kerrigan, Blatt
and Doyle to $350,000, $250,000 and $150,000, respectively. The Board, in its
sole discretion, may grant each Senior Manager an annual bonus. Each Senior
Management Agreement is terminable at the will of the Senior Managers or in the
discretion of the Board. Senior Managers are entitled to severance pay upon
termination of their employment. If employment is terminated by the Company
without Cause (as defined in such agreement) and no Event of Default (as defined
in such agreement) has occurred and is continuing under the Revolving Credit
Facility or the Indenture, Senior Managers are entitled to receive severance pay
in an amount equal to 1.5 times their respective annual base salaries then in
effect, payable in 18 equal monthly installments. If employment is terminated
by the Company and an Event of Default under the Revolving Credit Facility or
Indenture has occurred and is continuing, Senior Managers are entitled to
receive severance pay in an amount equal to their respective annual base
salaries then in effect, payable in 12 equal monthly installments. Under
limited circumstances, Senior Managers are entitled to receive half of the
severance pay to which they are otherwise entitled if employment with the
Company is terminated by them.
Employment Agreement of John E. Denson. The Company entered into an
employment agreement with Mr. Denson on August 4, 1995 for a term of eight
months, subject to certain renewal options for Solon. The Company renewed Mr.
Denson's employment agreement through May 1996. The Company entered into an
employment agreement with Mr. Denson commencing June 1996 for a term of one year
which is automatically renewable each year for successive one-year terms. Such
agreement provides for an annual base salary of $110,000, commencing September
1, 1996, which amount is reviewed each December by the Board, and, in the
discretion of the Board, a performance-based annual bonus. The agreement is
terminable at the will of Mr. Denson or at the discretion of the Board. Under
the terms of such employment agreement, Mr. Denson is entitled to receive
severance pay upon termination of employment in an amount equal to one-quarter
of his annual base salary then in effect if employment is terminated by him. If
employment is terminated by the Company, however, Mr. Denson is entitled to
receive severance pay in an amount equal to the greater of $110,000 or his
annual base salary then in effect.
Employment Agreement of Michael E. Stanky. On July 1, 1995, the Company
entered into an employment agreement with Mr. Stanky providing for an annual
base salary of $150,000. The terms and conditions of Mr. Stanky's employment
agreement are substantially similar to the Senior Management Agreements.
COINMACH PROFIT SHARING AND RETIREMENT SAVINGS PLAN
The Company offers a profit sharing and retirement savings plan (the
"Profit Sharing Plan") to all current eligible employees of the Company (other
than those employees employed by Solon prior to the Merger) who have completed
one year of service. Pursuant to the Profit Sharing Plan, eligible employees
may defer from 2% up to 15% of their salaries up to a maximum level imposed by
applicable federal law ($9,240 in 1995). The percentage of compensation
contributed to the plan is deducted from each eligible employee's salary and
considered tax-deferred savings under applicable federal income tax law.
Pursuant to the Profit Sharing Plan, the Company contributes increasing matching
contribution amounts, based upon the number of years of service completed by
eligible participants, up to a maximum contribution of 1.5% of an eligible
employee's salary (subject to the Internal Revenue Code limitation on
compensation taken into account for such purpose). Matching contribution
percentages range from 5% for one to two years of service up to 25% for five or
more years of service. Eligible participants become vested with respect to
matching contributions made by the Company pursuant to a vesting schedule based
upon an eligible employee's years of service. After two years of service, an
eligible employee is 20% vested in all matching contributions made to the Profit
Sharing Plan. Such employee becomes vested in equal increments thereafter
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<PAGE>
through the sixth year of service, at which time such employee becomes 100%
vested. Eligible participants are always 100% vested in their own
contributions, including investment earnings on such amounts.
The Company made the following matching contributions during its fiscal
year ended March 29, 1996 to the Named Executive Officers and directors
appearing in the Summary Compensation Table above: Mr. Kerrigan $2,140; Mr.
Doyle $1,334; and Mr. Blatt $2,122.
SOLON PROFIT SHARING AND RETIREMENT SAVINGS PLAN
The Company offers a profit sharing retirement savings plan (the "Solon
Retirement Savings Plan") to all current eligible employees who were employed by
Solon prior to the Merger and who have completed one year of service.
Participation in the Solon Retirement Savings Plan is voluntary and enables
eligible employees to contribute from 1% to 8% of annual compensation, provided,
such contributions do not exceed certain levels imposed by applicable federal
law ($9,240 in 1995). A discretionary matching contribution is determined
annually by the Company. Eligible participants become vested with respect to
matching contributions made by the Company pursuant to a vesting schedule based
upon an eligible employee's years of service. After three years of service, an
eligible employee is 50% vested in all matching contributions made to the Solon
Retirement Savings Plan. After four and five years of service, an eligible
employee is 75% and 100% vested, respectively, in all such matching
contributions. Eligible participants are always 100% vested in their own
contributions, including investment earnings on such amounts.
The Company made the following matching contributions during its last
completed fiscal year to the Named Executive Officers and directors appearing in
the Summary Compensation Table above: Mr. Denson $1,083; and Mr. Stanky $1,253.
In connection with the Merger, the Company is in the process of integrating
benefits to be provided to all its current employees, including those employed
by Coinmach prior to the Merger.
1996 EMPLOYEE STOCK OPTION PLAN
Prior to consummation of the Offering, the Company shall adopt, subject to
stockholder approval, the 1996 Stock Option Plan. The 1996 Stock Option Plan
will be administered by disinterested members of the Compensation Committee of
the Board. Any person who is a full-time, salaried employee of the Company
(excluding non-management directors) will be eligible to participate in the 1996
Stock Option Plan (a "Participant"). Subject to the terms of the 1996 Stock
Option Plan, the Compensation Committee will select the Participants and
determine the terms and conditions of the options, including the type of award
granted, number of shares granted, vesting schedule, type of consideration to be
paid by the Company upon exercise of the options and the term of each option.
The 1996 Stock Option Plan provides for the issuance of options to Participants
covering 1,090,183 shares of Common Stock, subject to certain adjustments
reflecting changes in the Company's capitalization. Options granted under the
1996 Stock Option Plan may be either incentive stock options ("ISOs") or such
other forms of non-qualified stock options ("NQOs") as the Board may determine.
ISOs are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
exercise price of the options will be at least 100% of the fair market value of
a share of Common Stock on the date of grant.
Options granted under the 1996 Stock Option Plan may be subject to time
vesting and certain other restrictions at the Compensation Committee's sole
discretion. Subject to certain exceptions, the right to exercise an option
generally terminates at the earlier of (i) the first date on which the grantee
of such option is not employed by the Company for any reason other than
termination without cause, death, voluntary retirement or permanent disability
or (ii) the expiration date of the option. If the grantee of an option dies or
suffers a permanent disability while still employed by the Company, the right to
exercise all unexpired installments of such option may be accelerated and shall
accrue as of the date of such death or the later of the date of such permanent
disability or the discovery of such permanent disability, and such option may be
exercisable, subject to certain exceptions, for 90 days after such date in the
case of death and for one year in the case of disability. If the employee
voluntarily
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<PAGE>
retires, the option may be exercisable for up to three years following the date
of retirement, as long as the employee does not engage in conduct that the
Compensation Committee determines to be not in the best interest of the Company.
If the employment of the grantee of an option is terminated without cause, to
the extent the option has been vested, such option shall be exercisable for 30
days after such date.
The 1996 Stock Option Plan provides that the total number of shares covered
by such plan, the number of shares covered by each option and the exercise price
per share may be proportionately adjusted by the Board or the Compensation
Committee in the event of a stock split, reverse stock split, stock dividend or
similar capital adjustment effected without receipt of consideration by the
Company. Upon a change in control of the Company, the Compensation Committee
may take any actions it deems appropriate with regard to stock options
outstanding under such plan. Such actions may include, but are not limited to
accelerating exercisability of options and requiring the optionee to surrender
options held for certain consideration described in such plan. In the event of
recapitalization or reorganization in which the Company is not the surviving
corporation, the Compensation Committee may adjust the number, type, or price of
options to reflect the restructuring event.
The Board generally has the power and authority to amend the 1996 Stock
Option Plan at any time without the approval of the Company's stockholders;
provided that, without the approval of the Company's stockholders, the Board
shall not amend such plan to cause any outstanding ISOs to no longer qualify as
ISOs. In addition, the Board shall not amend the 1996 Stock Option Plan to
materially and adversely affect the rights of an option holder under such option
without the consent of such option holder. The 1996 Stock Option Plan will
terminate on the tenth anniversary of its adoption unless sooner terminated by
the Board.
The Company does not expect to grant any options under the 1996 Stock
Option Plan to executive officers or other employees of the Company
concurrently with the Offering. There are 1,090,183 shares of Common Stock
reserved for issuance under the 1996 Stock Option Plan (representing
approximately 9% of the outstanding shares of Common Stock and Non-Voting Common
Stock, on a fully diluted basis).
GRANT OF OPTIONS
In connection with the Offering, the Board shall approve the granting of
(i) the MCS Capital Options, representing options to purchase up to 302,829
shares of Common Stock (representing approximately 2.5% of the Common Stock and
Non-Voting Common Stock outstanding after giving effect to the Offering, on a
fully diluted basis) and (ii) the Additional Options, representing options to
purchase up to an aggregate of 423,960 shares of Common Stock (representing an
aggregate of approximately 3.5% of the Common Stock and Non-Voting Common Stock
outstanding after giving effect to the Offering, on a fully diluted basis).
Twenty percent (20%) of each of the MCS Capital Options and the Additional
Options to be granted upon the consummation of the Offering shall vest at such
time, with an additional twenty percent (20%) thereof vesting on each successive
anniversary of the date of grant. The MCS Capital Options and Additional Options
are exercisable at any time after vesting at a per share price representing a
15% discount of the initial public offering price in the Offering.
SOLON 1987 INCENTIVE STOCK OPTION PLAN
Solon's Incentive Stock Option Plan (the "Solon Stock Option Plan") was
terminated by the Board on May 3, 1996. In connection with the Merger, the
Company purchased all outstanding options under the Solon Stock Option Plan for
approximately $34,000.
COMPENSATION OF DIRECTORS
Upon consummation of the Offering, each non-employee director shall receive
a $15,000 annual retainer, which shall cover attendance at four quarterly
meetings of the Board, and $500 for any committee meeting attended on a day
other than a Board meeting. Outside directors are also reimbursed for out-of-
pocket expenses incurred in connection with attending meetings. Directors who
are employees of the Company receive no director's compensation.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during fiscal 1995. The
functions of a compensation committee were performed by the Board. The
compensation for the executive officers for fiscal 1995 and for the year ended
March 29, 1996 was fixed by employment agreements between such executive
officers and the Company and/or by the Board. Messrs. Kerrigan and Blatt, each
of whom are executive officers of the Company, served on the Board and
participated in deliberations of the Board concerning executive officer
compensation, except with respect to their own compensation. See " --
Committees of the Board."
COMMITTEES OF THE BOARD OF DIRECTORS
Following the consummation of the Offering, the Board will establish an
Audit Committee and a Compensation Committee.
Audit Committee
The Audit Committee shall consist of three directors, two of whom shall be
independent directors. The Audit Committee will be responsible for policies,
procedures and other matters relating to accounting, internal financial controls
and financial reporting, including the engagement of independent auditors and
the planning, scope, timing and cost of any audit and any other services they
may be asked to perform, and will review with the auditors their report on the
Company's financial statements following completion of each such audit.
Compensation Committee
The Compensation Committee shall consist of three directors, two of
whom shall be independent directors. The Compensation Committee is responsible
for policies, procedures and other matters relating to compensation and benefits
of the executive officers as a group and the chief executive officer
individually.
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<PAGE>
PRINCIPAL STOCKHOLDERS
Prior to the Offering, the Company's authorized capital stock consisted of:
(i) 85,000 shares of Class A common stock, par value $.01 per share ("Class A
Common Stock"), 77,388 of which were issued and outstanding; (ii) 15,000 shares
of Class B common stock, par value $0.01 per share ("Class B Common Stock"),
14,929 of which were issued and outstanding; (iii) 13,243 shares of Class C
common stock, par value $0.01 per share ("Class C Common Stock"), 13,242.915 of
which were issued and outstanding; (iv) 13,243 shares of Class D common stock,
par value $.01 per share ("Class D Common Stock"), no shares of which were
issued and outstanding; (v) 7,612 shares of Class E common stock, par value $.01
per share (the "Class E Common Stock"), 7,612 of which were issued and
outstanding; (vi) 133,901 shares of Class F common stock, par value $.01 per
share (the "Class F Common Stock"), 133,900.985 of which were issued and
outstanding; (vii) 26,833 shares of Class G common stock, par value $.01 per
share ("Class G Common Stock"), 25,100.95 of which were issued and outstanding;
and (viii) 10,000 shares of preferred stock, no shares of which were issued and
outstanding.
The following table sets forth certain information regarding the beneficial
ownership of the Company's equity securities as of the date of this Prospectus
(x) prior to giving effect to the Offering and (y) after giving effect to the
Offering, in each case: (i) by each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) by each current director of
the Company, (iii) by each Named Executive Officer, and (iv) by all officers and
directors of the Company as a group. The numbers of shares shown for each listed
stockholder are based on an assumed initial public offering price of $17.00 per
share (representing the midpoint in the estimated range of the initial public
offering price in the Offering). The allocation of the aggregate number of
outstanding shares of Common Stock among the various stockholders will depend
upon the actual initial public offering price and the actual closing date, which
may vary from such assumptions. Except as otherwise indicated below, management
believes that each of the persons named in the table below has sole voting and
investment power with respect to the securities beneficially owned by it or him
as set forth opposite its or his name.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(2)
---------------------------- -----------------------------
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER PERCENT
BENEFICIAL OWNER SHARES OF
SHARES
- -------------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P...... 4,556,114 72.36% 4,556,114 44.25%
6100 Sears Tower
Chicago, IL 60606
Stephen R. Kerrigan(3)........................... 439,759 6.98% 500,325 4.86%
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
Mitchell Blatt................................... 395,062 6.27% 395,062 3.84%
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
Robert M. Doyle.................................. 108,817 1.73% 122,949 1.19%
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
John E. Denson................................... -- -- 5,653 *
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(2)
----------------------------- ------------------------
NAME AND ADDRESS OF NUMBER OF PERCENT NUMBER PERCENT
BENEFICIAL OWNER SHARES OF
SHARES
- --------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C>
Michael E. Stanky................................ 46,424 * 66,774 *
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
Bruce V. Rauner(4)............................... 4,556,114 72.36% 4,556,114 44.25%
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, IL 60606
David A. Donnini(5).............................. 4,556,114 72.36% 4,556,114 44.25%
Golder, Thoma, Cressey, Rauner Fund IV, L.P.
6100 Sears Tower
Chicago, IL 60606
James N. Chapman................................. 18,883 * 24,536 *
c/o Coinmach Laundry Corporation
55 Lumber Road
Roslyn, NY 11576
All directors and executive officers as a group.. 5,565,059 88.39% 5,682,719 55.19%
(eleven persons)
</TABLE>
- --------------------
* Represents less than 1% of the outstanding Common Stock of the Company.
(1) Based on 6,296,176 shares of Common Stock and Non-Voting Common Stock
outstanding prior to the Offering and after giving effect to the
Reclassification and Stock Split.
(2) Based on 10,296,176 shares of Common Stock and Non-Voting Common Stock
outstanding after the Offering without giving effect to any shares of Common
Stock that may be issued pursuant to the Underwriters' over-allotment
option. Includes, for each party listed, such party's portion of the
Additional Options or MCS Capital Options, as applicable, which are
currently vested and exercisable.
(3) Mr. Kerrigan owns his shares beneficially through MCS Capital, Inc.
(4) All such shares are held by GTCR of which GTCR IV is the general partner.
Mr. Rauner is a principal of Golder, Thoma, Cressey, Rauner, Inc., the
general partner of GTCR IV Mr. Rauner disclaims beneficial ownership of such
shares.
(5) All such shares are held by GTCR of which GTCR IV is the general partner.
Mr. Donnini is a principal of Golder, Thoma, Cressey, Rauner, Inc., the
general partner of GTCR IV Mr. Donnini disclaims beneficial ownership of
such shares.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AND CONSULTING SERVICES AGREEMENTS
On July 26, 1995, the Company and GTCR IV entered into a Management and
Consulting Services Agreement (the "Company Management Agreement"), pursuant to
which the Company engaged GTCR IV as a financial and management consultant to
consult with the Board on such business and financial matters as may have been
reasonably requested from time to time by the Board, including corporate
strategy, budgeting, corporate investments, acquisition and divestiture
strategies and debt and equity financings. The Company was required to pay to
GTCR IV an annual management fee in the amount of $100,000 per year, which
amount was subject to increase from time to time until GTCR IV ceased to own at
least 33% of the outstanding common stock of the Company. Prior to the Merger,
TCC and GTCR IV entered into a Management and Consulting Services Agreement (the
"TCC Management Agreement") on the same terms and conditions as the Company
Management Agreement. In connection with the Merger on November 30, 1995, (i)
the TCC Management Agreement was terminated and (ii) the Company Management
Agreement was amended and restated to provide, among other things, for an annual
management fee of $200,000. GTCR has agreed to terminate the Company Management
Agreement in exchange for $500,000.
STOCKHOLDER AGREEMENTS OF TCC AND THE COMPANY
On January 31, 1995, TCC and the stockholders of TCC at such time entered
into a Stockholders Agreement (the "TCC Stockholders Agreement"). Effective
November 30, 1995, (i) such stockholders received shares of capital stock of the
Company in accordance with the terms and conditions of the Agreement and Plan of
Merger, dated November 30, 1995 (the "Merger Agreement"), and (ii) the TCC
Stockholders Agreement was terminated. The terms of the TCC Stockholders
Agreement were substantially similar to the terms of the SAS Stockholders
Agreement entered into by the Company, GTCR and the SAS Stockholders. The SAS
Stockholders Agreement will terminate upon consummation of the Offering. See
"Management."
In connection with the Offering, the holders of Common Stock of the Company
prior to the Offering, who, after consummation of the Offering will own in the
aggregate approximately 61.2% of the outstanding Common Stock will enter into
the Voting Agreement, providing for, among other things, the designation and
nomination of directors of the Company by such stockholders. See "Management."
Under the Voting Agreement, each of the stockholders party to the Voting
Agreement will agree to vote its shares in favor of the individuals designated
below and to cause such individuals to be selected as nominees to the Board, in
accordance with the Bylaws of the Company, as amended, with the effect that, at
any given time, the directors of the Company shall be comprised of: (i) two
individuals designated by GTCR, (ii) two members of the Company's management or
employees or officers of the Company, in each case, designated by the holders of
a majority of the Common Stock held by the executive officers (the "Executives")
of the Company, which individuals initially shall be Stephen R. Kerrigan (the
"Management Director") and Mitchell Blatt, (iii) one individual to be jointly
designated by GTCR and the Management Director, who initially shall be James N.
Chapman, and (iv) in the case of newly created directorships, such other
individuals as may be designated by a majority of the Board. Each director
nominated by parties to the Voting Agreement may be removed only at the request
of the party who nominated such director. The Voting Agreement terminates at
such time as GTCR and its affiliates cease to own at least 20% of the Common
Stock or the number of directors of the Company decreases below five. The
stockholders who are parties to the Voting Agreement will hold, in the
aggregate, a substantial amount of the voting power of the Company and thus, if
acting in unison or in various combinations, could likely be able to elect a
majority of the directors of the Company even if the Voting Agreement were not
in place.
REGISTRATION RIGHTS AGREEMENTS OF TCC AND THE COMPANY
On July 26, 1995, the SAS Stockholders and the Company entered into a
registration rights agreement (the "Company Registration Agreement") pursuant to
which the SAS Stockholders were granted certain rights with respect to the
registration under the Securities Act, for resale to the public, of their
respective Registrable Securities (as defined in the Company Registration
Agreement). The Company Registration Agreement provides that, among other
things, at any time after the Company has completed an Initial Public Offering
(as defined in the Company Registration Agreement), GTCR has the right to
"demand" registrations under the Securities Act with respect to all or a portion
of GTCR's Registrable Securities. The Company Registration Agreement also
provides for customary provisions regarding: (i) the priority among holders of
securities with respect to the number of shares to be registered pursuant to any
demand or piggyback registration; and (ii) indemnification by the Company of the
holders of Registrable Securities.
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<PAGE>
Other holders of Registrable Securities are entitled to include in such
registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein, subject to certain limitations,
including priority provisions (the "Piggyback Rights"). In connection with the
Offering and conditioned upon the consummation thereof, the holders of the
Registrable Securities have agreed to waive their Piggyback Rights under the
Company Registration Agreement. Additionally, each holder of Registrable
Securities has agreed not to effect any public sale or distribution of such
securities during the seven days prior to and the 180-day period commencing on
the effective date of the Offering (the "Lock-up Period") without the consent of
the Underwriters.
Prior to the Merger, TCC, GTCR and the SAS Stockholders entered into a
Registration Agreement (the "TCC Registration Agreement"), dated as of January
31, 1995. The TCC Registration Agreement provided the parties thereto the same
rights on the same terms and conditions with respect to TCC that such parties
have under the Company Registration Agreement with respect to the Company. In
connection with the Merger, the shareholders of TCC received shares of capital
stock of the Company in accordance with the terms and conditions of the Merger
Agreement, and the TCC Registration Agreement was terminated on November 30,
1995.
CERTAIN LOANS TO MEMBERS OF MANAGEMENT OF SOLON AND TCC
In order to finance, in part, their purchase of shares of Common Stock
(prior to the Reclassification), certain executive officers of the Company
obtained loans from the Company.
On January 31, 1995, promissory notes in the principal amount of $140,000
were executed by each of MCS Capital, Inc. (which was guaranteed by Mr.
Kerrigan) and Mr. Blatt (the "TCC Executive Notes"), in favor of the Company in
connection with the purchase by each of them of 6,000 shares of common stock
(prior to the Reclassification), each as amended by the Omnibus Agreement.
Pursuant to the TCC Executive Notes, each of MCS Capital, Inc. and Mr. Blatt are
obligated to repay such notes in four equal annual installments commencing June
1, 1996. Interest on the TCC Executive Notes accrues at a rate equal to 8% per
annum and is payable at such time as the principal of such notes become due and
payable.
On July 26, 1995, promissory notes in the principal amount of $52,370 were
executed by each of MCS Capital, Inc. (which was guaranteed by Mr. Kerrigan) and
Mr. Blatt (the "Company Executive Notes") in favor of the Company in connection
with the purchase by each of them of 4,000 shares of common stock (prior to the
Reclassification), each as amended by the Omnibus Agreement. Pursuant to the
Company Executive Notes, each of MCS Capital, Inc. and Mr. Blatt are obligated
to repay such notes in eight equal annual installments commencing July 26, 1996.
Interest on the Company Executive Notes accrues at a rate equal to 8% per annum
and is payable at such time as the principal of such notes become due and
payable.
The Board has determined that upon consummation of the Offering, the
Company shall forgive the first of the four equal annual installments of the
indebtedness evidenced by the TCC Executive Notes and the first of the eight
equal annual installments of the indebtedness evidenced by the Company Executive
Notes, including the accrued and unpaid interest thereon, which indebtedness,
including accrued and unpaid interest thereon, aggregates approximately $89,740.
CERTAIN LOANS TO MEMBERS OF MANAGEMENT OF THE COMPANY
In order to finance the establishment of the Company's corporate
development office in Charlotte, North Carolina, the Board may approve loans to
Mr. Kerrigan (in an amount not to exceed $500,000) and to certain other members
of management to cover moving and other related expenses.
GRANT OF OPTIONS
In connection with the Offering, the Board shall approve the granting of
(i) the MCS Capital Options to MCS Capital, Inc., an entity beneficially owned
by Mr. Kerrigan, to purchase up to 302,829 shares of Common Stock (representing
approximately 2.5% of the Common Stock and Non-Voting Common Stock outstanding
after giving effect to the Offering, on a fully diluted basis), and (ii) the
Additional Options to Messrs. Doyle, Stanky, Denson, Siegel, Osborne and Chapman
to purchase up to 70,660; 101,750; 28,264; 28,264; 28,264; and 28,264, shares of
Common Stock, respectively (representing an aggregate of approximately 2.4% of
the Common Stock and Non-Voting Common Stock outstanding after giving effect to
the Offering, on a fully diluted basis). Twenty percent (20%) of each of the
MCS Capital Options and the Additional Options granted upon the consummation of
the Offering will vest on such date, with an additional twenty percent (20%) of
such options vesting on each successive
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anniversary of the date of grant. The MCS Capital Options and Additional
Options are exercisable at any time after vesting at a per share price
representing a 15% discount to the initial public offering price in the
Offering.
INTERCOMPANY LOAN
On July 26, 1995, as part of the financing for the Solon Acquisition, TCC
loaned the Company $2.0 million (the "Company/TCC Loan") at the then-applicable
interest rate contained in the Company's then existing credit facility. As of
March 29, 1996, the principal balance outstanding under the Company's loan
was approximately $1.4 million.
THE COMPANY AND TCC STOCK PURCHASE AGREEMENTS
On January 31, 1995 and July 26, 1995, TCC and the Company, respectively,
entered into Equity Purchase Agreements with GTCR, pursuant to which GTCR became
a securityholder of more than five percent of TCC's and the Company's voting
securities (the "GTCR Purchase Agreements"). In consideration for the issuance
of such voting securities, GTCR paid approximately $10,500,000 to TCC and
approximately $5,517,582 to the Company. In connection with the Merger, the
GTCR Purchase Agreements were subsequently amended by the Omnibus Agreement,
whereby, among other things, (i) obligations of TCC thereunder were assigned to
and assumed by the Company, and (ii) such agreements were in all other respects
amended appropriately to contemplate the transactions effected in connection
with the Merger and Refinancing.
Additionally, the GTCR Purchase Agreements contain certain restrictions on
the Company's ability to, among other things, pay any dividends or make any
distributions upon any of its equity securities or redeem, purchase or acquire
any of the Company's equity securities without the prior written consent of the
holders of a majority of the holders of Investor Stock (as defined in the GTCR
Purchase Agreements). The Company has obtained contents from such holders in
connection with each of the transactions contemplated by the Offering.
On January 31, 1995, TCC, GTCR and each of MCS Capital, Inc., a Delaware
corporation controlled by Mr. Kerrigan ("MCS"), MCS Capital Management, Inc., a
Delaware corporation controlled by Mr. Kerrigan ("MCS Management") and President
and Fellows of Harvard College ("Harvard") entered into Investor Purchase
Agreements, pursuant to which such parties became securityholders of capital
stock of TCC (collectively, the "TCC Management Purchase Agreements"). In
consideration for the issuance of such capital stock, MCS, MCS Management and
Harvard paid $38,805.43, $176,362.00 and $349,972.85, respectively. On July 26,
1995, the Company, GTCR and the SAS Stockholders entered into an Investor
Purchase Agreement, pursuant to which such parties became securityholders of
capital stock of the Company (the "Investor Purchase Agreement", together with
the TCC Management Purchase Agreements, the "Management Purchase Agreements").
In consideration for the issuance of such capital stock pursuant to the Investor
Purchase Agreement, Heller, Jackson National Life Insurance Company and MCS paid
$291,047.06, $261,911.77 and $113,100, respectively. In connection with the
Merger, the Management Purchase Agreements were subsequently amended by the
Omnibus Agreement, whereby, among other things, (i) obligations of TCC
thereunder were assigned to and assumed by the Company, and (ii) such agreements
were in all other respects amended appropriately to contemplate the transactions
effected in connection with the Merger and Refinancing.
ISSUANCE OF PREFERRED STOCK AND COMMON STOCK IN THE RECLASSIFICATION
As part of the reclassification of the Company's issued and outstanding
capital stock in connection with the Offering, holders of Class A Common Stock,
Class E Common Stock and Class F Common Stock will be issued shares of Preferred
Stock (or, in the case of such holders who are members of the Company's
management, Common Stock) representing: (i) the Unpaid Yield with respect to the
Preferred Shares in an aggregate amount of $1,793,439; plus (ii) the Preferred
Investment with respect to the Preferred Shares in an aggregate amount of
$17,339,062. See "Description of Capital Stock -- The Reclassification and Stock
Split." Set forth below are the number of shares of Preferred Stock and Common
Stock, after giving effect to the Reclassification and the Stock Split, to be
issued to the holders listed below of the Preferred Shares:
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Stockholder Preferred Stock Common Stock
GTCR 924.5 --
Heller Financial, Inc. 16.4 --
Jackson National Life Insurance Company 16.4 --
James N. Chapman 3.8 --
MCS Capital, Inc. -- 13,779
Mitchell Blatt -- 5,739
Robert M. Doyle -- 1,741
Michael E. Stanky -- 2,058
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DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon completion of the Offering, the total amount of authorized capital
stock of the Company will consist of (i) 1,000 shares of Preferred Stock, all of
which will be issued and outstanding immediately prior to the Offering and
subsequently redeemed in connection with the Offering, see "Use of Proceeds,"
(ii) 15,000,000 shares of Common Stock, of which 9,815,528 shares will be issued
and outstanding, and (iii) 1,000,000 shares of Non-Voting Common Stock, of which
480,648 shares will be issued and outstanding prior to giving effect to the
exercise of any options to purchase Non-Voting Common Stock granted by the
Company. The Company's Second Amended and Restated Certificate of Incorporation
and Second Amended and Restated Bylaws, upon stockholder approval, will become
effective upon consummation of the Offering. The discussion herein describes the
Company's capital stock and certain material provisions of the Second Amended
and Restated Certificate of Incorporation and the Second Amended and Restated
Bylaws anticipated to be in effect upon consummation of the Offering. The
following discussion does not purport to be complete and is subject to, and
qualified in its entirety by, the Second Amended and Restated Certificate of
Incorporation and the Second Amended and Restated Bylaws of the Company that are
included as exhibits to the Company's Form S-1 Registration Statement filed
under the Securities Act (the "Registration Statement") of which this Prospectus
forms a part and by the provisions of applicable law.
PREFERRED STOCK
As part of the reclassification of the Company's issued and outstanding
capital stock to take place immediately prior to and contingent upon
consummation of the Offering, the Company shall issue an aggregate of 1,000
shares of Preferred Stock, having the rights, preferences and limitations set
forth in the Company's Certificate of Powers, Designations, Preferences and
Relative, Participating, Optional and other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions thereof. Holders of Preferred
Stock are entitled to (i) cumulative dividends, based upon an 8% yield on the
stated amount of such Preferred Stock before any dividends may be paid on the
Common Stock and (ii) a liquidation preference equal to the stated amount of
such Preferred Stock upon liquidation of the Company. The shares of Preferred
Stock are redeemable at the Company's option at any time and are expected to be
redeemed by the Company from a portion of the net proceeds received by the
Company from the Offering in an aggregate amount of $19,132,501. See "Use of
Proceeds" and "-- The Reclassification and Stock Split."
In accordance with the provisions of the Company's Second Amended and
Restated Certificate of Incorporation, the Board may, without further action by
the Company's stockholders, from time to time, direct the issuance of shares of
preferred stock in one or more series and may, at the time of issuance,
determine the rights, preferences and limitations of each series. Satisfaction
of any dividend preferences of outstanding shares of preferred stock (including
the Preferred Stock to the extent not fully redeemed after the Offering) would
reduce the amount of funds available for the payment of dividends on shares of
Common Stock and Non-Voting Common Stock. Holders of shares of preferred stock
(including the Preferred Stock) to the extent not fully redeemed after the
Offering) may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding-up of the Company before any distribution is
made to the holders of shares of Common Stock and Non-Voting Common Stock.
Under certain circumstances, the issuance of shares of preferred stock may
render more difficult or tend to discourage or delay a merger, tender offer or
proxy contest, the assumption of control by a holder of a large block of the
Company's securities or the removal of incumbent management. The Board, without
stockholder approval, may issue shares of preferred stock with voting and
conversion rights which could adversely affect the holders of Common Stock and
Non-Voting Common Stock. The Company has no present intention of issuing any
shares of preferred stock in the foreseeable future.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the election
of directors and on all other matters submitted to a vote of stockholders and do
not have cumulative voting rights. Holders of a majority of the shares of
Common Stock voting for the election of directors therefore can elect all of the
directors of the Company.
Following consummation of the Offering, the shares of Common Stock will not
be redeemable, and the holders thereof will have no preemptive or conversion
rights or other subscription rights to purchase any securities of the Company.
There are also no redemption or sinking fund provisions applicable to the Common
Stock. All
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shares of Common Stock to be outstanding upon completion of the Offering
contemplated by this Prospectus will be validly issued, fully paid and non-
assessable.
Subject to preferences that may be applicable to any outstanding preferred
stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. See "Dividend Policy." In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to receive, after payment of the Company's debts and
liabilities, the remaining assets of the Company on a ratable basis. This
right, however, is subject to: (i) any prior liquidation rights of preferred
stock then outstanding (to the extent such rights are designated by the Board)
and (ii) any rights of holders of preferred stock to share ratably with holders
of Common Stock in all assets remaining after payment of liabilities and
liquidation preferences (to the extent such rights are designated by the Board).
The Company has applied to list the Common Stock for quotation on the
Nasdaq National Market under the trading symbol "WDRY." Prior to the Offering,
there has been no public market for the Common Stock, and no assurance can be
given that a significant public market for the Common Stock will develop or be
sustained after the Offering.
NON-VOTING COMMON STOCK
Except as required by applicable law, the holders of Non-Voting Common
Stock are not entitled to vote in the election of directors or on any other
matters submitted to a vote of stockholders. Except for the restrictions on
ownership, voting and conversion, the Non-Voting Common Stock is substantially
similar to the Common Stock.
THE RECLASSIFICATION AND STOCK SPLIT
Prior to the consummation of the Offering, the Company shall approve a
reclassification (the "Reclassification") of the Company's capital stock
pursuant to which all of the issued and outstanding capital stock of the Company
will be converted into shares of Preferred Stock, Common Stock and Non-Voting
Common Stock, in each case, in the manner set forth in a reclassification
agreement among the Company and its stockholders.
Pursuant to the Company's certificate of incorporation in effect prior to
the Offering, holders of Class A Common Stock, Class E Common Stock and Class F
Common Stock (together, the "Preferred Shares") were entitled to receive, on a
ratable basis, distributions (any such distribution, a "Distribution") on such
Preferred Shares in the following manner: (i) first, an amount equal to the
accrued yield (at a rate of 8% per annum, compounded quarterly) on the
respective unreturned original value (original basis in investment) of such
Preferred Shares on the date such Distribution is made (the "Unpaid Yield");
(ii) second, an amount equal to the respective unreturned original value
(original basis in investment) of such Preferred Shares (the "Preferred
Investment"); and (iii) third, the balance, if any, of such Distribution ratably
with all other classes of the Company's common stock. In order to preserve the
Unpaid Yield and the Preferred Investment to which certain holders of Preferred
Shares are entitled, the Company shall issue to such holders shares of Preferred
Stock representing: (i) the Unpaid Yield in an aggregate amount of $1,793,439;
plus (ii) the Preferred Investment in an aggregate amount of $17,339,062.
Holders of Preferred Shares (other than members of the Company's
management, who shall receive additional shares of Common Stock in respect of
their Unpaid Yield and Preferred Investment) shall realize the economic value of
the Unpaid Yield and the Preferred Investment through a redemption of the
Preferred Stock from a portion of the proceeds of the Offering. See "Use of
Proceeds." Additionally, all holders of Preferred Shares shall receive an
equivalent number of shares of Common Stock (or Non-Voting Common Stock) in
connection with the Reclassification.
The Company shall also approve an approximate 23.0-to-1 stock split in
connection with the Reclassification (the "Stock Split"), effected in the form
of a stock dividend, payable to stockholders of record on June 15, 1996.
Without giving effect to the Offering, and as adjusted by the Reclassification
and Stock Split, there shall be issued and outstanding (i) 1,000 shares of
Preferred Stock, (ii) 5,713,182 shares of Common Stock, and (iii) 480,648 shares
of Non-Voting Common Stock.
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PAYMENT OF DIVIDENDS ON THE COMMON STOCK
Subject to the prior rights of the holders of any Preferred Stock, the
holders of outstanding shares of Common Stock and Non-Voting Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. See
"Dividend Policy."
CERTAIN PROVISIONS OF THE SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND SECOND AMENDED AND RESTATED BYLAWS AND STATUTORY PROVISIONS
The Second Amended and Restated Certificate of Incorporation to be
effective upon consummation of the Offering and the Second Amended and Restated
Bylaws of the Company contain provisions that could have an anti-takeover
effect. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board and in the policies formulated by
the Board and to discourage certain types of transactions which may involve an
actual or threatened change of control of the Company. The provisions are
designed to reduce the vulnerability of the Company to an unsolicited takeover
proposal that does not contemplate the acquisition of all its outstanding shares
or an unsolicited proposal for the restructuring or sale of all or part of the
Company.
The Second Amended and Restated Certificate of Incorporation will provide
that the Board will be divided into three classes, with each class, after a
transitional period, serving for three years, and one class being elected each
year. A majority of the remaining directors then in office, though less than a
quorum, or the sole remaining director, will be empowered to fill any vacancy on
the Board which arises during the term of a director. The provision for a
classified Board may be amended, altered or repealed only upon the affirmative
vote of the holders of at least 80% of the outstanding shares of the voting
stock of the Company. The classification of the Board may discourage a third
party from making a tender offer or otherwise attempting to gain control of the
Company and may have the effect of maintaining the incumbency of the Board.
Since the Board has the power to retain and discharge officers of the Company,
these provisions could also make it more difficult for existing shareholders or
another party to effect a change in management.
The Second Amended and Restated Certificate of Incorporation will require
that any action required or permitted to be taken by the Company's stockholders
must be effected at a duly called annual or special meeting of stockholders and
may not be effected in lieu thereof by written consent unless a majority of the
Board approves the use of such written consent with respect to the taking of
such action. This provision makes it difficult for stockholders to initiate or
effect an action by written consent, and thereby effect an action opposed by the
Board. Additionally, the Second Amended and Restated Certificate of
Incorporation will require that special meetings of the stockholders of the
Company be called by the chairman of the Board, the president of the Corporation
or the Board pursuant to a resolution adopted by the affirmative vote of at
least two members of the Board then in office.
The Second Amended and Restated Bylaws will provide that stockholders
seeking to bring business before or to nominate directors at any annual meeting
of stockholders must provide timely notice thereof in writing. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days nor more than
90 days prior to such meeting or, if less than 70 days' notice was given for the
meeting, within 10 days following the date on which such notice was given. The
Second Amended and Restated Bylaws also will specify certain requirements for a
stockholder's notice to be in proper written form. These provisions will
restrict the ability of stockholders to bring matters before the stockholders or
to make nominations for directors at meetings of stockholders.
The Second Amended and Restated Certificate of Incorporation further
provides that the Board, by a majority vote, may adopt, alter, amend or repeal
provisions of the Second Amended and Restated Bylaws. However, stockholders may
only adopt, alter, amend or repeal provisions of the Second Amended and Restated
Bylaws by a vote of 66% or more of the outstanding Common Stock, except for
certain provisions which shall require a vote of 75% or more of the outstanding
Common Stock.
Following the consummation of the Offering, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any Interested
Stockholder (defined as a person who, together with its affiliates and
associates, owns (or within the three prior years did own) 15% or more of the
corporation's outstanding voting stock) for a period of three years after the
date of the transaction in which the person became an Interested Stockholder,
unless (i) the transaction is approved by the Board prior to the date the
Interested Stockholder obtained such status, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting
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stock of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned by (a) persons who are directors and also officers and (b) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer, or (iii) on or subsequent to such date the "business
combination" is approved by the Board and authorized at an annual or special
meeting of stockholders by the affirmative vote of at least 66 2/3% of the
outstanding Common Stock which is not owned by the Interested Stockholder. A
"business combination" is defined to include mergers, asset sales and other
transactions resulting in financial benefit to a stockholder. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company. See "Risk Factors -- Anti-Takeover Considerations."
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, there will be 9,815,528 shares of Common
Stock and 480,648 shares of Non-Voting Common Stock outstanding prior to giving
effect to the exercise of the options granted by the Company. The 4,000,000
shares of Common Stock sold in the Offering will be freely tradeable without
restriction or further registration under the Securities Act, unless held by an
"affiliate" of the Company as that term is defined in Rule 144 under the
Securities Act, which shares will be subject to the resale limitations of Rule
144. Of the outstanding shares of Common Stock and Non-Voting Common Stock,
6,296,176 will not have been registered under the Securities Act and may not be
sold unless they are registered or unless an exemption from registration is
available such as the exemption provided by Rule 144 or, to the extent
applicable, Rule 701. All of such unregistered shares would be eligible for
sale on expiration of a 180 day lockup period, subject to certain volume and
other resale limitations under Rule 144.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least two years is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) one percent of then outstanding
Common Stock and Non-Voting Common Stock (93,525 shares of Common Stock
immediately after the Offering without giving effect to additional shares issued
pursuant to the Underwriters' over-allotment option) or (ii) the average weekly
reported trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is filed pursuant to Rule 144.
Sales under Rule 144 are also subject to certain provisions regarding the manner
of sale, notice requirements and the availability of current public information
about the Company. A stockholder (or stockholders whose shares are aggregated)
who is not an affiliate of the Company for at least 90 days prior to a sale and
who has beneficially owned "restricted securities" for at least three years is
entitled to sell such shares under Rule 144 without regard to the limitations
described above. In June 1995, the Commission proposed shortening such three-
year holding period to two years and the two-year holding period to one year.
In general, under Rule 701 under the Securities Act, as currently in
effect, any employee, officer, or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
is entitled to rely on the resale provisions of Rule 701. Such provisions
permit nonaffiliates to sell their Rule 701 shares without having to comply with
the public information, holding period, volume limitation, or notice provisions
of Rules 144 and permit affiliates to sell their Rule 701 shares without having
to comply with the Rule 144 holding period restrictions.
The Company, its executive officers and directors, its pre-Offering
stockholders and certain other members of management of the Company who are
stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or rights to acquire such shares or
securities convertible into or exchangeable for Common Stock other than sales
contemplated hereby or issued or to be issued pursuant to employee stock option
plans or in connection with other employee incentive compensation arrangements
or agreements, in each case in effect on the date of this Prospectus, for a
period of 180 days after the date of this Prospectus, without the prior written
consent of Lehman Brothers, Inc., as a representative of the Underwriters.
Pursuant to the Company Registration Agreement, the pre-Offering
stockholders of the Company, who will hold in the aggregate 6,296,176 shares of
Registrable Securities following the Offering, are entitled to certain
registration rights. At any time following the Offering, GTCR may request
registration of all or a portion of the Registrable Securities it holds on Form
S-1 (a "Long-Form Registration") and may request registration on Form S-2 or S-3
("Short-Form Registration"), if available. GTCR is entitled to request up to
four Long-Form Registrations and an unlimited number of Short-Form
Registrations. The Company is responsible for all registration expenses in
connection with all such registrations. Additionally, if the Company proposes
to register any of its Common Stock under the Securities Act, whether for its
own account or otherwise, all holders of Registrable Securities are entitled to
notice of such registration and, subject to certain priority provisions, are
entitled to include their Registrable Securities in such registration. The
registration expenses of the holders of Registrable Securities would be paid by
the Company in all such registrations. The holders of Registrable Securities
have agreed to waive their rights under the Company Registration Agreement to
include their Registrable Securities in the Offering. Additionally, each holder
of Registrable Securities has agreed not to effect any public sale or
distribution of such securities during the Lock-up Period.
Prior to the Offering, there has been no public market for shares of Common
Stock, and no assurance can be given that such a market will develop or, if it
develops, will be sustained after the Offering or that the purchasers
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of the shares will be able to resell such shares at a price higher than the
initial public offering price or otherwise. If such a market develops, no
prediction can be made as to the effect, if any, that future sales of shares, or
the availability of shares for future sale, to the public will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market, whether such shares
are presently outstanding or subsequently issue, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through an offering of its equity securities. The Company cannot predict
when or how many of such additional shares of Common Stock may be offered for
sale or sold to the public in the future. See "Risk Factors -- Shares Eligible
for Future Sale."
UNDERWRITING
The underwriters of the Offering of the Common Stock (the "Underwriters"),
for whom Lehman Brothers Inc., Dillon, Read & Co. Inc., Fieldstone FPCG
Services, L.P. and Lazard Freres & Co. LLC are serving as representatives, have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement (the "Underwriting Agreement") (the form of which is filed as an
exhibit to the Registration Statement of which this Prospectus is a part), to
purchase from the Company and the Company has agreed to sell to each
Underwriter, the aggregate number of shares of Common Stock set forth opposite
their respective names below:
NUMBER
UNDERWRITERS OF SHARES
- -------------------------------- ---------
Lehman Brothers Inc.
Dillon, Read & Co. Inc..........
Fieldstone FPCG Services, L.P...
Lazard Freres & Co., LLC........
Total...........................
---------
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase shares of Common Stock are subject to certain
conditions and that if any of the shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, all shares of Common Stock
agreed to be purchased by the Underwriters pursuant to the Underwriting
Agreement must be so purchased.
The Company has been advised that the Underwriters propose to offer the
shares of Common Stock directly to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain selected
dealers (who may include the Underwriters) at such public offering price, less a
selling concession not in excess of $ per share. The Underwriters may
allow, and the selected dealers may reallow, a concession not in excess of $
per share to certain other brokers and dealers. After the initial public
offering of the Common Stock, the concession to selected dealers and the
reallowance to other dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 600,000 shares of Common Stock at the public offering price less the
aggregate underwriting discounts and commissions shown on the cover page of this
Prospectus solely to cover over-allotments, if any. The option may be exercised
at any time up to 30 days after the date of this Prospectus. To the extent that
the Underwriters exercise such option, the Underwriters will be committed
(subject to certain conditions) to purchase a number of option shares
proportionate to such Underwriter's initial commitment.
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Of the shares of Common Stock offered hereby, 200,000 shares have been
reserved (the "Reserved Shares") for sale to certain individuals, including
employees of the Company and members of their families. The Reserved Shares will
be sold at a price per share equal to the Price to Public set forth on the cover
page of this Prospectus. The number of shares available to the general public
will be reduced to the extent those persons purchase Reserved Shares. Any shares
not so purchased will be offered in the Offering at the Price to Public set
forth on the cover page of this Prospectus.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
The Company has applied to list the Common Stock for quotation on the
Nasdaq National Market under the trading symbol "WDRY."
The Underwriters have informed the Company that they do not intend to
confirm sales to any account over which they exercise discretionary authority.
The Company, its existing stockholders and each of the directors and
executive officers of the Company have agreed not to offer, sell or contract to
sell, or otherwise dispose of, or announce the offering of, any shares of Common
Stock, or any securities convertible into, or exchangeable for, shares of Common
Stock, except the shares of Common Stock offered hereby, for a period of 180
days from and after the date of this Prospectus without the prior written
consent of Lehman Brothers Inc.
From time to time, certain of the Underwriters or their affiliates may
provide investment banking services to the Company. Lazard Freres & Co. LLC
served as dealer manager and initial purchaser in connection with the exchange
offer and debt offering for the Refinancing in November 1995, for which it
received customary fees. Fieldstone FPCG Services, L.P. ("Fieldstone") served as
dealer manager in connection with the exchange offer, for which it received
customary fees. Fieldstone also has provided, and may continue to provide,
financial advisory services to the Company. Upon consummation of the Offering, a
member of Fieldstone will receive from the Company a portion of the Additional
Options to purchase an aggregate of 28,264 shares of Common Stock.
James N. Chapman, a former principal of Fieldstone who resigned from
Fieldstone effective May 30, 1996, is a director of the Company. See
"Management"; "Principal Stockholders"; and "Certain Relationships and Related
Transactions -- Grant of Options; Issuance of Preferred Stock and Common Stock
in the Reclassification."
Prior to this Offering there has been no public market for the Common
Stock. The initial public offering price for the Common Stock offered hereby
will be determined by negotiation between the Company and the Underwriters and
will be based on, among other things, the Company's financial and operating
history and condition, the prospects of the Company and its industry in general,
the management of the Company and the market prices of securities of companies
engaged in businesses similar to those of the Company.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby have been passed
upon for the Company by Anderson Kill Olick & Oshinsky, P.C., New York, New York
and for the Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York. Upon consummation of the
Offering, a member of Anderson Kill Olick & Oshinsky, P.C. will receive a
portion of the Additional Options from the Company to purchase 56,528 shares of
Common Stock.
EXPERTS
The combined consolidated financial statements of the Company as of March
29, 1996 and for the six month transition period then ended and as of September
29, 1995 and for the period from April 5, 1995 to September 29, 1995, and the
combined and consolidated financial statements of Coinmach (formerly Solon) at
September 29, 1995 and for the year then ended included in this Prospectus and
Registration Statement have been
-58-
<PAGE>
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of CIC as of December 31, 1994 and for each of the
years in the two-year period ended December 31, 1994, and as of and for the one
month period ended January 31, 1995, and the financial statements of TCC as of
and for the two-month period ended March 31, 1995, included in this Prospectus
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their reports with respect thereto and are included
in this Prospectus and Registration Statement in reliance upon such reports
given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Solon as of September 30, 1994, and for each of
the two fiscal years then ended, included in this Prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto and is included in this Prospectus and in the
Registration Statement in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement
relating to the Common Stock being offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. Statements contained in this
Prospectus concerning the provisions of documents filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the applicable document
filed as an exhibit to the Registration Statement. For further information with
respect to the Company and the shares of Common Stock offered hereby, reference
is made to the Registration Statement, including the exhibits and schedules
thereto. Copies of the Registration Statement, including the exhibits and
schedules thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; at its Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and at its New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the public reference section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the prescribed
rates. For further information pertaining to the Company and the Common Stock
being offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof.
As a result of the Offering, the Company will become subject to the
informational and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Commission.
-59-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
COINMACH LAUNDRY CORPORATION
- ----------------------------
Combined consolidated balance sheets of Coinmach Laundry Corporation and Subsidiaries
as of March 29, 1996 and September 29, 1995, and the related combined consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
the six-month transition period ended March 29, 1996 and the period from April 5, 1995
to September 29, 1995 with accompanying notes and Report of Independent Auditors
thereon............................................................................... F-2
COINMACH CORPORATION (formerly Solon Automated Services, Inc.)
- --------------------------------------------------------------
Combined and consolidated balance sheets of Coinmach Corporation (formerly
Solon) as of September 29, 1995 and September 30, 1994 and related combined and
consolidated statements of operations, shareholders' equity (deficit) and cash flows for
each of the years in the three years ended September 29, 1995 with accompanying notes and
Reports of Independent Auditors thereon.................................................. F-25
TCC (as successor to CIC)
- -------------------------
Consolidated balance sheets of CIC as of December 31, 1994 and related
consolidated statements of operations, stockholders' equity (deficiency) and cash
flows for each of the years in the two-year period ended December 31, 1994 with
accompanying notes and Independent Auditors' Report thereon............................... F-52
Consolidated balance sheet of CIC as of January 31, 1995 and related consolidated
statements of operations and accumulated deficit and cash flows for the
month ended January 31, 1995 with accompanying notes and Independent Auditors'
Report thereon........................................................................... F-67
Consolidated balance sheet of TCC as of March 31, 1995 and related consolidated
statements of operations and accumulated deficit and cash flows for the two
months ended March 31, 1995 with accompanying notes and Independent Auditors'
Report thereon........................................................................... F-81
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors of
Coinmach Laundry Corporation
We have audited the accompanying combined consolidated balance sheets of
Coinmach Laundry Corporation and Subsidiaries (the "Company") as of March 29,
1996 and September 29, 1995, and the related combined consolidated statements of
operations, shareholders' equity (deficit), and cash flows for the six-month
transition period ended March 29, 1996 and the period from April 5, 1995 to
September 29, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined consolidated financial position of Coinmach
Laundry Corporation and Subsidiaries at March 29, 1996 and September 29, 1995,
and the combined consolidated results of its operations and its cash flows for
the six-month transition period ended March 29, 1996 and for the period from
April 5, 1995 to September 29, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Melville, NY
May 3, 1996, except for Note 11, as
to which the date is June , 1996
________________________________________________________________________
The foregoing report is the form that will be signed upon the completion of the
restatement of capital accounts described in Note 11 to the combined
consolidated financial statements.
Melville, NY
June 14, 1996
F-2
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Combined Consolidated Balance Sheets
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 29, SEPTEMBER 29,
1996 1995
--------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 19,858 $ 10,311
Receivables, less allowance of $454
and $360 5,758 4,392
Inventories 4,443 3,902
Prepaid expenses 2,641 2,084
Advance rental payments 20,320 19,772
Property and equipment:
Laundry equipment and fixtures 89,394 81,599
Land, building and improvements 10,965 8,027
Trucks and other vehicles 1,849 1,400
--------------------------
102,208 91,026
Less accumulated depreciation 19,509 10,320
--------------------------
Net property and equipment 82,699 80,706
Contract rights, net of accumulated
amortization of $8,925 and $4,869 59,745 63,801
Goodwill, net of accumulated
amortization of $2,386 and $1,226 44,071 45,231
Other assets, principally debt issuance 9,613 11,234
costs
--------------------------
Total assets $249,148 $241,433
==========================
</TABLE>
F-3
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Combined Consolidated Balance Sheets (continued)
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 29, SEPTEMBER 29,
1996 1995
---------------------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
<S> <C> <C>
Accounts payable $ 6,085 $ 6,278
Accrued commissions 7,380 8,456
Accrued interest 7,745 4,551
Other accrued expenses 7,557 10,316
Deferred income taxes 18,924 25,277
12 3/4% senior notes 5,000 99,000
11 3/4% senior notes 196,655 --
13 3/4% senior subordinated
debentures, net of unamortized
discount of $1,326 -- 28,674
Long-term credit facility -- 42,880
Other long-term debt 1,110 5,861
Shareholders' equity:
Common stock 62 22
Capital in excess of par value 17,841 17,881
Accumulated deficit (18,719) (7,271)
---------------------------
(816) 10,632
Receivables from shareholders (492) (492)
---------------------------
Total shareholders' (deficit) equity (1,308) 10,140
---------------------------
Total liabilities and shareholders'
(deficit) equity $249,148 $241,433
===========================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Combined Consolidated Statements of Operations
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
SIX-MONTH
TRANSITION APRIL 5, 1995
PERIOD ENDED TO
MARCH 29, SEPTEMBER 29,
1996 1995
---------------------------
<S> <C> <C>
Revenues $ 89,070 $89,719
Costs and expenses:
Laundry operating expenses 60,536 62,905
Depreciation and amortization 18,212 18,423
General and administrative 1,844 2,351
Restructuring costs -- 2,200
---------------------------
80,592 85,879
---------------------------
Operating income 8,478 3,840
Interest expense, net 11,999 11,818
---------------------------
Loss before income taxes and (3,521) (7,978)
extraordinary item
---------------------------
Provision (benefit) for income taxes:
Currently payable 50 420
Deferred (1,048) (2,282)
---------------------------
(998) (1,862)
---------------------------
Loss before extraordinary item (2,523) (6,116)
Extraordinary item, net of income tax (8,925) --
benefit of $5,305 --
Net loss $(11,448) $(6,116)
===========================
Pro forma loss per share:
Before extraordinary item $ (.33) $(.81)
Extraordinary item (1.19) --
Pro forma net loss per share $ (1.52) $(.81)
===========================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Combined Consolidated Statements of Shareholders' Equity (Deficit)
(In thousands of dollars, except par value and shares)
<TABLE>
<CAPTION>
Balance Balance Recapitalization Balance
April 5, Net September Net of common March 29,
1995 loss 29, 1995 loss stock 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A common stock, par value $.01:
Authorized shares -- 1,959,021
Issued shares, end of period -- 1,959,021
and 1,783,584 $ 19 $ -- $ 19 $ -- $ (1) $ 18
Class B common stock, par value $.01:
Authorized shares -- 345,710
Issued shares, end of each period -- 265,044 3 -- 3 -- -- 3
Class C common stock, par value $.01:
Authorized shares -- 305,212
Issued shares, end of period -- 0 and 305,212 -- -- -- -- 3 3
Class D common stock, par value $.01:
Authorized shares -- 305,212
Issued shares, end of each period -- 0 -- -- -- -- -- --
Class E common stock, par value $.01:
Authorized shares -- 175,436
Issued shares, end of period -- 0 and 175,436 -- -- -- -- 2 2
Class F common stock, par value $.01:
Authorized shares -- 3,086,045
Issued shares, end of period -- 0
and 3,086,045 -- -- -- -- 30 30
Class G common stock, par value $.01:
Authorized shares -- 618,428
Issued shares, end of period -- 0 and 578,509 -- -- -- 6 6
Preferred stock, par value $.01:
10,000 authorized, none issued -- -- -- -- --
Capital in excess of par value 17,881 -- 17,881 -- (40) 17,841
Accumulated deficit (1,155) (6,116) (7,271) (11,448) -- (18,719)
------------------------------------------------------------------------------------
16,748 (6,116) 10,632 (11,448) -- (816)
Receivables from shareholders (492) -- (492) -- -- (492)
------------------------------------------------------------------------------------
Total shareholders' equity (deficit) $16,256 $(6,116) $10,140 $(11,448) $ -- $ (1,308)
====================================================================================
See accompanying notes.
</TABLE>
F-6
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Combined Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
SIX-MONTH APRIL 5,
TRANSITION 1995
PERIOD ENDED TO
MARCH 29, SEPTEMBER 29,
1996 1995
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(11,448) $ (6,116)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 18,212 18,423
Deferred income taxes (1,048) (2,000)
Amortization of debt discount and deferred issue costs 508 735
Extraordinary item, net of taxes 8,925 --
Decrease (increase) in other assets 24 (1,054)
Increase in receivables, net (1,489) (197)
(Increase) decrease in inventories and prepayments (1,100) 930
Decrease in accounts payable (6) (610)
Increase (decrease) in accrued interest 3,193 (25)
(Decrease) increase in other accrued expenses, net (3,434) 1,980
------------------------
Net cash provided by operating activities 12,337 12,066
------------------------
INVESTING ACTIVITIES
Additions to property and equipment (10,757) (9,550)
Advance payments to location owners (3,462) (3,569)
Acquisition of net assets of Solon -- (11,925)
Sales of property and equipment 57 5
------------------------
Net cash used in investing activities (14,162) (25,039)
------------------------
FINANCING ACTIVITIES
Proceeds from issuance of 11 3/4% senior notes 65,835 --
Net (repayments) borrowings of bank and other borrowings (48,053) 6,126
Principal payments of capitalized lease obligations (262) (143)
Deferred debt issuance costs (5,397) --
Debt extinguishment costs (751) --
Loans to shareholders -- (154)
Sale of common stock -- 6,681
------------------------
Net cash provided by financing activities 11,372 12,510
------------------------
Net increase (decrease) in cash and cash equivalents 9,547 (463)
Cash and cash equivalents, beginning of period 10,311 10,774
------------------------
Cash and cash equivalents, end of period $ 19,858 $ 10,311
========================
See accompanying notes.
</TABLE>
F-7
<PAGE>
Coinmach Laundry Corporation and Subsidiaries
Notes to Combined Consolidated Financial Statements
March 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The accompanying consolidated financial statements of Coinmach Laundry
Corporation (formerly SAS Acquisitions, Inc.) and Subsidiaries (the "Company"),
include the accounts of its wholly-owned subsidiary, Coinmach Corporation and
Subsidiaries, formerly Solon Automated Services, Inc. ("Solon") combined with
the consolidated accounts of The Coinmach Corporation ("TCC"). The Company was
formed on April 5, 1995, at which time it acquired Solon, and is controlled by
Golder Thoma Cressey Rauner ("GTCR"). TCC was formed in January 1995 by an
investor group, comprised principally of the same investors who formed the
Company, and acquired Coinmach Industries Co. ("Industries") and Super Laundry
Equipment Co. L.P. ("Super Laundry") on January 31, 1995 (the "TCC
Acquisition"). Both the Solon Acquisition and the TCC Acquisition were accounted
for as purchases and, accordingly, the acquired assets and liabilities were
recorded at their estimated fair values at the respective acquisition dates.
As described in Note 2, Solon completed a merger with TCC on November 30, 1995.
This transaction was accounted for in a manner similar to a pooling of
interests. As a result of the common investor group's control over both Solon
and TCC, the accompanying consolidated financial statements have been prepared
to reflect the accounts of the Company, Solon and TCC and their wholly-owned
subsidiaries on a combined basis since the date of common control, April 5,
1995.
The Company is primarily engaged in providing coin-operated laundry equipment
services to multi-family housing complexes throughout much of the United States.
The Company owns and operates over 220,000 coin-operated washers and dryers on
routes in over 20,000 multi-family housing units in 20 states and the District
of Columbia. Such routes are located throughout the Northeast, Mid-Atlantic,
Southeast, South-Central and Mid-West regions of the United States. The Company,
through its subsidiary, Super Laundry, also is a supplier of coin-operated
laundromat equipment and turnkey laundromat retail stores in the New York
Metropolitan area.
F-8
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All material intercompany accounts and transactions have been eliminated in
combination and consolidation.
FISCAL YEAR
Prior to the merger of Solon and TCC, the Company's fiscal year was the fifty-
two or fifty-three week period which ended on the Friday nearest September 30th.
Effective with the merger of Solon and TCC, the Company changed its fiscal year
end to the Friday in March nearest to March 31. The period from April 5, 1995 to
September 29, 1995 is referred to as "1995", while the period from September 30,
1995 to March 29, 1996 is referred to as "1996T."
RECOGNITION OF LAUNDRY REVENUES
The Company has agreements with various property owners which provide for the
Company's installation and operation of laundry machines at various locations in
return for a commission. These agreements provide for both contingent
(percentage of revenues) and fixed commission payments. The Company reports
revenues from laundry machines on the accrual basis and has accrued the cash
computed to be in the machines at the end of the fiscal period.
Super Laundry's customers generally sign sales contracts pursuant to which Super
Laundry constructs and equips complete laundromat operations, including location
identification, construction, plumbing, electrical wiring and all required
permits. Revenue is recognized on the completed contract method. A contract is
considered complete when all costs have been incurred and either the
installation is operating according to specifications or has been accepted by
the customer. The duration of such contracts is normally less than six months.
Sales of laundromats were approximately $7.8 million and $7.9 million in 1996T
and 1995, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
F-9
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
MARCH 29, SEPTEMBER 29,
1996 1995
-------------------------------
Machine repair parts $2,384 $1,941
Laundry equipment 2,059 1,961
-------------------------------
$4,443 $3,902
===============================
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated on a straight-
line basis over the following estimated useful lives:
Laundry equipment and fixtures 3 to 10 years
Improvements 4 to 10 years
Trucks and other vehicles 3 to 4 years
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and the
resulting gain or loss is included in income. Maintenance and repairs are
charged to operations currently, and replacements of laundry machines and
significant improvements are capitalized.
Depreciation expense was $9.4 million and $9.5 million for 1996T and 1995,
respectively.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets acquired
arising from the purchase of Solon on April 5, 1995 (see Note 2) and is being
amortized over 20 years. Management periodically evaluates the realizability of
the goodwill balance based upon
F-10
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Company's expectations of nondiscounted cash flows and operating income.
Based upon present operations and strategic plans, management believes that no
impairment of goodwill has occurred.
CONTRACT RIGHTS
Contract rights represent amounts expended for location contracts arising from
the acquisition of laundry machines on location. These amounts, which arose
solely from purchase price allocations, are amortized on a straight-line basis
over the period of expected benefit ranging from 3 to 15 years based on
independent appraisals.
ADVANCE RENTAL PAYMENTS
Advance payments to location owners are amortized on a straight-line basis over
the contract term, which generally ranges from 5 to 10 years.
INTEREST EXPENSE
Interest expense is reported net of interest income of $277,000 and $148,000 for
1996T and 1995, respectively.
PRO FORMA LOSS PER SHARE
Pro forma loss per share was calculated based upon the weighted average number
of common shares outstanding giving effect to the transactions discussed in Note
11. Weighted average shares outstanding were 7,527,334 for 1996T and 1995.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("Statement 109"). Statement
109 requires the asset and liability method of accounting for income taxes.
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Statement 109 requires that any
tax benefits recognized for net operating loss carryforwards and other items be
reduced by a valuation allowance where it is more likely than not that the
benefits may not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
F-11
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
which those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("Statement 121"), which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company was required to adopt Statement 121 effective for the year
beginning March 30, 1996 and, based on current circumstances, does not believe
the effect of adoption is material.
2. BUSINESS COMBINATIONS
THE SOLON ACQUISITION
Solon entered into a Stock Purchase Agreement, dated as of March 7, 1995, with
Ford Coin Laundries, Inc. ("Ford"), Kwik Wash Laundries, Inc. ("Kwik Wash"), and
certain stockholders of the predecessor company (the "Sellers"), whereby Ford
purchased from the Sellers all of the Solon's outstanding Common Stock (the
"Common Stock") and substantially all of the Solon's Class A Common Stock (the
"Class A Common Stock") (collectively, the "Shares"). The purchase price for the
Shares was $11.5 million. The foregoing transaction closed on April 5, 1995. The
source of funds used by Ford for the Shares was the cash proceeds from the sales
by Ford to (i) the Company of the Ford Non-Voting Common Stock, pursuant to a
Stock Purchase Agreement, dated April 4, 1995, and (ii) to the holders of the
Ford Voting Common Stock (collectively, the "Ford Holders"), an option pursuant
to a Letter Agreement dated April 4, 1995. As of April 5, 1995, Ford
beneficially owned, and had the sole power to dispose of, the Shares. The Shares
beneficially owned by Ford represented 100% of the outstanding Common Stock and
approximately 97% of the outstanding Class A Common Stock.
Pursuant to the Stock Purchase Agreement with Ford, the Company purchased from
Ford all of the outstanding shares of Ford's non-voting Class A Common Stock
(the "Ford Non-Voting Common Stock"). The purchase price for the Ford Non-Voting
Common Stock was of $11.4 million. The sources of the funds used by the Company
for the Ford
F-12
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
Non-Voting Common Stock were certain shareholders of TCC, including GTCR. As of
April 5, 1995, the Company beneficially owns, and has the sole power to dispose
of, 1,000 shares of the Ford Non-Voting Common Stock.
Pursuant to the Letter Agreement dated April 4, 1995, with the Ford Holders and
TCC, the Ford Holders granted to the Company, among other things, an option (the
"Option") to purchase from the Ford Holders, subject to the terms and conditions
contained therein, all of the voting shares of Ford's Common Stock (the "Ford
Voting Common Stock"), for an aggregate purchase price of $100,000. On April 28,
1995, the Company exercised the Option. The sources of funds used by the Company
to exercise the Option were substantially the same sources used to purchase the
Ford Non-Voting Common Stock. As of April 28, 1995, the Company beneficially
owns, and has the sole power to vote and dispose of, ten shares of the Ford
Voting Common Stock.
The Stock Purchase Agreement was accounted for as a purchase and, as of April 5,
1995, Solon adjusted its consolidated assets and liabilities to their estimated
fair values, based on preliminary independent appraisals, evaluations,
estimations and other studies. Reflected below is a summary of these adjustments
(in thousands):
Increase in property and equipment $ 9,065
Increase in contract rights 34,063
Increase in goodwill 1,268
Increase in deferred income taxes (19,465)
Other (1,515)
----------
Increase in shareholders' equity $ 23,416
==========
THE TCC ACQUISITION
TCC was incorporated in January 1995 and was capitalized primarily through an
equity investment by an investor group led by the majority shareholder, GTCR,
and senior management and bank financing.
TCC is a holding company which was formed to acquire partnership interests in
Industries and Super Laundry. On January 31, 1995, TCC acquired its partnership
interests in Industries and Super Laundry from CIC I Acquisition Corp. ("CIC
I"). The transaction resulted in TCC owning 100% interests in both Industries
and Super Laundry. The aggregate purchase price for these interests was $8.57
million, paid in cash. The acquisition was accounted for using the purchase
method of accounting. The fair value of assets acquired (based on an independent
appraisal for certain assets) less liabilities
F-13
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. BUSINESS COMBINATIONS (CONTINUED)
assumed exceeded the purchase price by approximately $7.7 million. The excess
was allocated against property, equipment and intangible assets ratably based on
their respective fair values.
THE MERGER WITH TCC
On November 30, 1995, Solon completed a merger ("Merger") with TCC through an
exchange of stock. Shares of common stock of the Company were issued in exchange
for all of the issued and outstanding shares of common stock of TCC. The Company
then contributed its stock of TCC to Solon. Solon became the surviving
corporation after the merger, whereupon it changed its name to Coinmach
Corporation. Details of the results of operations of TCC and Solon for the
periods prior to the merger are as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 5, 1995 SEPTEMBER 30,
TO 1995 TO
SEPTEMBER 29, NOVEMBER 29,
1995 1995
---------------------------------
<S> <C> <C>
REVENUES
Solon $51,256 $17,909
TCC 38,463 13,018
--------------------------------
Combined $89,719 $30,927
================================
NET INCOME
(LOSS)
Solon $(5,496) $(525)
TCC (450) 49
--------------------------------
Combined $(5,946) $(476)
================================
</TABLE>
The combined financial results presented above include an adjustment to decrease
TCC's net loss by approximately $180,000 in 1995 and $70,000 for the period from
September 30, 1995 to November 29, 1995, to conform its accounting policy for
the capitalization of machine installation costs to that of Solon. Intercompany
transactions between the two companies for the period presented were not
material.
F-14
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RECEIVABLES
Receivables consist of the following (in thousands):
MARCH 29, SEPTEMBER 29,
1996 1995
-------------------------------
Trade receivables $3,431 $1,653
Notes receivable 1,811 1,783
Finance lease receivables 625 905
Other 345 411
-------------------------------
6,212 4,752
Allowance for doubtful accounts 454 360
-------------------------------
$5,758 $4,392
===============================
Notes receivable, which arise from the sale of laundromats, bear interest at a
weighted average rate of approximately 10% per annum and mature through 1998.
The notes are collateralized by the underlying laundry equipment. The Company
periodically sells notes receivable arising from the sale of laundromats to
third party finance companies. Included in other receivables are finance
reserves, which arise when the Company sells notes and a portion of the proceeds
are retained by the finance company. As the notes are collected, the finance
companies remit a portion of the collections to the Company. Many of the notes
receivable are sold with recourse to the Company (see Note 10). Control of the
notes sold with recourse is surrendered by the Company on the date of transfer.
The Company generally sells its receivables with recourse at cost, recognizing
no gain or loss.
Finance lease receivables relate to lease agreements that the Company has
entered into with one customer. Pursuant to the agreements, the Company installs
and services laundry equipment at apartment complexes owned and operated by the
customer. The difference between the aggregate lease rentals and the cost of the
related equipment is earned over the terms of the leases, which range from 40 to
60 months. Annual future payments due under these leases at March 29, 1996, are
as follows (in thousands); 1997 -- $258; 1998 -- $177; 1999 -- $146; and 2000 --
$44.
4. RESTRUCTURING COSTS
Restructuring charges consist of one-time costs aggregating approximately $2.2
million, which include approximately $1.3 million of severance payments for 55
of Solon's management, administrative and regional personnel, approximately
$300,000 of costs to relocate Solon's financial and administrative functions to
Roslyn, New York, approximately $100,000 of costs to integrate certain financial
and operating systems, and approximately $500,000 of costs related to the
consolidation of certain of Solon's regional offices. Of the total restructuring
costs of $2.2 million, approximately $300,000
F-15
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. RESTRUCTURING COSTS (CONTINUED)
was paid during the period ended September 29, 1995, approximately $1.3 million
was paid during the six months ended March 29, 1996, and the remaining portion
of approximately $600,000 is expected to be paid during the fiscal year ending
March 28, 1997. The 55 employee terminations include 5 management employees, 17
corporate staff financial and administrative employees and 33 regional laundry
operational employees. Notifications to employees were made on various dates
through September 1995.
5. DEBT
On June 18, 1992, Solon sold in concurrent private offerings (i) $100 million
principal amount of 12 3/4% Senior Notes due 2001 (the "Senior Notes") and (ii)
$30 million principal amount of 13 3/4% Senior Subordinated Debentures due 2002
(the "Debentures") and effective November 6, 1992, exchanged such securities for
securities with similar terms and form which were registered under the
Securities Act of 1933.
Interest was payable semiannually on January 15 and July 15 for the Senior Notes
and April 15 and October 15 for the Subordinated Debentures. The Senior Notes
were entitled to mandatory sinking fund payments of $15 million on July 15, 1998
and July 15, 1999, and $20 million on July 15, 2000. In addition, Solon was
obligated annually to offer to purchase Senior Notes at par in an amount equal
to 75% of its excess cash flow (as defined) and the proceeds of asset
dispositions ("Annual Mandatory Purchases"). Solon would have received credit
against Annual Mandatory Purchases for any amounts paid in open market or other
purchases. Solon would have received a credit against the sinking fund payment
requirements for the principal amount of Senior Notes acquired. The Debentures
had no mandatory principal repayment requirements until they matured on October
15, 2002.
The Senior Notes were redeemable at Solon's option at a price equal to 106 3/8%
after January 15, 1997, declining to par if redeemed after January 15, 1999. The
Subordinated Debentures were redeemable at a price equal to 106 7/8% after
October 15, 1997, declining to par if redeemed after October 15, 1999.
Debt issue costs totaling $5.4 million incurred in connection with the 1992
debt offerings were included in other assets and were being amortized over the
term of the Senior Notes and Debentures. Accumulated amortization was $2.2
million at September 29, 1995.
F-16
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
On November 30, 1995, Solon completed an exchange offer with substantially all
the holders of the Senior Notes and Subordinated Debentures. Through December
14, 1995, Solon issued a total of $196.7 million of 11 3/4% Senior Notes due
2005 (the "Notes") which enabled Solon to complete this exchange offer,
consummate the merger with TCC and retire its remaining debt, and provide
additional working capital. Solon incurred costs of $4.0 million, net of income
taxes, related to a 5.5% premium paid to retire its Senior Notes and
Subordinated Debentures, wrote-off the unamortized balance of the related
original issue discount and deferred finance costs of approximately $1.3 million
and $1.8 million, net of income taxes, respectively, and also incurred costs
related to the retirement of a revolving credit facility of TCC of approximately
$1.8 million, net of income taxes. The aggregate of the foregoing items totaling
$8.9 million, net of income taxes, is shown as an extraordinary item in 1996T.
Interest on the Notes is payable semi-annually on May 15 and November 15. The
Notes are redeemable at the option of Coinmach Corporation at any time after
November 15, 2000 at a price equal to 105 7/8% declining to par if redeemed
after November 15, 2002. The Notes contain certain financial covenants and a
registration rights agreement, whereby such debt has been registered under the
Securities Act of 1933. Additionally, the Notes restrict the payment of
dividends, distributions or other payments from Coinmach Corporation to the
Company.
The estimated fair value of the Notes at March 29, 1996, based upon limited
quoted market activity, approximated its recorded value.
On December 30, 1992, Solon entered into a loan and security agreement ("Solon
Credit Facility") which provided for a three-year revolving line of credit in
the amount of up to $5 million. Interest on the borrowing was based on prime
plus 2.875%, but in no event would the interest be less than the greater of 8%
per annum or $15,000 per month. Solon was also required to pay a monthly service
fee of $2,000 and an annual facility fee of 1% of the $5 million available under
the Solon Credit Facility. Borrowings under the Solon Credit Facility were
secured by accounts receivable, bank deposit accounts, equipment and general
intangibles of Solon. Additionally, Solon was required to maintain a joint cash
depository account with the lender. All cash collections were required to be
deposited in this account before being transferred to Solon's account. Amounts
borrowed and repaid during fiscal 1995 totaled $2.0 million. No borrowings were
outstanding under the Solon Credit Facility at September 29, 1995.
F-17
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
Debt outstanding under the long-term credit facility of TCC (the "TCC Credit
Facility") as of September 29, 1995, consisted of the following (in thousands):
Revolving line of credit, due January 31, 2000. Interest at
prime plus 1.25% (10.25% at September 29, 1995) $ 2,880
Term loan A, quarterly payments of $250 commencing
April 1, 1996, and increasing to $500 April 1, 1997,
$1,250 April 1, 1998 and $1,500 April 1, 1999.
Interest at prime plus 1.25% (10.25% at September 29, 1995) 14,000
Term loan B, quarterly payments of $1,750 commencing
April 1, 2000 and increasing to $2,000 April 1, 2001
with the final two payments of $1,750 on April 1, 2002 and
July 1, 2002. Interest at prime plus 1.75% (10.75% at
September 29, 1995) 18,500
Term loan C, due July 1, 2002. Interest at 12.5%. 7,500
---------
$42,880
=========
The TCC Credit Facility provided for $40 million in term loans and $10 million
in the aggregate for revolving line of credit and acquisition loan facilities.
The revolving line of credit facility provided for up to $5 million in
borrowings, including letters of credit up to a maximum of $1 million. There was
a one-half of one percent fee per annum on the unused portion of this facility
and a two percent letter of credit fee. The acquisition loan facility provided
up to $5 million in borrowings. The acquisition loans were to be used to finance
acquisitions or capital expenditures attributed to growth. Any amounts
outstanding under the acquisition line as of January 31, 2000 were to be repaid
in equal quarterly installments through July 1, 2002. The interest rate on
borrowings under the acquisition line was at prime plus 1.75%. There were no
acquisition loans outstanding as of September 29, 1995.
The financing agreement relating to the TCC Credit Facility required TCC, among
other things, to maintain certain financial ratios and restricted additional
investments and indebtedness. Loans outstanding under this agreement were
subject to prepayment upon the occurrence of certain events such as asset
dispositions, public offerings and the generation of excess cash flow, as
defined. Industries and Super Laundry were the borrowers under this agreement
and it was guaranteed by TCC. Borrowings were secured by all of the assets of
TCC.
F-18
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. DEBT (CONTINUED)
On November 30, 1995, Coinmach Corporation entered into a new revolving credit
facility, ("Credit Facility"), which provides up to a maximum of $35 million and
which replaced the Solon Credit Facility and the TCC Credit Facility.
Availability under the Credit Facility is limited by an amount equal to one
semi-annual interest payment on the Notes. Interest on the borrowings is payable
monthly at a rate per annum no greater than the sum of LIBOR plus 2.50%. The
Company is obligated to pay an unused line fee in an amount equal to 0.5% of the
unused availability payable monthly in arrears. Borrowings under the Credit
Facility are secured by real and personal property of the Company and also
require the Company, among other things, to maintain certain financial ratios
and restrict additional investments and indebtedness. At March 29, 1996, there
were no amounts outstanding under the Credit Facility.
In addition, at September 29, 1995, the Company had $5 million outstanding under
a loan agreement with a financial institution, which was repaid in connection
with the exchange offer on November 30, 1995.
As of March 29, 1996 all of the Company's outstanding senior notes will become
due after five years from the date of the balance sheet, or March 2001.
The Company made cash payments for interest of $8.5 million and $10.9 million
for 1996T and 1995, respectively.
6. RETIREMENT SAVINGS PLAN
Effective October 1, 1987, Solon formed the Solon Automated Services Retirement
Savings Plan (the "Plan"). The Plan is a defined contribution plan available to
all full-time Solon employees who have completed one year of service. Under the
terms of the Plan, Solon matches employee contributions at a percentage
determined annually by the Board of Directors. The number of shares issued to
the Plan is based upon the appraised value of the stock which is determined
annually by an independent appraiser. Contributions to the Plan for the six-
month periods ending September 29, 1995 and March 29, 1996 were not material.
TCC has established a defined contribution plan for substantially all of its
employees. TCC's contributions to the plan for 1996T and 1995 amounted to
approximately $43,000 in each period.
The Company does not provide any other postretirement benefits.
F-19
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLAN
Solon adopted a stock option plan (the "Plan") in September 1987. The Plan
authorized the granting of incentive stock options, nonqualified options, or a
combination of the foregoing, to certain key employees and directors.
Under the terms of the Plan, 1,250,000 common shares were reserved for issuance
upon exercise of options. Shares for options that had expired or had been
surrendered or canceled without having been exercised may again have been
optioned under the Plan.
Each option granted was exercisable into one common share of Solon. In general,
50% of stock options granted became exercisable five years after the date of
grant, with 12 1/2% of the options becoming exercisable in each of the
subsequent four years.
As of September 29, 1995, there was a total of 212,000 stock options
outstanding, exercisable at prices between $.98 and $1.23 per common share. No
options had been exercised since Solon adopted the Plan. As a result of the
merger with TCC, the Plan was canceled; participants in the Plan received in
aggregate consideration of approximately $34,000.
8. INCOME TAXES
The components of the Company's net deferred tax liabilities were as follows (in
thousands):
MARCH 29, SEPTEMBER 29,
1996 1995
--------------------------------------
Deferred tax liabilities:
Accelerated tax depreciation $28,920 $26,804
Other, net 1,449 3,355
--------------------------------------
30,369 30,159
--------------------------------------
Deferred tax assets:
Net operating loss carryforwards 8,549 4,600
Book over tax depreciation 2,383 742
Other 973 --
Valuation allowance for deferred tax
assets (460) (460)
--------------------------------------
11,445 4,882
--------------------------------------
Net deferred tax liabilities $18,924 $25,277
======================================
F-20
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As of April 5, 1995, the deferred tax asset and related valuation allowance
relating to Solon were netted and reduced to $2.6 million to reflect the net
operating loss available pursuant to limitations imposed under provisions of the
Internal Revenue Code regarding changes in ownership. In addition, as of April
5, 1995, TCC had recorded a deferred tax asset of $460,000 with a valuation
allowance of the same amount. The deferred tax assets recorded subsequently do
not reflect a valuation allowance because the loss can be utilized against the
deferred tax liabilities in the carryforward period. The net operating loss
carryforwards, which expire between fiscal years 2001 through 2007, consist of
approximately $7 million (after the limitation) relating to the predecessor of
Solon and approximately $13.7 million relating to the Company.
The provision (benefit) for income taxes consists of (in thousands):
SIX-MONTH APRIL 5,
TRANSITION 1995
PERIOD ENDED TO
MARCH 29, SEPTEMBER 29,
1996 1995
--------------------------------
Federal $(758) $(1,760)
State (240) (102)
--------------------------------
$(998) $(1,862)
================================
Deferred taxes relate primarily from timing differences resulting from using
accelerated depreciation for tax purposes and straight-line depreciation for
financial reporting purposes.
The effective income tax rate differs from the amount computed by applying the
U.S. federal statutory rate to loss before taxes as a result of state taxes and
permanent book/tax differences as follows (in thousands):
SIX-MONTH APRIL 5,
TRANSITION 1995
PERIOD ENDED TO
MARCH 29, SEPTEMBER 29,
1996 1995
----------------------------------------
Expected tax benefit $(1,201) $(2,655)
State tax benefit, net of federal taxes (170) (320)
Permanent book/tax differences:
Goodwill and other 373 1,113
----------------------------------------
Recorded tax provision/(benefit) $ (998) $(1,862)
========================================
F-21
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The Company made cash payments for income taxes of approximately $36,000, and
$494,000 for 1996T and 1995, respectively.
9. COMMON STOCK
The Company's classes of common stock contain various privileges which are
summarized as follows:
Holders of Common Stock Classes A, B, D, F and G are each entitled to one vote
per share on all matters to be voted on by the Company. Holders of Common Stock
Classes C and E have certain voting rights in connection with mergers or
consolidations of the Company.
Holders of Common Stock Classes A, E and F are entitled to certain rights upon
liquidation, dissolution or winding up of the Company, with respect to
distributions and unpaid yields. Holders of common stock Classes B and G are
entitled to similar but subordinate privileges.
Holders of Common Stock Class C are entitled to convert their shares into the
same number of shares of Common Stock Class D upon the occurrence of a
conversion event, as defined. Holders of Common Stock Classes A, D and E are
entitled to convert their shares at any time into the same number of Common
Stock Classes E, C and A, respectively, with certain limitations, as defined.
Holders of Common Stock Classes A, E and F are entitled to unpaid yields upon
the occurrence of certain events, as defined (see Note 11).
Certain of the Company's shares of common stock have been purchased by
shareholders through loans made by the Company. Such loans are presented as a
reduction of stockholder's equity.
10. COMMITMENTS AND CONTINGENCIES
Rental expense for all operating leases, which principally cover office
facilities and vehicles, was $1,235,000, and $1,139,000 for 1996T and 1995,
respectively.
F-22
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The following is a schedule of the future minimum rental commitments under all
noncancelable leases as of March 29, 1996 (in thousands):
1997 $1,683
1998 1,096
1999 759
2000 460
2001 and future periods 1,143
--------
$5,141
========
The Company is contingently liable on receivables sold with recourse to finance
companies by TCC. The total amount of such receivables outstanding as of March
29, 1996 is approximately $3.7 million.
The Company is party to various legal proceedings incidental to its business.
Although the ultimate disposition of these proceedings is not presently
determinable, management does not believe that adverse determinations in any or
all such proceedings would have a material adverse effect upon the financial
condition or results of operations of the Company.
In connection with insurance coverages, which include workers compensation,
general liability and other coverages, annual premiums are subject to limited
retroactive adjustment based on actual loss experience.
11. SUBSEQUENT EVENTS
Through June 1996, the Company completed certain acquisitions of businesses, or
assets of businesses, with the purchase price aggregating approximately $16.8
million, utilizing cash on hand.
The Company is in the process of filing a Registration Statement with the
Securities and Exchange Commission in connection with the offering by the
Company of 4,000,000 shares of a new class of common stock for sale to the
public (the "Offering"). In contemplation of the Offering, subsequent to year
end, the Company issued an additional 79,029 shares of its Class B Common Stock
to certain members of management. These shares were purchased through loans made
by the Company totalling approximately $56,000. In addition, approximately
$103,000 of receivables from shareholders outstanding at March 29, 1996 were
forgiven.
F-23
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (CONTINUED)
The Offering contemplates the issuance of shares of a new class of preferred
stock to the current holders of Class A, E and F Common Stock, whereby 23,317
shares of new common stock will be issued in exchange for the new preferred
stock issued to the management holders of the preferred stock, and approximately
$19.1 million from the proceeds of the Offering will be used to retire the
remaining shares of preferred stock. The following table presents unaudited pro
forma dividend and shareholders' deficit at March 29, 1996:
<TABLE>
<CAPTION>
PRO FORMA
DIVIDEND AND
SHAREHOLDERS'
DEFICIT
MARCH 29, MARCH 29,
1996 1995
---------------------------------
<S> <C> <C>
Dividend payable $ 19,133 $ --
Shareholders' equity:
Common stock $ 61 $ 61
Capital in excess of par value 903 17,842
Accumulated deficit (29,013) (18,719)
--------------------------------
(19,949) (816)
Receivables from stockholders (492) (492)
--------------------------------
Total shareholders' (deficit) equity $ (20,441) $ (1,308)
================================
</TABLE>
The Offering also contemplates the Company will grant options to purchase
618,109 shares of common stock at 85% of the Offering price to management and
certain officers of the Company.
In addition, the Offering contemplates a management stock option plan for the
issuance of up to 9% of the Company's stock at an exercise price equal to the
prevailing market price on the grant date. These options will contain a vesting
schedule to be determined prior to the Offering.
The Company's Board of Directors has also approved an approximate 23.0 to 1
stock split. All common share data has been restated to reflect the stock split.
The weighted average shares outstanding reflect as outstanding for all periods
presented the shares issued and options granted discussed above using the
treasuring stock method and the shares which would have been sold at the assumed
Offering price of $17.00 to fund the cash paid and common shares issued to
retire the preferred stock.
F-24
<PAGE>
Report of Independent Auditors
To the Board of Directors of
Coinmach Corporation
We have audited the accompanying combined consolidated balance sheet of Coinmach
Corporation and Subsidiaries (formerly Solon Automated Services, Inc., which was
combined with The Coinmach Corporation and Subsidiaries, a company under common
control, beginning April 5, 1995) (the "Company") as of September 29, 1995, and
the related combined consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the period from April 5, 1995 to September 29,
1995 ("Successor period") and the related consolidated statements of operations,
shareholders' equity (deficit) and cash flows for the period from October 1,
1994 to April 4, 1995 ("Predecessor period"). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined consolidated financial position of Coinmach
Corporation and Subsidiaries at September 29, 1995, and the combined
consolidated results of its operations and its cash flows for the Successor
period from April 5, 1995 to September 29, 1995 and the consolidated results of
its operations and its cash flows for the Predecessor period from October 1,
1994 to April 4, 1995, in conformity with generally accepted accounting
principles.
F-25
<PAGE>
As more fully described in Note 2 to the combined consolidated financial
statements, SAS Acquisitions Inc. purchased Solon Automated Services, Inc.
("Solon") as of April 5, 1995 in a business combination accounted for as a
purchase. Subsequent thereto, on November 30, 1995, The Coinmach Corporation, a
company under common control with Solon, was merged into Solon, who thereupon
changed its name to Coinmach Corporation, in a business combination accounted
for as though it were a pooling of interests. As a result, the combined and
consolidated financial statements for the Successor are presented on a different
basis of accounting than that of the Predecessor and, therefore, are not
comparable.
Melville, NY
March 20, 1996 /s/ Ernst & Young LLP
F-26
<PAGE>
LETTERHEAD OF ARTHUR ANDERSEN
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Solon Automated Services, Inc.:
We have audited the consolidated balance sheets of Solon Automated Services,
Inc. (a Delaware corporation) and subsidiaries as of September 30, 1994 and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the two fiscal years in the period ended September
30, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Solon Automated Services, Inc.
and subsidiaries as of September 30, 1994, and the results of their operations
and their cash flows for each of the two fiscal years in the period ended
September 30, 1994, in conformity with generally accepted accounting principles.
As further discussed in Note 1 to the consolidated financial statements,
effective October 2, 1993, the Company implemented the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Philadelphia, Pa., /s/ Arthur Andersen LLP
December 19,1994
F-27
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Combined and Consolidated Balance Sheets
(In thousands of dollars, except par value)
<TABLE>
<CAPTION>
SEPTEMBER 29 SEPTEMBER 30
1995 1994
----------------------------
SUCCESSOR PREDECESSOR
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,282 $ 7,241
Receivables, less allowance of $360 and $34 4,268 1,702
Inventories 3,902 1,257
Prepaid expenses 2,084 833
Advance rental payments 19,772 17,646
Property and equipment:
Laundry equipment and fixtures 81,599 84,576
Land, building and improvements 8,027 13,239
Trucks and other vehicles 1,400 254
----------------------------
91,026 98,069
Less accumulated depreciation 10,320 49,342
----------------------------
Net property and equipment 80,706 48,727
Contract rights, net of accumulated
amortization of $4,869 and $15,171 63,801 15,432
Goodwill, net of accumulated
amortization of $1,226 and $9,694 45,231 45,881
Other assets, principally debt issuance
costs 10,897 4,870
----------------------------
Total assets $239,943 $143,589
============================
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 29 SEPTEMBER 30
1995 1994
-----------------------------
SUCCESSOR PREDECESSOR
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
<S> <C> <C>
Accounts payable $ 6,220 $ 3,186
Accrued commissions 8,456 4,553
Accrued interest 4,551 4,657
Other accrued expenses 10,241 3,395
Deferred income taxes 25,277 8,032
12 3/4% senior notes 99,000 100,000
13 3/4% senior subordinated debentures,
net of unamortized discount of $1,326
and $1,513 28,674 28,487
Long-term credit facility 43,477
Other long-term debt 264
Shareholders' equity (deficit)
Common stock, par value $.01:
Authorized shares -- 1,000 and 20,000,000
Issued shares -- 100 and 12,174,257 -- 122
Class A common stock, par value $.01:
3,247,885 shares authorized and
issued in 1994 -- 33
Capital in excess of par value 23,222 14,221
Accumulated deficit (7,101) (23,097)
-----------------------------
16,121 (8,721)
Receivables from shareholders (2,338) --
-----------------------------
Total shareholders' equity (deficit) 13,783 (8,721)
-----------------------------
Total liabilities and shareholders'
equity (deficit) $239,943 $143,589
=============================
</TABLE>
See accompanying notes.
F-29
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Combined and Consolidated Statements of Operations
(In thousands of dollars, except per share data)
<TABLE>
<CAPTION>
APRIL 5, 1995 OCTOBER 1,
TO 1994 TO YEAR ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30, OCTOBER 1,
1995 1995 1994 1993
------------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR PREDECESSOR
<S> <C> <C> <C> <C>
Revenues $89,719 $52,207 $104,553 $104,888
Costs and expenses:
Laundry operating expenses 62,905 33,165 66,527 67,420
Depreciation and amortization 18,423 10,304 21,347 21,002
General and administrative 2,458 1,539 2,839 2,576
Gain on sale of equipment -- -- (109) --
Restructuring costs 2,200 -- -- --
----------------------------------------------------
85,986 45,008 90,604 90,998
----------------------------------------------------
Operating income 3,733 7,199 13,949 13,890
Interest expense, net 11,541 8,928 18,105 17,453
----------------------------------------------------
Loss before income taxes and extraordinary item (7,808) (1,729) (4,156) (3,563)
----------------------------------------------------
Provision (benefit) for income taxes:
Currently payable 420 270 200 400
Deferred (2,282) (220) 2,562 (1,168)
----------------------------------------------------
(1,862) 50 2,762 (768)
----------------------------------------------------
Loss before extraordinary item (5,946) (1,779) (6,918) (2,795)
Extraordinary item, net of income taxes of $0 -- 848 -- --
----------------------------------------------------
Net loss $(5,946) $(2,627) $ (6,918) $ (2,795)
====================================================
Loss per share:
Before extraordinary item $ -- $ (.12) $ (.44) $ (.18)
Extraordinary item -- (.05) -- --
----------------------------------------------------
Net loss per share $ -- $ (.17) $ (.44) $ (.18)
====================================================
</TABLE>
See accompanying notes.
F-30
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Combined and Consolidated Statements of Shareholders' Equity (Deficit)
(In thousands of dollars)
<TABLE>
<CAPTION>
Capital in
Common Class A common excess of Accumulated Receivables from Total shareholders'
stock stock par value deficit Shareholder equity (deficit)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 2, 1992 $ 123 $ 33 $14,232 $(13,384) $ -- $ 1,004
Net loss -- -- -- (2,795) -- (2,795)
Repurchase of 10,000 shares
of common stock -- -- (10) -- -- (10)
Contribution to retirement
savings plan 1 -- 164 -- -- 165
-------------------------------------------------------------------------------------------------------
Balance, October 1, 1993 124 33 14,386 (16,179) -- (1,636)
Net loss -- -- -- (6,918) -- (6,918)
Repurchase of 270,000 shares
of common stock (3) -- (267) -- -- (270)
Contribution to retirement
savings plan 1 -- 102 -- -- 103
-------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 122 33 14,221 (23,097) -- (8,721)
Net loss -- Predecessor
period -- -- -- (2,627) -- (2,627)
Repurchase of 45,459
shares of common stock -- -- (68) -- -- (68)
Purchase accounting adjustments -- -- (2,308) 25,724 -- 23,416
Recapitalization of common
stock (122) (33) 155 -- --
Merger of TCC -- -- 11,222 (1,155) (338) 9,729
Advance to SAS -- -- -- -- (2,000) (2,000)
Net loss -- Successor period -- -- -- (5,946) -- (5,946)
-------------------------------------------------------------------------------------------------------
Balance, September 29, 1995 $ -- $ -- $23,222 $ (7,101) $(2,338) $13,783
=======================================================================================================
See accompanying notes.
</TABLE>
F-31
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Combined and Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<CAPTION>
APRIL 5, 1995 OCTOBER 1,
TO 1994 TO YEAR ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30, OCTOBER 1,
1995 1995 1994 1993
-----------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR PREDECESSOR
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net loss $ (5,946) $(2,627) $ (6,918) $ (2,795)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 18,423 10,304 21,347 21,002
Deferred income taxes (2,000) (220) 2,649 (1,168)
Amortization of debt discount
and deferred issue costs 735 440 878 867
Deferred debt issuance cost -- -- -- (178)
Decrease (increase) in other assets (717) 106 (233) (609)
Decrease (increase) in receivables,
net (73) 164 78 631
Decrease (increase) in
inventories and prepayments 930 (676) 2,074 (392)
Increase (decrease) in accounts
payable (668) 1,725 (2,173) (766)
Decrease in accrued interest (25) (81) (24) (267)
Increase in other accrued expenses,
net 1,980 1,081 236 222
-----------------------------------------------------------
Net cash provided by operating 12,639 10,216 17,914 16,547
activities
-----------------------------------------------------------
INVESTING ACTIVITIES
Additions to property and equipment (9,550) (4,815) (11,224) (12,993)
Advance payments to location owners (3,569) (2,129) (5,555) (5,525)
Additions to assets from acquisitions -- -- -- (38)
Sales of property and equipment 5 407 16 56
-----------------------------------------------------------
Net cash used in investing activities (13,114) (6,537) (16,763) (18,500)
-----------------------------------------------------------
FINANCING ACTIVITIES
Advance to SAS (2,000) -- -- --
Repurchase of senior notes -- (1,000) -- --
Net borrowings (repayments) of bank and
other borrowings 1,126 -- -- (626)
Principal payments of capitalized lease
obligations (143) -- -- --
Repurchases of common stock -- (68) (270) (10)
-----------------------------------------------------------
Net cash used in financing activities (1,017) (1,068) (270) (636)
-----------------------------------------------------------
Net increase (decrease) in cash (1,492) 2,611 881 (2,589)
Cash and cash equivalents, beginning of
period 10,774 7,241 6,360 8,949
-----------------------------------------------------------
Cash and cash equivalents, end of period $ 9,282 $ 9,852 $ 7,241 $ 6,360
===========================================================
See accompanying notes.
</TABLE>
F-32
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements
September 29, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION AND CONSOLIDATION
The accompanying successor financial statements combine the consolidated
accounts of Coinmach Corporation and Subsidiaries, formerly Solon Automated
Services, Inc. ("Solon") with the consolidated accounts of The Coinmach
Corporation ("TCC") (collectively, the "Company") for the periods under common
control. The Predecessor financial statements reflect the consolidated accounts
of Solon only. Solon was acquired on April 5, 1995 by SAS Acquisitions, Inc.
("SAS") (the "Solon Acquisition") a company controlled by Golder Thoma Cressey
Rauner ("GTCR"). TCC was formed in January 1995 by an investor group, comprised
principally of the same investors who formed SAS, and acquired Coinmach
Industries Co. and Super Laundry Equipment Co. L.P. on January 31, 1995 (the
"TCC Acquisition"). Both the Solon Acquisition and the TCC Acquisition were
accounted for as purchases and, accordingly, the acquired assets and liabilities
were recorded at their estimated fair values at the respective acquisition
dates.
As described in Note 2, Solon completed a merger with TCC on November 30, 1995.
This transaction was accounted for in a manner similar to a pooling of
interests. As a result of the common investor groups control over both Solon and
TCC, the accompanying financial statements have been prepared to reflect the
accounts of Solon and TCC and their wholly-owned subsidiaries on a combined
basis since the date of common control, April 5, 1995.
References to the Successor refer to the Company during the common control
period, while references to the Predecessor refer to Solon for prior periods.
The Predecessor period from October 1, 1994 to April 4, 1995 is referred to as
1995P while the Successor period from April 5, 1995 to September 29, 1995 is
referred to as 1995S. As a result of the acquisition of Solon by SAS and the
subsequent merger with TCC, the combined consolidated financial statements for
the Successor are presented on a different basis of accounting than that for the
Predecessor and therefore, are not comparable.
The Company is primarily engaged in providing coin-operated laundry equipment
services to multi-family housing complexes throughout much of the United States.
The Company owns and operates over 220,000 coin-operated washers and dryers on
routes in over 20,000 multi-family housing units in 20 states and the District
of Columbia. Such routes are located throughout the New York Metropolitan, Mid-
Atlantic, Southeast and South-Central regions of the United States. The Company,
through its subsidiary, Super
F-33
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Laundry, also is a supplier of coin-operated laundromat equipment and turnkey
laundromat retail stores in the New York Metropolitan area.
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the 1995 presentation.
All material intercompany accounts and transactions have been eliminated in
consolidation.
FISCAL YEAR
Prior to the merger with TCC, Solon's fiscal year was the fifty-two or fifty-
three week period which ended on the Friday nearest September 30th. The fiscal
years ended September 29, 1995, September 30, 1994 and October 1, 1993 are
fifty-two week periods. Effective with the merger of Solon and TCC, the Company
has changed its fiscal year end to the Friday nearest to March 31.
RECOGNITION OF LAUNDRY REVENUES
The Company has agreements with various property owners which provide for the
Company's installation and operation of laundry machines at various locations in
return for a commission. These agreements provide for both contingent
(percentage of revenues) and fixed commission payments. The Company reports
revenues from laundry machines on the accrual basis and has accrued the cash
computed to be in the machines at the end of the fiscal period.
Super Laundry's customers generally sign sales contracts pursuant to which Super
Laundry constructs and equips complete laundromat operations, including location
identification, construction, plumbing, electrical wiring and all required
permits. Revenue is recognized on the completed contract method. A contract is
considered complete when all costs have been incurred and either the
installation is operating according to specifications or has been accepted by
the customer. The duration of such contracts is normally less than six months.
Sales of laundromats were approximately $7.9 million for 1995S.
F-34
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market and
consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 29 1995 SEPTEMBER 30 1994
--------------------------------------
SUCCESSOR PREDECESSOR
<S> <C> <C>
Machine repair parts $1,941 $1,257
Laundry equipment 1,961 --
--------------------------------------
$3,902 $1,257
======================================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost and are depreciated on a straight-
line basis over the following estimated useful lives:
Laundry equipment and fixtures 3 to 10 years
Improvements 4 to 10 years
Trucks and other vehicles 3 to 4 years
Upon sale or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts, and the
resulting gain or loss is included in income. Maintenance and repairs are
charged to operations currently, and replacements of laundry machines and
significant improvements are capitalized.
F-35
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Depreciation expense was $9.5 million, $6.2 million, $13.0 million and $12.9
million for 1995S, 1995P, and fiscal years 1994 and 1993, respectively.
On April 5, 1995, TCC revised its estimate of the useful life of its laundry
equipment from 5 to 8 years. The effect of this change in estimate was to
decrease loss before extraordinary item and net loss for the Successor period by
approximately $470,000.
GOODWILL
Goodwill as of September 30, 1994 represents the excess of cost over fair value
of net assets acquired, arising primarily as a result of the purchase of Solon
in 1987 by an investor group. Goodwill as of September 29, 1995 represents the
excess of cost over fair value of net assets acquired arising from the purchase
of Solon on April 5, 1995 (see Note 2). Goodwill was amortized on a straight-
line basis over 40 years for the Predecessor and is being amortized over 20
years for the Successor. Management periodically evaluates the realizability of
the goodwill balance based upon the Company's expectations of nondiscounted cash
flows and operating income. Based upon present operations and strategic plans,
management believes that no impairment of goodwill has occurred.
CONTRACT RIGHTS
Contract rights represent amounts expended for location contracts arising from
the acquisition of laundry machines on location. These amounts, which arose
solely from purchase price allocations, are amortized on a straight-line basis
over the period of expected benefit of approximately 13 years for the
Predecessor, and ranging from 3 to 15 years for the Successor based on
independent appraisals.
ADVANCE RENTAL PAYMENTS
Advance payments to location owners are amortized on a straight-line basis over
the contract term, which generally ranges from 5 to 10 years.
INTEREST EXPENSE
Interest expense is reported net of interest income of $148,000, $112,000,
$75,000 and $106,000 for 1995S, 1995P, and fiscal years 1994 and 1993,
respectively.
F-36
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
In the 1995P period and in fiscal 1994 and 1993, loss per share for the
Predecessor company was calculated based upon the weighted average number of
common shares and Class A common shares outstanding. Stock options outstanding,
which are common stock equivalents, have not been included as they are
antidilutive. Weighted average shares outstanding were 15,455,000 for 1995P,
15,559,000 for fiscal 1994 and 15,640,000 for fiscal 1993. Loss per share data
is not presented for the 1995S period as Solon became a wholly-owned subsidiary
of GTCR.
TRANSACTIONS WITH AFFILIATES
During 1995S, the Company reimbursed its parent company $114,000 for certain
restructuring costs.
A former principal shareholder provided certain administrative and clerical
services to Solon through October 1, 1993. Charges for such services, including
office rental, were $270,000 for fiscal year 1993.
INCOME TAXES
Effective October 2, 1993, Solon implemented the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109"). The accounting change had an immaterial effect on the
consolidated financial statements. Statement 109 requires the asset and
liability method of accounting for income taxes. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Statement 109 requires that any tax benefits recognized
for net operating loss carryforwards and other items be reduced by a valuation
allowance where it is more likely than not that the benefits may not be
realized. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-37
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("Statement 121"), which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company is required to adopt Statement 121 effective March 30, 1996 and,
based on current circumstances, does not believe the effect of adoption will be
material.
2. BUSINESS COMBINATIONS
THE SOLON ACQUISITION
Solon entered into a Stock Purchase Agreement, dated as of March 7, 1995, with
Ford Coin Laundries, Inc. ("Ford"), Kwik Wash Laundries, Inc. ("Kwik Wash"), and
certain stockholders of the Predecessor company (the "Sellers"), whereby Ford
purchased from the Sellers all of the Solon's outstanding Common Stock (the
"Common Stock") and substantially all of the Solon's Class A Common Stock (the
"Class A Common Stock") (collectively, the "Shares"). The purchase price for the
Shares was $.7457 per share, for an aggregate purchase price of $11.5 million.
The foregoing transaction closed and the purchase price was funded on April 5,
1995. The source of funds used by Ford for the Shares was the cash proceeds from
the sales by Ford to (i) SAS of the Ford Non-Voting Common Stock, pursuant to a
Stock Purchase Agreement, dated April 4, 1995, and (ii) to the holders of the
Ford Voting Common Stock (collectively, the "Ford Holders"), an option pursuant
to a Letter Agreement dated April 4, 1995. As of April 5, 1995, Ford
beneficially owned, and had the sole power to dispose of, the Shares. The Shares
beneficially owned by Ford represented 100% of the outstanding Common Stock and
approximately 97% of the outstanding Class A Common Stock.
Pursuant to the Stock Purchase Agreement with Ford, SAS purchased from Ford all
of the outstanding shares of Ford's non-voting Class A Common Stock (the "Ford
Non-Voting Common Stock"). The purchase price for the Ford Non-Voting Common
Stock was $11,400 per share, for an aggregate purchase price of $11.4 million.
The sources of the funds used by SAS for the Ford Non-Voting Common Stock were
certain shareholders of TCC, including Golder Thoma Cressey Rauner Fund IV, L.P.
("GTCR"). As of April 5,
F-38
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
1995, SAS beneficially owns, and has the sole power to dispose of, 1,000 shares
of the Ford Non-Voting Common Stock.
Pursuant to the Letter Agreement dated April 4, 1995, with the Ford Holders and
TCC, the Ford Holders granted to SAS, among other things, an option (the
"Option") to purchase from the Ford Holders, subject to the terms and conditions
contained therein, all of the voting shares of Ford's Common Stock (the "Ford
Voting Common Stock"), for an aggregate purchase price of $100,000. On April 28,
1995, SAS exercised the Option. The sources of funds used by SAS to exercise the
Option were substantially the same sources used to purchase the Ford Non-Voting
Common Stock. As of April 28, 1995, SAS beneficially owns, and has the sole
power to vote and dispose of, ten shares of the Ford Voting Common Stock.
Current shareholders of TCC and their affiliates were entitled to participate in
the equity of entities that control Solon on a pro rata basis generally in
accordance with their respective equity interests in TCC.
Solon incurred costs aggregating $848,000 in connection with the foregoing
transactions (collectively, the "Change of Control"), including a total of
$387,000 in lump sum payments made to fourteen management employees pursuant to
certain contractual arrangements relating to the Change of Control. The total
costs have been reflected as an extraordinary item in the accompanying financial
statements.
The Stock Purchase Agreement was accounted for as a purchase and, according to a
practice known as "push-down" accounting, as of April 5, 1995, Solon adjusted
its consolidated assets and liabilities to their estimated fair values, based on
preliminary independent appraisals, evaluations, estimations and other studies.
Reflected below is a summary of these adjustments (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Increase in property and equipment $ 9,065
Increase in contract rights 34,063
Increase in goodwill 1,268
Increase in deferred income taxes (19,465)
Other (1,515)
----------
Increase in shareholders' equity $ 23,416
==========
</TABLE>
F-39
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
2. BUSINESS COMBINATIONS (CONTINUED)
THE TCC ACQUISITION
TCC was incorporated in January 1995 and was capitalized primarily through an
equity investment by an investor group led by the majority shareholder, GTCR,
and senior management and bank financing.
TCC is a holding company which was formed to acquire partnership interests in
Coinmach Industries Co. ("Industries") and Super Laundry Equipment Co. L.P.
("Super Laundry"). On January 31, 1995, TCC acquired its partnership interests
in Industries and Super Laundry from CIC I Acquisition Corp. ("CIC I"). The
transaction resulted in TCC owning 100% interests in both Industries and Super
Laundry. The aggregate purchase price for these interests was $8.57 million,
paid in cash. The acquisition was accounted for using the purchase method of
accounting. The fair value of assets acquired (based on an independent appraisal
for certain assets) less liabilities assumed exceeded the purchase price by
approximately $7.7 million. The excess was allocated to property, equipment and
intangible assets ratably based on their respective fair values.
THE MERGER WITH TCC
On November 30, 1995, Solon completed a merger ("Merger") with TCC and Solon
through an exchange of stock. Shares of common stock of SAS were issued in
exchange for all of the issued and outstanding shares of common stock of TCC.
SAS then contributed its stock of TCC to Solon. Solon became the surviving
corporation after the merger, whereupon it changed its name to Coinmach
Corporation. Details of the results of operations of TCC and Solon for the
period prior to the merger are as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 5, 1995 TO SEPTEMBER 29, 1995
---------------------------------------
SOLON TCC COMBINED
---------------------------------------
<S> <C> <C> <C>
Revenues $51,256 $38,463 $89,719
Operating income 1,410 2,323 3,733
Net loss (5,496) (450) (5,946)
</TABLE>
The combined financial results presented above include an adjustment to decrease
TCC's net loss by approximately $185,000, to conform its accounting policy for
the capitalization of machine installation costs to that of Solon. Intercompany
transactions between the two companies for the period presented were not
material.
F-40
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
3. RECEIVABLES
Receivables consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 29 1995 SEPTEMBER 30 1994
--------------------------------------
SUCCESSOR PREDECESSOR
<S> <C> <C>
Trade receivables $1,529 $ 236
Notes receivable 1,783 --
Finance lease receivables 905 816
Other 411 684
--------------------------------------
4,628 1,736
Allowance for doubtful accounts 360 34
--------------------------------------
$4,268 $1,702
======================================
</TABLE>
Notes receivable, which arise from the sale of laundromats, bear interest at a
weighted average rate of approximately 10% per annum and mature through 1998.
The notes are collateralized by the underlying laundry equipment. The Company
periodically sells notes receivable arising from the sale of laundromats to
third party finance companies. Included in other receivables are finance
reserves, which arise when the Company sells notes and a portion of the proceeds
are retained by the finance company. As the notes are collected, the finance
companies remit a portion of the collections to the Company. Many of the notes
receivable are sold with recourse to the Company (see Note 7). Control of the
notes sold with recourse is surrendered by the Company on the date of transfer.
The Company generally sells its receivables with recourse at cost; recognizing
no gain or loss.
Finance lease receivables relate to lease agreements that the Company has
entered into with one customer. Pursuant to the agreements, the Company installs
and services laundry equipment at apartment complexes owned and operated by the
customer. The difference between the aggregate lease rentals and the cost of the
related equipment is earned over the terms of the leases, which range from 40 to
60 months. Annual future payments due under these leases at September 29, 1995,
are as follows (in thousands) 1996 -- $232; 1997 -- $222; 1998 -- $185; 1999 --
$126; 2000 -- $81 and 2001 -- $59.
4. SALE OF EQUIPMENT
Effective September 30, 1994, Solon sold approximately 600 machines for a total
of $407,000 resulting in a pretax gain of $109,000 and a related tax of $84,000.
Prior to the
F-41
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
4. SALE OF EQUIPMENT (CONTINUED)
sale, these machines contributed revenues of $343,000 and operating income of
$78,000 for fiscal year 1994.
5. RESTRUCTURING COSTS
Restructuring charges consist of one-time costs aggregating approximately $2.2
million, which include approximately $1.3 million of severance payments for 55
of Solon's management, administrative and regional personnel, approximately
$300,000 of costs to relocate Solon's financial and administrative functions to
Roslyn, New York, approximately $100,000 of costs to integrate certain financial
and operating systems, and approximately $500,000 of costs related to the
consolidation of certain of Solon's regional offices. Of the total restructuring
costs of $2.2 million, approximately $300,000 was paid during the period ended
September 29, 1995, approximately $1.4 million is expected to be paid during the
six months ending March 29, 1996, and the remaining portion of approximately
$500,000 is expected to be paid during the fiscal year ending March 28, 1997.
The 55 employee terminations include 5 management employees, 17 corporate staff
financial and administrative employees and 33 regional laundry operational
employees. Notifications to employees were made on various dates through
September 1995.
6. DEBT
Substantially all of the Company's debt was retired on November 30, 1995 through
an exchange offer (see Note 12).
On June 18, 1992, Solon sold in concurrent private offerings (i) $100 million
principal amount of 12 3/4% Senior Notes due 2001 (the "Senior Notes") and (ii)
$30 million principal amount of 13 3/4% Senior Subordinated Debentures due 2002
(the "Debentures") with 3,247,885 shares (the "Shares") of the newly granted
Class A Common Stock. Effective November 6, 1992, Solon completed an exchange
offer whereby the holders of the Senior Notes and Senior Subordinated Debentures
exchanged such securities for securities with similar terms and form which were
registered under the Securities Act of 1933.
Interest was payable semiannually on January 15 and July 15 for the Senior Notes
and April 15 and October 15 for the Subordinated Debentures. The Senior Notes
were entitled to mandatory sinking fund payments of $15 million on July 15, 1998
and July 15, 1999, and $20 million on July 15, 2000. In addition, Solon was
obligated annually to offer to
F-42
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
purchase Senior Notes at par in an amount equal to 75% of its excess cash flow
(as defined) and the proceeds of asset dispositions ("Annual Mandatory
Purchases"). Solon would have received credit against Annual Mandatory Purchases
for any amounts paid in open market or other purchases. Solon would have
received a credit against the sinking fund payment requirements for the
principal amount of Senior Notes acquired. No annual mandatory purchases have
been required in 1994 or 1993. The Debentures had no mandatory principal
repayment requirements until they matured on October 15, 2002.
The Senior Notes were redeemable at Solon's option at a price equal to 106 3/8%
after January 15, 1997, declining to par if redeemed after January 15, 1999. The
Subordinated Debentures were redeemable at a price equal to 106 7/8% after
October 15, 1997, declining to par if redeemed after October 15, 1999. During
November 1994, Solon purchased in the open market and immediately retired $1.0
million of the Senior Notes.
The estimated fair value of Solon's Senior Notes and Subordinated Debentures at
September 29, 1995, based upon limited quoted market activity, approximated its
recorded value.
Debt issue costs totaling $5.4 million incurred in connection with the 1992
debt offerings are included in other assets and were being amortized over the
term of the Senior Notes and Debentures. Accumulated amortization is $2.2
million and $1.5 million at September 29, 1995 and September 30, 1994,
respectively.
On December 30, 1992, Solon entered into a loan and security agreement ("Credit
Facility") which provided for a three-year revolving line of credit in the
amount of up to $5 million. Interest on the borrowing was based on prime plus
2.875%, but in no event would the interest be less than the greater of 8% per
annum or $15,000 per month. Solon was also required to pay a monthly service fee
of $2,000 and an annual facility fee of 1% of the $5 million available under the
Credit Facility. Borrowings under the Credit Facility were secured by accounts
receivable, bank deposit accounts, equipment and general intangibles of Solon.
Additionally, Solon was required to maintain a joint cash depository account
with the lender. All cash collections were required to be deposited in this
account before being transferred to Solon's account. Amounts borrowed and repaid
during fiscal 1995 and 1994 totaled $2.0 million and $10.1 million,
respectively. No borrowings were outstanding under the Credit Facility at
September 29, 1995 and September 30, 1994.
F-43
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
At the time of the purchase of Solon in 1987, Solon entered into interest rate
exchange agreements on $70 million notional principal. These agreements were
accounted for as hedges and reduced the effective interest rate on Solon's 14%
Subordinated Sinking Fund Debentures due 1999 (the "Debentures") to
approximately 13% through June 16, 1993. The Debentures were retired in 1992.
Solon recorded a reduction of interest expense of $539,000 for fiscal year 1993
as a result of these agreements.
Debt outstanding under the long-term credit facility and other debt of TCC as of
September 29, 1995, consists of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Revolving line of credit, due January
31, 2000. Interest at prime plus 1.25%
(10.25% at September 29, 1995) $ 2,880
Term loan A, quarterly payments of $250
commencing April 1, 1996, and
increasing to $500 April 1, 1997,
$1,250 April 1, 1998 and $1,500 April
1, 1999. Interest at prime plus 1.25%
(10.25% at September 29, 1995) 14,000
Term loan B, quarterly payments of
$1,750 commencing April 1, 2000 and
increasing to $2,000 April 1, 2001
with the final two payments of $1,750
on April 1, 2002 and July 1, 2002.
Interest at prime plus 1.75% (10.75%
at September 29, 1995) 18,500
Term loan C, due July 1, 2002. Interest
at 12.5%. 7,500
---------
42,880
Other debt 597
---------
$43,477
=========
</TABLE>
The long-term credit facility provided for $40 million in term loans and $10
million in aggregate for revolving credit and acquisition loan facilities.
The revolving line of credit agreement provided for up to $5 million in
borrowings, including letters of credit up to a maximum of $1 million. There was
a one-half of one percent fee per annum on the unused portion of this facility
and a two percent letter of credit fee.
The long-term credit facility also provided for acquisition loans of up to $5
million. The acquisition loans were to be used to finance acquisitions or
capital expenditures attributed to growth. Any amounts outstanding under the
acquisition line as of January 31, 2000
F-44
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
6. DEBT (CONTINUED)
were to be repaid in equal quarterly installments through July 1, 2002.
Borrowings under the acquisition line bear interest at prime plus 1.75%. There
were no acquisition loans outstanding as of September 29, 1995.
The Financing Agreement relating to the long-term credit facility required TCC,
among other things, to maintain certain financial ratios and restricted
additional investments and indebtedness. Management believes TCC was in
compliance with all covenants contained in this Financing Agreement. Loans
outstanding under this agreement were subject to prepayment upon the occurrence
of certain events such as asset dispositions, public offerings and the
generation of excess cash flow, as defined. TCC may be subject to prepayment
penalty on any fixed rate borrowings.
Industries and Super Laundry are the borrowers under the Financing Agreement.
The facility is guaranteed by TCC. Borrowings are secured by all of the assets
of TCC.
Other debt includes payments due under noncompete agreements.
Maturities of debt for TCC at September 29, 1995 are contractually payable as
follows (in thousands):
<TABLE>
<CAPTION>
Years ending September:
<S> <C>
1996 $ 873
1997 1,724
1998 3,500
1999 5,500
2000 7,630
Thereafter 24,250
==========
$43,477
==========
</TABLE>
The Company made cash payments for interest of $10.9 million, $8.5 million,
$17.1 million and $17.3 million for 1995S, 1995P, and fiscal years 1994 and
1993, respectively.
7. RETIREMENT SAVINGS PLAN
Effective October 1, 1987, Solon formed the Solon Automated Services Retirement
Savings Plan (the "Plan"). The Plan is a defined contribution plan available to
all full-time Solon employees who have completed one year of service. Under the
terms of the
F-45
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
7. RETIREMENT SAVINGS PLAN (CONTINUED)
Plan, Solon matches employee contributions at a percentage determined annually
by the Board of Directors. Solon provided for matching contributions of 25% in
1995, 25% in 1994 and 50% in 1993. During fiscal 1994 and 1993, Solon issued
$103,000 and $165,000, respectively, of its Common Stock to satisfy its accrued
obligations to the Plan. The number of shares issued to the Plan is based upon
the appraised value of the stock which is determined annually by an independent
appraiser. During fiscal 1995, Solon made a cash contribution of $80,000 to
satisfy its fiscal 1994 obligations to the Plan. Solon will fund the fiscal 1995
Company match through a cash contribution in 1996.
TCC has established a defined contribution plan for substantially all of its
employees. TCC's contributions to the plan for 1995S amounted to approximately
$42,500.
The Company has no obligations for other postretirement benefits.
8. STOCK OPTION PLAN
Solon adopted a stock option plan (the "Plan") in September 1987. The Plan
authorized the granting of incentive stock options, nonqualified options, or a
combination of the foregoing, to certain key employees and directors.
Under the terms of the Plan, 1,250,000 common shares were reserved for issuance
upon exercise of options. Shares for options that had expired or had been
surrendered or canceled without having been exercised may again have been
optioned under the Plan.
Each option granted was exercisable into one common share of Solon. In general,
50% of stock options granted became exercisable five years after the date of
grant, with 12 1/2% of the options becoming exercisable in each of the
subsequent four years.
As of September 29, 1995, September 30, 1994 and October 1, 1993, there was a
total of 212,000, 970,000, and 1,174,000 stock options outstanding,
respectively, exercisable at prices between $.98 and $1.23 per common share. No
options had been exercised since Solon adopted the Plan. As a result of the
merger with TCC, the Plan was canceled; participants in the Plan received in
aggregate consideration of approximately $34,000.
F-46
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
9. INCOME TAXES
As of September 29, 1995 and September 30, 1994, the components of the Company's
net deferred tax liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 29 SEPTEMBER 30
1995 1994
----------------------------------
SUCCESSOR PREDECESSOR
<S> <C> <C>
Deferred tax liabilities:
Accelerated tax depreciation $26,804 $ 9,239
Other, net 3,355 2,293
----------------------------------
30,159 11,532
----------------------------------
Deferred tax assets:
Net operating loss carryforwards 4,600 7,200
Book over tax depreciation 742 --
Valuation allowance for deferred tax
assets (460) (3,700)
----------------------------------
4,882 3,500
----------------------------------
Net deferred tax liabilities $25,277 $ 8,032
==================================
</TABLE>
As of April 5, 1995, the deferred tax asset and related valuation allowance
relating to Solon were netted and reduced to $2.6 million to reflect the net
operating loss available pursuant to limitations imposed under provisions of the
Internal Revenue Code regarding changes in ownership. In addition, as of April
5, 1995, TCC recorded a deferred tax asset of $460,000 with a valuation
allowance of the same amount. The deferred tax asset recorded in the Successor
period does not reflect a valuation allowance because the loss can be utilized
against the deferred tax liabilities in the carryforward period. The net
operating loss carryforwards, which expire between fiscal years 2001 through
2007, consist of approximately $7 million (after the limitation) relating to the
Predecessor company and approximately $5 million relating to the Successor
company.
During the fourth quarter of fiscal 1994, Solon evaluated the realizability of
previously recorded deferred tax assets and concluded that due to certain
transactions which have occurred subsequent to October 1, 1993, it was more
likely than not that such assets would not be fully realizable. Accordingly,
Solon established a $3.7 million valuation allowance as of September 30, 1994.
The charge for this valuation allowance is included in the deferred tax
provision in the accompanying Consolidated Statement of Operations.
F-47
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
9. INCOME TAXES
The provision (benefit) for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
APRIL 5, 1995 OCTOBER 1,
TO 1994 TO YEAR ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30, OCTOBER 1,
1995 1995 1994 1993
---------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR PREDECESSOR
<S> <C> <C> <C> <C>
Federal $(1,760) $ -- $2,517 $(649)
State (102) 50 245 (119)
---------------------------------------------------------
$(1,862) $ 50 $2,762 $(768)
=========================================================
</TABLE>
Deferred taxes relate primarily from timing differences resulting from using
accelerated depreciation for tax purposes and straight-line depreciation for
financial reporting purposes. The 1993 deferred tax benefit results from the
reversal of previously provided deferred tax credits in recognition of current
losses.
The effective income tax rate differs from the amount computed by applying the
U.S. federal statutory rate to loss before taxes as a result of state taxes and
permanent book/tax differences as follows (in thousands):
<TABLE>
<CAPTION>
APRIL 5, 1995 OCTOBER 1,
TO 1994 TO YEAR ENDED
SEPTEMBER 29, APRIL 4, SEPTEMBER 30, OCTOBER 1,
1995 1995 1994 1993
-----------------------------------------------------------
SUCCESSOR PREDECESSOR PREDECESSOR PREDECESSOR
<S> <C> <C> <C> <C>
Expected tax benefit $(2,655) $(588) $(1,413) $(1,238)
State tax benefit, net of federal taxes (320) (69) (55) (140)
Permanent book/tax differences:
Goodwill and other 1,113 394 530 610
Valuation allowance -- 313 3,700 --
-----------------------------------------------------------
Recorded tax provision/(benefit) $(1,862) $ 50 $ 2,762 $ (768)
===========================================================
</TABLE>
F-48
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The Company made cash payments for income taxes of approximately $280,000,
$29,000 and $268,000 for 1995S and fiscal years 1994 and 1993, respectively.
There were no income tax payments made in 1995P.
10. COMMON STOCK
Solon and its stockholders had entered into a Stockholders' Agreement dated as
of September 28, 1987. Pursuant to this Agreement, Solon was required to
purchase shares of its common stock from selling management stockholders or
their estates in the event of death, disability, termination of employment, and
certain other circumstances. Pursuant to the terms of the Stockholders'
Agreement, such purchases were made based on the higher of the stockholders'
cost or by an earnings related formula defined in the Agreement. During fiscal
1994 and 1993, Solon acquired 270,000 and 10,000 shares, respectively, pursuant
to this Agreement at a total cost of $270,000 and $10,000, respectively, from
management stockholders. Such shares have been retired and canceled. The
Stockholders' Agreement was terminated effective July 12, 1994.
Class A Common stockholders have no voting rights other than on matters
involving consolidation or merger, sale or transfer of all or substantially all
assets or any liquidation, dissolution or winding up of Solon. Solon's
Certificate of Incorporation provides that immediately prior to the closing of
any initial public offering of Common Stock, all outstanding shares of Class A
Common Stock will be deemed to have been converted into a like number of shares
of Common Stock.
On November 30, 1995, the Company effected a recapitalization, whereby it
reduced its authorized $.01 par value common stock to 1,000 shares and issued
100 shares to the holders of the then outstanding stock. All references in the
Successor period reflect this recapitalization.
Receivables from shareholders reflect advances to SAS of $2,000,000 and notes
receivable from management who are shareholders of SAS of $338,000. Such amounts
have been reflected as reductions of shareholders' equity in the accompanying
Successor period balance sheet.
F-49
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
11. COMMITMENTS AND CONTINGENCIES
Rental expense for all operating leases, which principally cover office
facilities and vehicles, was $1,139,000, $807,000, $1,577,000 and $1,769,000 for
1995S, 1995P, and fiscal years 1994 and 1993, respectively.
The following is a schedule of the future minimum rental commitments under all
noncancelable leases as of September 29, 1995 (in thousands):
<TABLE>
<S> <C>
1996 $1,885
1997 1,359
1998 943
1999 534
2000 and future periods 1,217
--------
$5,938
========
</TABLE>
The Company is contingently liable on receivables sold with recourse to finance
companies by TCC. The total amount of such receivables outstanding as of
September 29, 1995 is approximately $4 million.
The Company is party to various legal proceedings incidental to its business.
Although the ultimate disposition of these proceedings is not presently
determinable, management does not believe that adverse determinations in any or
all such proceedings would have a material adverse effect upon the financial
condition or results of operations of the Company.
In connection with insurance coverages, which include workers compensation,
general liability and other coverages, annual premiums are subject to limited
retroactive adjustment based on actual loss experience.
As of September 30, 1994, Solon had a program pursuant to which change of
control and severance payments would be made to 14 management employees
following any sale of all of the Common Stock held by nonemployee stockholders.
Change of control payments were based on annual salaries at the time of such
sale. Severance payments were provided if, following any such sale, the
participant was not retained in a position comparable to that held prior to the
sale for a period between three to four months. In connection with the change in
control described in Note 2, payments aggregating $387,000 were made pursuant to
this program.
F-50
<PAGE>
Coinmach Corporation and Subsidiaries
(formerly Solon Automated Services, Inc.)
Notes to Combined and Consolidated Financial Statements (continued)
12. SUBSEQUENT EVENT
On November 30, 1995, the Company completed an exchange offer with substantially
all the holders of the Senior Notes and Subordinated Debentures. Through
December 14, 1995, the Company issued a total of $196.7 million of 11 3/4%
Senior Notes due 2005 (the "Notes") which enabled the Company to complete this
exchange offer, consummate the merger with TCC and retire its remaining debt,
and provide additional working capital. The Company incurred costs of $4.2
million, net of income taxes, related to a 5.5% premium paid to retire its
Senior Notes and Subordinated Debentures and wrote-off the unamortized balance
of the related original issue discount and deferred finance costs of
approximately $800,000 and $1.9 million, net of income taxes, respectively. The
Company also incurred costs related to the retirement of a revolving credit
facility of TCC of approximately $1.9 million, net of income taxes.
Interest on the Notes is payable semi-annually on May 15 and November 15. The
Notes are redeemable at the option of the Company at any time after November 15,
2000 at a price equal to 105 7/8% declining to par if redeemed after November
15, 2002. The Notes contain certain financial covenants and a registration
rights agreement, whereby the Company has agreed to file a Registration
Statement with the Securities and Exchange Commission.
On November 30, 1995, the Company entered into a new revolving credit facility,
("New Credit Facility"), which provides up to a maximum of $35.0 million.
Availability under the New Credit Facility is limited by an amount equal to one
semi-annual interest payment on the Notes. Interest on the borrowings is payable
monthly at a rate per annum no greater than the sum of LIBOR plus 2.50%. The
Company is obligated to pay an unused line fee in an amount equal to 0.5% of the
unused availability payable monthly in arrears. Borrowings under the New Credit
Facility are secured by real and personal property of the Company.
F-51
<PAGE>
LETTERHEAD OF KPMG PEAT MARWICK
Independent Auditors' Report
----------------------------
The Board of Directors
CIC I Acquisition Corp.:
We have audited the accompanying consolidated balance sheets of CIC I
Acquisition Corp. and subsidiaries (the Company) as of December 31, 1994, and
the related consolidated statements of operations, stockholders' deficiency and
cash flows for each of the years in the two-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 14 of the accompanying notes to the consolidated financial
statements, on January 31, 1995, the Company sold its partnership interests in
its operating subsidiaries to a new corporation, The Coinmach Corporation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CIC I Acquisition
Corp. and subsidiaries as of December 31, 1994, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
New York, New York /s/ KPMG Peat Marwick LLP
April 28, 1995
F-52
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1994
(dollars in thousands)
ASSETS
------
1994
-------
Cash $ 987
Receivables, net of reserves of $473 4,198
Inventories 2,154
Prepaid commissions 3,264
Property and equipment:
Laundry equipment 21,487
Leasehold improvements 10,438
Office equipment 1,900
Automobiles and trucks 2,903
-------
36,728
Less accumulated depreciation 20,443
-------
Net property and equipment 16,285
Goodwill, net of accumulated
amortization of $1,845 6,710
Other intangibles, net of accumulated
amortization of $8,678 2,209
Other assets 1,117
-------
$36,924
=======
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Balance Sheet, continued
December 31, 1994
(dollars in thousands)
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIENCY
-----------------------------------------------
1994
-------
Accounts payable $ 2,365
Accrued expenses 2,012
Accrued interest --
Commissions payable 3,156
Long-term debt (including $350
of management loans) 42,184
Other long-term liabilities 488
Minority interest 135
Common stockholders' deficiency:
Common stock, par value $.01; authorized
1,000,000 shares; issued and outstanding
87,000 shares in 1994 and 148,729 shares
in 1993 1
Consideration to continuing predecessor
interests in excess of book value --
Additional paid-in capital 39,869
Accumulated deficit (53,286)
--------
Total stockholders' deficiency (13,416)
--------
$36,924
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Revenues $73,857 $ 71,859
Laundry operating expenses 54,737 52,805
General and administrative expenses 4,938 5,570
Depreciation and amortization of property
and equipment 7,785 8,011
Amortization of intangibles and other assets 6,719 7,245
------- ---------
Operating loss (322) (1,772)
Interest expense 4,012 3,685
Interest expense - subordinated notes 0 6,824
Non-cash charges related to management loans 1,341 0
------- ---------
Loss before income taxes and extraordinary item (5,675) (12,281)
Income taxes 27 17
------- ---------
Loss before extraordinary item (5,702) (12,298)
Extraordinary item - early extinguishment
of debt 20,420 0
------- ---------
Net (loss) income $14,718 ($12,298)
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-55
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficiency
For the years ended December 31, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
CONSIDERATION TO
COMMON STOCK CONTINUING PREDECESSOR TOTAL
------------------- INTERESTS IN EXCESS ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT OF BOOK VALUE PAID-IN CAPITAL DEFICIT DEFICIENCY
------- ------ ----------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 148,729 $ 1 $(11,756) $ 0 $ (42,240) $ (53,995)
Accrued preferred dividends (1,710) (1,710)
Net loss (12,298) (12,298)
------- ------- ------- -------- --------- ---------
Balance December 31, 1993 148,729 1 (11,756) 0 (56,248) (68,003)
Net income 14,718 14,718
Effects of restructuring
transaction (see note 7):
Shares surrendered pursuant
to restructuring (148,729) (1) 11,756 (11,756) (1)
Shares issued pursuant
to restructuring 87,000 1 24,164 24,165
Surrender of preferred stock 14,364 14,364
Non-cash charge related to
issuance of management loan 1,341 1,341
-------- ------- ------- ------- --------- ---------
Balance December 31, 1994 87,000 $ 1 $ 0 $39,869 ($53,286) ($13,416)
======== === ======== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-56
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1994 and 1993
(dollars in thousands)
<TABLE>
<CAPTION>
1994 1993
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ 14,718 ($12,298)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 14,504 15,256
Minority interest in loss of consolidated subsidiary (10) (19)
Provision for bad debts 229 73
Increase in accrued interest 0 6,824
Non-cash charges relating to management loans 1,341 0
Non-cash portion of extraordinary item (23,487) 0
Changes in assets and liabilities:
Change in receivables 732 (160)
Change in prepaid commissions,
net of commissions payable (1,236) (1,600)
(Increase) decrease in inventories (349) 500
(Increase) decrease in other assets 2,766 (2,025)
(Decrease) increase in accounts payable and accrued expenses (484) 1,185
-------- ---------
Net cash provided by operating activities 8,724 7,736
-------- ---------
Cash flows from investing activities:
Purchase of laundry equipment (4,710) (4,089)
Purchase of fixed assets (1,861) (1,790)
Additions to intangibles (6) (240)
-------- ---------
Net cash used in investing activities (6,577) (6,119)
-------- ---------
Cash flows from financing activities:
Net repayments under revolving credit facility (2,019) (857)
Payment of other debt (474) (200)
Management loans 350 0
Principal payments of capital lease obligations (404) (348)
-------- ---------
Net cash used in financing activities (2,547) (1,405)
-------- ---------
Net (decrease) increase in cash (400) 212
Cash at beginning of period 1,387 1,175
-------- ---------
Cash at end of period $ 987 $ 1,387
-------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-57
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
(1) ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
See note 14 for subsequent event.
CIC I Acquisition Corp. ("CIC" or "Company") is a holding company that owns
Coinmach Industries Co. ("Coinmach") and Super Laundry Equipment Co. L.P.
("Super Laundry"). CIC was formed in 1989 expressly for the purpose of
acquiring an 85% general partnership interest in Coinmach and all of the
common stock of Super Laundry Equipment Corp., a predecessor company to
Super Laundry.
Coinmach is principally engaged in providing laundry equipment and related
services to multi-family housing complexes in the New York metropolitan
area. Super Laundry is principally a supplier of coin-operated laundromat
equipment, and turnkey laundromat retail stores in the New York
metropolitan area.
On January 31, 1995, the Company sold its partnership interest in Coinmach
and Super Laundry to a new corporation, The Coinmach Corporation (see note
14).
On December 15, 1993, CIC, on a stand alone basis, completed a "pre-
packaged" voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Plan"), which was approved by 100% of
the Company's shareholders and creditors. Neither Coinmach nor Super
Laundry were parties to this agreement. The Plan provided for the
Company's existing senior subordinated notes, junior subordinated
promissory notes, preferred stock and common stock to be exchanged for
87,000 shares of common stock valued at $24,163. The Plan, which was
confirmed and court approved on January 21, 1994, and became effective
February 4, 1994, has been reflected in the 1994 financial statements and
has been recorded in accordance with the guidelines provided by the
Financial Accounting Standards Board (FASB 15 "Accounting for Troubled Debt
Restructuring"). Pursuant to the Plan, the Company also amended its then
existing revolving and term loan agreement (see note 6(a)). As a result of
the above, the Company recognized an extraordinary gain, net of legal fees
and other direct costs of $20,420 on the early extinguishment of the debt.
The Company also incurred $1,341 in non-cash expenses related to the
estimated fair value of the equity conversion feature of debt issued
pursuant to the Plan (see note 6). In addition, the minority partners in
Coinmach extinguished their ownership positions and the Company now
effectively owns 100% of Coinmach (see note 7).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CIC, Coinmach
and Super Laundry. All significant intercompany balances and transactions
have been eliminated in consolidation.
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined using the first-in, first-out method. Inventories include
laundry equipment, spare parts and construction costs.
(c) REVENUE RECOGNITION
Super Laundry's customers generally sign sales contracts whereby Super
Laundry will construct and equip a complete laundromat operation, including
location identification, construction, plumbing, electrical wiring and all
required permits. Revenue is recognized on the completed contract method.
A contract is considered complete when all costs have been incurred and
either the installation is operating according
(continued)
F-58
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
to specifications or has been accepted by the customer. The duration of
such contracts is normally less than six months.
Sales of laundromats were approximately $14,579 and $13,054 for the years
ended December 31, 1994 and 1993, respectively.
(d) PROPERTY AND EQUIPMENT
Laundry equipment, consisting primarily of commercial washers and dryers,
and fixed assets, are stated at cost. The cost of remanufacturing
equipment is included in the cost of laundry equipment. The cost of
laundry room improvements is included in leasehold improvements. The
Company capitalized remanufacturing and laundry room improvement costs of
approximately $2,848 and $2,639 for the years ended December 31, 1994 and
1993, respectively.
Depreciation of laundry equipment and fixed assets is calculated using the
straight-line method over their estimated useful lives, generally five
years. Leasehold improvements are amortized using the straight line method
over the shorter of the lease term or estimated useful life of the asset.
The Company's policy is to write-off fully depreciated assets and the
related accumulated depreciation and amortization. Depreciation expense
was approximately $7,785 and $8,011 for the years ended December 31, 1994
and 1993, respectively.
The Company reviews the undiscounted cash flows of its laundry locations in
assessing whether its property and equipment (primarily laundry equipment
and laundry room improvements) may be impaired. The Company does not
believe that the adoption of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long
Lived Assets to be Disposed Of" will have a material impact on the
Company's financial position or results of operations.
(e) PREPAID COMMISSIONS
The Company capitalizes contractually required advance commissions and
certain incentive payments paid in connection with the acquisition of its
contractual rights to laundry room locations. Such amounts are amortized
on a straight-line basis over the life of the related lease or the related
contractual agreement. Amortization expense on prepaid commissions
amounted to approximately $593 and $557 for the years ended December 31,
1994 and 1993, respectively.
(f) CONTRACTS RIGHTS
Contract rights represent amounts expended for location contracts arising
from the acquisition of laundry machines on location. These amounts are
amortized on a straight-line basis over the remaining life of the
corresponding contract. Amortization expense on contract rights was $3,443
and $4,075 for the years ended December 31, 1994 and 1993, respectively.
(g) INTANGIBLES
Intangibles, consisting principally of covenants not to compete, computer
software and deferred financing costs are amortized over their estimated
useful lives. Amortization expense on intangibles amounted to
approximately $2,375 and $2,100 for the years ended December 31, 1994 and
1993, respectively.
(continued)
F-59
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
(h) GOODWILL
Goodwill is being amortized, using the straight-line method, over 40 years.
Amortization expense on goodwill amounted to $308 and $301 for the years
ended December 31, 1994 and 1993, respectively. The Company periodically
evaluates the recoverability of goodwill based on the undiscounted cash
flows of the businesses acquired.
(i) INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes.
Statement 109 required a change from the deferred method of accounting for
income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company adopted Statement 109 as of January 1, 1993,
the effect of which was not material to the Company's consolidated
financial statements.
(3) RECEIVABLES
-----------
Receivables consist of the following:
1994
-------
Accounts receivable $1,627
Notes receivable 2,437
Finance reserves 607
------
4,671
Allowance for doubtful
accounts ( 473)
------
$4,198
======
At December 31, 1994, notes receivable bear interest at a weighted average
interest rate of approximately 10% and mature through 1998. The notes are
collateralized by the underlying laundry equipment. The Company
periodically sells notes receivable arising from the sale of laundromats to
third party finance companies. Finance reserves arise when the Company
sells notes and a portion of the proceeds are retained by the finance
company. As the notes are collected, the finance companies remit a portion
of the collections to the Company. Many of the notes receivable are sold
with recourse to the Company (see note 8). Control of the notes sold with
recourse is surrendered by the Company on the date of transfer. The
Company generally sells its receivables with recourse at cost, recognizing
no gain or loss.
(4) TRANSACTIONS WITH AFFILIATES
----------------------------
The company sold certain trade notes receivable to Cointrol Credit Co.,
L.P. ("Credit"), a company created in 1991 and owned by certain officers
and directors of the Company and outside investors.
All such notes were sold to yield a fair market rate of return as
determined by rates available from unrelated finance companies for similar
notes. The aggregate outstanding balance of all notes sold to
(continued)
F-60
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
Credit as of December 31, 1994 was $641. These notes are with recourse to
the Company and mature through 1998. In April 1995, the Company entered
into an agreement with Credit to repurchase the remaining receivables
outstanding at their then face value.
(5) INTANGIBLES
-----------
Intangibles consist of the following:
Estimated
1994 useful lives
-------------- ------------
Covenants not to compete $ 4,313 5 years
Computer software 4,050 5 years
Deferred financing costs 1,552 Life of debt
Other 972 5 years
-------
10,887
Accumulated amortization 8,678
-------
$ 2,209
=======
(6) LONG-TERM DEBT
--------------
Long Term debt consists of the following:
1994
------------
Revolving line of credit, due
February 28, 1995 interest at
prime plus 1.75% (a) $25,848
Term loan, due February 28, 1995 (a) 15,000
Senior subordinated notes,
originally due October 1999,
interest at 14.5% (c) --
Junior subordinated promissory
notes, originally due
October 2000. (d) --
Management loans, due February,
2004, interest at prime plus
1.75%, convertible into 7,000
shares of common stock after
February, 1999. (b) 350
Other (e) 986
------------
$42,184
============
(continued)
F-61
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
On January 31, 1995, the Company sold its partnership interests in Coinmach
and Super Laundry to a new corporation, The Coinmach Corporation.
In connection with this sale, the Company paid off all amounts owed under
its revolver and term loan debt (see note 14). The accompanying financial
statements do not reflect the sale or the related repayment of debt.
On December 15, 1993, the Company finalized negotiations with the holders
of the revolving line of credit, term loan, senior subordinated note
holders, and the junior subordinated promissory note holders. Pursuant to
the Plan, the holders of the subordinated note and the junior notes
exchanged their notes, including accrued interest through December 15,
1993, for 87,000 shares of the restructured company's common stock. The
Plan was confirmed and court approved in January 1994.
(a) On March 16, 1990, the Company entered into a bank agreement that
provided for a term loan of $15,000 originally payable in eight
quarterly installments of $1,875 commencing April 1, 1994, and a
revolving line of credit of up to $35,000 for a term of five years.
On February 4, 1994, the maximum revolver facility was reduced to
$29,413. In addition, commencing March 1, 1994 and continuing on the
first day of each month thereafter, the revolving credit facility will
be reduced by $175 per month through June 1994, and then $212 per
month, until the termination of the facility, including the term loan,
on February 28, 1995.
The interest rate for bank borrowing is the prime rate plus 1.75%. As
of December 31, 1994, the interest rate on these loans was 10.25%. In
addition, the agreement provides for the payment of a facility fee of
.125% per annum on average daily outstanding balances and an unused
line fee of .50% per annum on the average daily balance of the
revolving loans. The agreement contains certain restrictive covenants
and requires the Company, among other things, to maintain certain
financial ratios and to restrict investments, additional indebtedness
and payment of dividends. The loan is secured by all of the assets of
the Company. See Note 14 for description of subsequent event.
(b) Pursuant to the Plan, senior management loaned the Company $350 due
February 4, 2004. Interest is payable monthly, at the rate of 1.75%
over prime. As of December 31, 1994, the interest rate on these loans
was 10.25%. The loans are convertible, upon the earlier of five years
or upon certain circumstances, into 7% of the Company's fully diluted
common stock. These loans, which are subordinated to the revolving
line of credit and the term loan, were funded February 4, 1994 (see
note 7). Based on an independent appraisal, the estimated value of
the 7% interest of the Company (issuable upon conversion of the loans)
exceeded the principal amount of the loans by $1,341. Accordingly, a
non-cash charge equal to such amount was recorded in 1994. The loans
were repaid in connection with the subsequent event described in Note
14.
(c) In 1989 and 1990, the Company sold $30,000 of its 14.5% senior
subordinated notes due October 1999. Interest was payable on April 15
and October 15 of each year commencing April 15, 1990. The notes were
redeemable, at the option of the Company, at amounts decreasing from
114.5% of par value at October 15, 1989 to par value at October 15,
1998. Pursuant to the Plan, the notes were cancelled and an
extraordinary gain was recognized on the early extinguishment of the
debt in 1994 (see note 7).
(d) In 1989, the Company issued junior subordinated promissory notes to
the prior owners of Coinmach. The notes, along with accrued interest,
were cancelled in 1994 pursuant to the Plan (see note 7).
(continued)
F-62
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
(e) Other debt includes payments due under non-compete agreements.
Maturities of long-term debt at December 31, 1994 are contractually
payable as follows:
1995 $41,329
1996 376
1997 129
1998 0
Thereafter 350
-------
$42,184
=======
(7) RESTRUCTURING
-------------
On January 31, 1995, the Company sold its partnership interests in Coinmach
and Super Laundry to a new corporation, The Coinmach Corporation (see note
14).
On December 15, 1993, CIC, on a stand alone basis, completed a "pre-
packaged" voluntary petition for reorganization under Chapter 11 for the
United States Bankruptcy Code, which was approved by 100% of the Company's
shareholders and creditors (see note 1). Neither Coinmach nor Super
Laundry were parties to this agreement. The Plan provided for the
Company's existing senior subordinated notes, junior subordinated
promissory notes, preferred stock and common stock to be exchanged for
87,000 shares of common stock valued at $24,163. The carrying value of the
senior subordinated notes, junior subordinated notes and related accrued
interest was $30,000, $1,500, and $16,149, respectively. The preferred
stock and common stock had a net carrying value of $2,609, consisting of
preferred stock of $14,364, and common stock of $1, offset by the carrying
value of the consideration to continuing predecessor interests in excess of
book value of $11,756. The Plan was confirmed and court approved on
January 21, 1994, became effective February 4, 1994, and has been reflected
in the 1994 financial statements. In addition, pursuant to the Plan, the
Company amended its then existing revolving and term loan agreement. As a
result of the above, the Company recognized an extraordinary gain of
$20,420, net of legal fees and other direct costs of $3,067, on the early
extinguishment of the debt in 1994. In addition, $14,364, representing the
carrying value of the preferred stock, is included in stockholders'
deficiency. Pursuant to the Plan, the equity position of the shareholder
to which the continuing predecessor interests were attributed surrendered
such position. Consequently, the carrying value of the continuing
predecessor interests has been charged to the accumulated deficit account.
The restructuring has been treated as a tax free exchange of debt for
equity in accordance with the provisions of the Internal Revenue Service
Code.
The Plan required two members of senior management to loan the Company
$350. These loans have an interest rate of prime plus 1.75% and are due in
2004. The loans were funded February 4, 1994, and are reflected in the
accompanying financial statements as long-term debt.
Also pursuant to the Plan the Company entered into non-compete agreements
with two former shareholders totaling approximately $954.
(continued)
F-63
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
Coinmach is obligated under long-term leases relating to revenue equipment
locations. The terms of these leases principally range from three to six
years, most of which provide for fixed monthly commission payments and
contain renewal options. The majority of these leases contain provisions
permitting the cancellation of the lease and/or adjustment of the
commission by Coinmach if minimum revenue levels are not achieved. In
addition, Coinmach rents office and warehouse space from SSB Corporation
("SSB"). SSB is owned by certain individuals who were also owners of the
Company, prior to the Plan. The lease, expiring on May 1, 1995, provides
for annual rentals of $368 and for the payment by Coinmach of all operating
expenses.
Super Laundry leases its facilities from a related party under an operating
lease that expires on December 31, 1996 and provides for a minimum annual
rental of $57 in 1993 increasing to $60 in 1994 and $63 in 1996. Under the
terms of the lease, Super Laundry is required to pay operating costs.
Rental expense for this lease amounted to $72 and $71 for the years ended
December 31, 1994 and 1993, respectively. In addition, Super Laundry also
leases a warehouse from a related party on a month-to-month basis. Rental
expense for this lease amounted to $39 and $42 for the years ended December
31, 1994 and 1993, respectively. Effective January 1, 1993, Super Laundry
entered into a five year lease for a sales office. This lease expires
December 31, 1997 and provides for a minimum annual rental of $23 in 1993,
increasing by 4% each successive year through 1997. The lease also calls
for Super Laundry to pay operating costs. Rental expense including
operating costs for this lease amounted to $24 and $30 for the years ended
December 31, 1994 and 1993, respectively.
Future minimum lease payments under noncancellable operating leases
(excluding commissions for laundry equipment locations) as of December 31,
1994 are as follows:
1995 $367
1996 108
1997 27
----
Total future minimum lease payments $502
====
Rent expense, excluding commission payments for laundry equipment
locations, amounted to approximately $642 and $599 for the years ended
December 31, 1994 and 1993, respectively.
Super Laundry is contingently liable on receivables sold, with recourse, to
finance companies. The total amount outstanding is approximated at $7,919
as of December 31, 1994.
Under agreements between Super Laundry and certain finance companies, a
portion of the notes receivable sales price is retained by the finance
company until the receivable is collected. Amounts retained under the
agreements amounted to $607 as of December 31, 1994, and are shown in the
accompanying consolidated balance sheets as receivables.
(continued)
F-64
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
Coinmach has entered into leasing arrangements for automobiles and trucks
and office equipment which are accounted for as capital leases. At
December 31, 1994, the gross amount of such assets amounted to $1,646, and
accumulated amortization amounted to $889. Future minimum lease payments
as of December 31, 1994 are as follows:
1995 $359
1996 133
1997 99
----
Minimum lease payments 591
Less amount representing interest 103
----
Present value of net minimum lease payments $488
====
The Company is party to certain lawsuits and claims relating to its
operations. It is the opinion of management, based on the advice of
outside counsel, that such lawsuits and claims will be resolved without
material effect to the Company's consolidated financial statements.
(9) INCOME TAXES
------------
Income tax expense of $27 and $17 for the years ended December 31, 1994 and
1993, respectively, represents state and local taxes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1994 are presented
below:
Deferred tax assets:
Net operating loss carryforwards $ 21,200
Fixed and intangible assets, principally
due to differences between tax and
financial reporting bases 3,117
Allowance for doubtful accounts 189
--------
Gross deferred tax assets 24,506
Less valuation allowance (24,506)
--------
Net deferred tax asset $ -0-
========
CIC files a consolidated Federal income tax return with Super Laundry and
includes its equity in the earnings or loss of Coinmach. At December 31,
1994, net operating loss carryforwards of approximately $53,000 are
available to offset future taxable income and expire commencing 2004
through 2009.
(10) MULTI-EMPLOYER PLAN
-------------------
Coinmach participated with other companies in making contributions to a
multi-employer pension plan for the benefit of its union employees.
(continued)
F-65
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1993
(Dollars in thousands)
Contributions to the Plan were $40 for the year ended December 31, 1993.
Effective January 1, 1994, Coinmach no longer participates in the pension
plan.
(11) STOCK OPTION PLAN
-----------------
Pursuant to the Plan, the Company adopted two stock option plans, which
provide for the grant and exercise of options to purchase up to 6,000
shares of the Company's common stock upon attainment of certain annual
earnings performance goals through 1997. One of the plans is for the
employees of the Company, and provides for the grant and exercise of 5,000
shares. On February 4, 1994, options representing 1,000 shares under this
plan were granted to certain employees and were immediately vested but were
not to be exercisable unless 1994 earnings performance goals were attained.
The employee plan also provides for the grant of options to purchase an
additional 1,000 shares in 1994 and each year through December 31, 1997.
Such options will be vested when granted. The second stock option plan
provides for the grant of options to purchase 1,000 shares to a financial
advisor upon attainment of annual earnings performance goals through 1995.
Under both plans, the options were to expire ten years from the dates of
grant and were exercisable at $50 per share. No options have been
exercised and in connection with the subsequent event described in note 14,
the stock option plans were terminated and all outstanding options were
cancelled.
(12) PROFIT SHARING PLAN
-------------------
Effective April 1, 1994, the Company established a profit sharing and
retirement plan (the "Coinmach Profit Sharing Plan") for substantially all
of its employees. Pursuant to the Coinmach Profit Sharing Plan, eligible
employees may defer up to 15% of their salaries up to a maximum level
imposed by applicable federal law. Coinmach makes matching contributions
in increasing amounts, based upon the number or years of service performed
by eligible participants, up to a maximum of 6% of an eligible employee's
salary. Matching contribution percentages range from 5% for one to two
years of service up to 25% for five or more years of service and vest over
a six year period. Company contributions to the plan for the year ended
December 31, 1994 amounted to $64.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The Company paid approximately $4,012 and $3,744 for interest for the years
ended December 31, 1994 and 1993, respectively.
The Company entered into leasing arrangements accounted for as capital
leases in the amount of approximately $207 and $406 for the years ended
December 31, 1994 and 1993, respectively.
(14) SUBSEQUENT EVENT
----------------
On January 31, 1995, the Company sold its partnership interests in Coinmach
and Super Laundry to a new corporation, The Coinmach Corporation ("Corp.").
In connection with this sale, the Company, Coinmach and Super Laundry paid
off all amounts owed under their existing revolver and term loan debt (see
note 6). Corp. is owned by an investor group (83%) and the management of
Coinmach and Super Laundry (17%). Corp. financed the transaction with
approximately $11,600 of new equity, and debt financing of up to $50,000.
Under the terms of the financing, no principal payments on the debt are due
until April 1996.
(continued)
F-66
<PAGE>
LETTERHEAD OF KPMG PEAT MARWICK
Independent Auditors' Report
----------------------------
The Board of Directors
CIC I Acquisition Corp.:
We have audited the accompanying consolidated balance sheet of CIC I
Acquisition Corp. and subsidiaries (the Company) as of January 31, 1995,
and the related consolidated statements of operations and accumulated
deficit and cash flows for the one-month period then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As discussed in note 13 of the accompanying notes to the consolidated
financial statements, on January 31, 1995, the Company sold its partnership
interests in its operating subsidiaries to a new corporation, The Coinmach
Corporation. The accompanying consolidated financial statements reflect
the financial position, results of operations and cash flows of the Company
immediately prior to the sale.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CIC I
Acquisition Corp. and subsidiaries as of January 31, 1995, and the results
of their operations and their cash flows for the one-month period then
ended, in conformity with generally accepted accounting principles.
New York, New York /s/ KPMG Peat Marwick LLP
April 28, 1995
F-67
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
January 31, 1995
(dollars in thousands)
ASSETS
------
Cash $ 1,162
Receivables, net of reserve of $447 3,261
Inventories 2,353
Prepaid commissions 3,333
Property and equipment:
Laundry equipment 21,848
Leasehold improvements 10,604
Office equipment 1,917
Automobiles and trucks 2,934
-------
37,303
Less accumulated depreciation 21,183
-------
Net property and equipment 16,120
Goodwill, net of accumulated
amortization of $1,883 6,672
Other intangibles, net of accumulated
amortization of $8,802 2,053
Other assets 1,115
-------
$36,069
=======
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-68
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Balance Sheet, continued
January 31, 1995
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Accounts payable $ 2,197
Accrued expenses 2,134
Commissions payable 2,935
Long-term debt (including $350 of
management loans) 41,800
Other long-term liabilities 461
Minority interest 133
Stockholders' deficiency:
Common stock, par value $.01;
authorized 1,000,000 shares; issued
and outstanding 87,000 shares 1
Additional paid-in capital 39,869
Accumulated deficit (53,461)
--------
Total stockholders' deficiency (13,591)
--------
$36,069
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-69
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Statement of Operations
and Accumulated Deficit
For the month ended
January 31, 1995
(dollars in thousands)
Revenues $5,879
Laundry operating expenses 4,229
General and administrative expenses 450
Depreciation and amortization of property
and equipment 739
Amortization of intangibles and other assets 241
------
Operating income 220
Interest expense 395
------
Net loss (175)
Accumulated deficit at
beginning of period (53,286)
--------
Accumulated deficit at end of period $(53,461)
=========
The accompanying notes are an integral part of these consolidated financial
statements.
F-70
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the month ended January 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net loss ($175)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 980
Minority interest in loss of consolidated subsidiary (2)
Changes in assets and liabilities:
Decrease in receivables 937
Change in prepaid commissions, net of commission payable (302)
(Increase) in inventories (199)
Decrease in other assets 2
(Decrease) in accounts payable and accrued expenses (44)
------
Net cash provided by operating activities 1,197
------
Cash flows from investing activities:
Purchase of laundry equipment (361)
Purchase of other fixed assets (215)
Additions to intangibles (35)
------
Net cash used in investing activities (611)
------
Cash flows from financing activities:
Net repayments under revolving credit facility (332)
Payment of other debt (52)
Principal payments of capital lease obligations (27)
------
Net cash used in financing activities (411)
------
Net increase in cash 175
Cash at beginning of period 987
------
Cash at end of period $1,162
------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-71
<PAGE>
CIC I ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(1) ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
See note 13 for subsequent event.
CIC I Acquisition Corp. ("CIC" or "Company") is a holding company that
owns Coinmach Industries Co. ("Coinmach") and Super Laundry Equipment
Co. L.P. ("Super Laundry"). CIC was formed in 1989 expressly for the
purpose of acquiring an 85% general partnership interest in Coinmach
and all of the common stock of Super Laundry Equipment Corp., a
predecessor company to Super Laundry.
Coinmach is principally engaged in providing laundry equipment and
related services to multi-family housing complexes in the New York
metropolitan area. Super Laundry is principally a supplier of coin-
operated laundromat equipment, and turnkey laundromat retail stores in
the New York metropolitan area.
On January 31, 1995, the Company sold its partnership interests in
Coinmach and Super Laundry to a new corporation, The Coinmach
Corporation (see note 13). The accompanying consolidated financial
statements reflect the financial position, results of operations, and
cash flows of the Company immediately prior to the sale.
On December 15, 1993, CIC, on a stand alone basis, completed a "pre-
packaged" voluntary capital restructuring (the "Plan") which was
approved by 100% of the Company's shareholders and creditors. Neither
Coinmach nor Super Laundry were parties to this agreement. The Plan
provided for the Company's existing senior subordinated notes, junior
subordinated promissory notes, preferred stock and common stock to be
exchanged for 87,000 shares of common stock valued at $24,163. The
Plan, which was confirmed and court approved on January 21, 1994, and
became effective February 4, 1994, was reflected in the 1994 financial
statements, and was recorded in accordance with the guidelines
provided by the Statement of Financial Accounting Standards Board
(FASB 15 "Accounting for Troubled Debt Restructuring"). Pursuant to
the Plan, the Company also amended its existing revolving and term
loan agreement (see note 6(a)). As a result of the above, the Company
recognized an extraordinary gain, net of legal fees and other direct
costs, of $20,420 on the early extinguishment of the debt in 1994.
The Company also incurred $1,341 in non-cash expenses related to the
estimated fair value of the equity conversion feature of debt issued
pursuant to the Plan (see note 6). In addition, the minority partners
in Coinmach extinguished their ownership positions and the Company
effectively owned 100% of Coinmach (see note 7).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CIC,
Coinmach and Super Laundry. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
principally determined using the first-in, first-out method.
Inventories include laundry equipment, spare parts and construction
costs.
(Continued)
F-72
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(c) REVENUE RECOGNITION
Super Laundry's customers generally sign sales contracts whereby Super
Laundry will construct and equip a complete laundromat operation,
including location identification, construction, plumbing, electrical
wiring and all required permits. Revenue is recognized on the
completed contract method. A contract is considered complete when all
costs have been incurred and either the installation is operating
according to specifications or has been accepted by the customer. The
duration of such contracts is normally less than six months.
Sales of laundromats were $451 for the one month ended January 31,
1995.
(d) PROPERTY AND EQUIPMENT
Laundry equipment, consisting primarily of commercial washers and
dryers, and other fixed assets, are stated at cost. The cost of
remanufacturing equipment is included in the cost of laundry
equipment. The cost of laundry room improvements is included in
leasehold improvements. The Company capitalized remanufacturing and
laundry room improvement costs of approximately $273 for the month
ended January 31, 1995.
Depreciation of laundry equipment and fixed assets is calculated using
the straight-line method over their estimated useful lives, generally
five years. Leasehold improvements are amortized using the straight-
line method over the shorter of the lease term or estimated useful
life of the asset. The Company's policy is to write-off fully
depreciated assets and the accumulated depreciation and amortization.
Depreciation and amortization expense was approximately $739 for the
month ended January 31, 1995.
The Company reviews the undiscounted cash flows of its laundry
locations in assessing whether its property and equipment (primarily
laundry equipment and laundry room improvements) may be impaired. The
Company does not believe that the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long Lived Assets to be Disposed Of" will have a
material impact on the Company's financial position or results of
operations.
(e) PREPAID COMMISSIONS
The Company capitalizes contractually required advanced commissions
and certain incentive payments paid in connection with the acquisition
of its contractual rights to laundry room locations. Such amounts are
amortized on a straight-line basis over the life of the related lease
or the related contractual agreement. Amortization expense on prepaid
commission amounted to approximately $12 for the month ended January
31, 1995.
(f) CONTRACT RIGHTS
Contract rights represent amounts expended for location contracts
arising from the acquisition of laundry machines on location. These
amounts are amortized on a straight-line basis over the remaining life
of the corresponding contract. Such amounts were fully amortized as
of January 31, 1995.
(Continued)
F-73
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(g) INTANGIBLES
Intangibles, consisting principally of covenants not to compete,
computer software and deferred financing costs are amortized over
their estimated useful lives. Amortization expense on intangibles
amounted to approximately $191 for the month ended January 31, 1995.
(h) GOODWILL
Goodwill is being amortized, using the straight-line method, over 40
years. Amortization expense on goodwill amounted to $38 for the month
ended January 31, 1995.
(i) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(3) RECEIVABLES
-----------
1995
-----
Accounts receivable $1,033
Notes receivable 2,153
Finance reserves 522
------
3,708
Allowances for doubtful accounts ( 447)
-------
$ 3,261
=====
At January 31, 1995, notes receivable bear interest at a weighted
average interest rate of approximately 10% and mature through 1998.
The notes are collateralized by the underlying equipment. The Company
periodically sells notes receivable arising from the sale of
laundromats to third party finance companies. Finance reserves arise
when the Company sells notes and a portion of the proceeds are
retained by the finance company. As the notes are collected, the
finance companies remit a portion of the collections to the Company.
Many of the notes receivable are sold with recourse to the Company
(see note 8). Control of the notes sold with recourse is surrendered
by the Company on the date of transfer. The Company generally sells
its receivables with recourse at cost, recognizing no gain or loss.
(4) TRANSACTIONS WITH AFFILIATES
----------------------------
The Company sold certain trade notes receivable to Cointrol Credit
Co., L.P. ("Credit"), a company created in 1991 and owned by certain
officers and directors of the Company and outside investors.
(Continued)
F-74
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
All such notes are sold to yield a fair market rate of return as
determined by rates available from unrelated finance companies for
similar notes. The aggregate outstanding balance of all notes sold to
Credit as of January 31, 1995 was $590. These notes are with recourse
to the Company and mature through 1998. In April 1995, the Company
entered into an agreement with Credit to repurchase the remaining
receivables outstanding.
(5) INTANGIBLES
-----------
Estimated
1995 useful lives
------- ------------
Covenants not to compete $ 4,281 5 years
Computer software 4,050 5 years
Deferred financing costs 1,552 Life of debt
Other 972 5 years
-------
10,855
Accumulated amortization 8,802
-------
$ 2,053
=======
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following:
1995
-------
[S] [C]
Revolving line of credit, due February 28, 1995
interest at prime plus 1.75% (a) $25,516
Term loan, due February 28, 1995 (a) 15,000
Management loans, due February, 2004, interest at
prime plus 1.75%, convertible into 7,000 shares
of common stock after February, 1999 (b) 350
Other (c) 934
-------
$41,800
=======
On January 31, 1995, the Company sold its partnership interests in
Coinmach and Super Laundry to a new corporation, The Coinmach
Corporation.
In connection with this sale, the Company paid off all amounts owed
under its revolver and term loan debt (see note 13). The accompanying
financial statements do not reflect the sale or the related repayment
of debt.
On December 15, 1993, the Company finalized negotiations with the
holders of the revolving line of credit, term loan, senior
subordinated note holders, and the junior subordinated promissory note
holders. Pursuant to the Plan, the holders of senior subordinated
notes in the amount of $30,000 and junior subordinated promissory
notes in the amount of $1,979 exchanged their notes, including accrued
interest of approximately $16,150 through December 15, 1993, for
87,000 shares of the restructured company's common stock.
(Continued)
F-75
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(a) On March 16, 1990, the Company entered into a bank agreement that
provided for a term loan of $15,000 originally payable in eight
quarterly installments of $1,875 commencing April 1, 1994, and a
revolving line of credit of up to $35,000 for a term of five
years. On February 4, 1994, the maximum revolver facility was
reduced to $29,413. In addition, commencing March 1, 1994 and
continuing on the first day of each month thereafter, the
revolving credit facility will be reduced by $175 per month
through June 1994, and then $212 per month, until the termination
of the facility, including the term loan, on February 28, 1995.
The interest rate for bank borrowings is the prime rate plus
1.75%. As of January 31, 1995, the interest rate on these loans
was 10.25%. In addition, the agreement provides for the payment
of a facility fee of .125% per annum on average daily outstanding
balances and an unused line fee of .50% per annum on the average
daily balance of the revolving loans. The agreement contains
certain restrictive covenants and requires the Company, among
other things, to maintain certain financial ratios and to
restrict investments, additional indebtedness and payment of
dividends. The loan is secured by all of the assets of the
Company. See note 13 for a description of the subsequent event.
(b) Pursuant to the Plan, senior management loaned the Company $350
due February 4, 2004. Interest is payable monthly, at the rate
of 1.75% over prime. As of January 31, 1995, the interest rate
on these loans was 10.25%. The loans are convertible, upon the
earlier of five years or upon certain circumstances, into 7% of
the Company's fully diluted common stock. These loans, which are
subordinated to the revolving line of credit and the term loan,
were funded February 4, 1994 (see note 7). The loans were repaid
in connection with the subsequent event described in note 13.
(c) Other debt includes payments due under non-compete agreements.
Maturities of long-term debt at January 31, 1995 are
contractually payable as follows:
Years ending January 31,
--------------------------
1996 $40,945
1997 376
1998 129
2005 350
-------
$41,800
=======
(7) RESTRUCTURING
-------------
On January 31, 1995, the Company sold its partnership interests in
Coinmach and Super Laundry to a new corporation, The Coinmach
Corporation (see note 13).
On December 15, 1993, CIC, on a stand alone basis, completed a "pre-
packaged" voluntary capital restructuring which was approved by 100%
of the Company's shareholders and creditors (see note 1). Neither
Coinmach nor Super Laundry were parties to this agreement. The Plan
provided for the Company's existing senior subordinated notes, junior
subordinated promissory notes, preferred stock and common stock to be
exchanged for 87,000 shares of common stock valued at $24,163. The
carrying value of the senior subordinated notes, junior subordinated
notes
(Continued)
F-76
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
and related accrued interest was $30,000, $1,500, and $16,149,
respectively. The preferred stock and common stock had a net carrying
value of $2,609, consisting of preferred stock of $14,364, and common
stock of $1, offset by the carrying value of the consideration to
continuing predecessor interests in excess of book value of $11,756.
The Plan, which was confirmed and court approved on January 21, 1994
and became effective February 4, 1994, was reflected in the 1994
financial statements. In addition, pursuant to the Plan, the Company
amended its existing revolving and term loan agreement. As a result of
the above, the Company recognized an extraordinary gain of $20,420,
net of legal fees and other direct costs of $3,067, on the early
extinguishment of the debt. In addition, $14,364, representing the
carrying value of the preferred stock, is included in common
stockholders' deficiency. Pursuant to the Plan, the equity position of
the shareholder to which the continuing predecessor interests was
attributed surrendered such position. Consequently, the carrying value
of the continuing predecessor interests was charged to the accumulated
deficit account. The restructuring has been treated as a tax free
exchange of debt for equity in accordance with the provisions of the
Internal Revenue Service Code.
The Plan required two members of senior management to loan the Company
$350. These loans have an interest rate of prime plus 1.75% and are
due in 2004. The loans were funded February 4, 1994, and are
reflected in the accompanying financial statements as long-term debt
(see note 6).
Also pursuant to the Plan the Company entered into non-compete
agreements with two former shareholders totaling approximately $954.
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
Coinmach is obligated under long-term leases relating to revenue
equipment locations. The terms of these leases principally range from
three to six years, most of which provide for fixed monthly commission
payments and contain renewal options. The majority of these leases
contain provisions permitting the cancellation and/or adjustment of
the commission by Coinmach if minimum revenue levels are not achieved.
In addition, Coinmach rents office and warehouse space from SSB
Corporation ("SSB"). SSB is owned by certain individuals who were
also owners of the Company, prior to the Plan. The lease, expiring on
May 1, 1995, provides for annual rentals of $368 and for the payment
by Coinmach of all operating expenses.
Super Laundry leases its facilities from a related party under an
operating lease that expires on December 31, 1996 and provides for a
minimum annual rental of $60 in 1995 increasing to $63 in 1996. Under
the terms of the lease, Super Laundry is required to pay operating
costs. Rental expense for this lease amounted to $5 for the month
ended January 31, 1995. In addition, Super Laundry also leases a
warehouse from a related party on a month-to-month basis. Rental
expense for this lease amounted to $3 for the month ended January 31,
1995. Effective January 1, 1993, Super Laundry entered into a five
year lease for a sales office. This lease expires December 31, 1997
and provides for a minimum annual rental of $23 in 1993, increasing by
4% each successive year through 1997. The lease also calls for Super
Laundry to pay operating costs. Rental expense including operating
costs for this lease amounted to $9 for the month ended January 31,
1995.
(Continued)
F-77
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
Future minimum lease payments under noncancellable operating leases
(excluding commissions for laundry equipment locations) as of January
31, 1995 are as follows:
Years ending January 31,
------------------------
1996 $314
1997 108
1998 27
----
Total future minimum
lease payments $449
====
Rent expense, excluding commission payments for laundry equipment
locations, amounted to approximately $54 for the month ended January
31, 1995.
Super Laundry is contingently liable on receivables sold, with
recourse, to finance companies. The total amount outstanding is
approximately $7,822 as of January 31, 1995.
Under agreements between Super Laundry and certain finance companies,
a portion of the notes receivable sales price is retained by the
finance company until the receivable is collected. Amounts retained
under the agreements amounted to $522 as of January 31, 1995, and are
shown in the accompanying consolidated balance sheets as receivables.
Coinmach has entered into leasing arrangements for automobiles and
trucks and office equipment which are accounted for as capital leases.
At January 31, 1995, the gross amounts of such assets amounted to
$1,646 and accumulated amortization amounted to $901. Future minimum
lease payments as of January 31, 1995 are as follows:
Years ending January 31,
------------------------
1996 $356
1997 144
1998 49
----
Minimum lease payments 549
Less amount representing interest 88
----
Present value of net minimum lease payments $461
====
The Company is party to certain lawsuits and claims relating to its
operations. It is the opinion of management, based on the advice of
outside counsel, that such lawsuits and claims will be resolved
without material effect to the Company's consolidated financial
statements.
(Continued)
F-78
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(9) INCOME TAXES
------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets at January 31,
1995 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Net operating loss carryforwards $ 21,278
Fixed and intangible assets, principally due to
differences between tax and financial reporting bases 3,117
Allowance for doubtful accounts 178
---------
Gross deferred tax assets 24,573
Less valuation allowance ( 24,573)
-----------
Net deferred tax asset $ - 0 -
============
</TABLE>
CIC files a consolidated Federal income tax return with Super Laundry
and includes its equity in the earnings or loss of Coinmach. At
January 31, 1995, net operating loss carryforwards of approximately
$53,200 are available to offset future taxable income and expire
commencing 2004 through 2009.
(10) STOCK OPTION PLAN
-----------------
Pursuant to the Plan, the Company adopted two stock option plans,
which provided for the grant and exercise of options to purchase up to
6,000 shares of the Company's common stock upon attainment of certain
annual earnings performance goals through 1997. One of the plans was
for the employees of the Company, and provided for the grant and
exercise of 5,000 shares. On February 4, 1994, options representing
1,000 of the shares under this plan were granted to certain employees
and were immediately vested but were not to be exercisable unless 1994
earnings performance goals were attained. The employee plan also
provided for the grant of options to purchase an additional 1,000
shares in 1994 and each year through December 31, 1997. The second
stock option plan provided for the grant of options to purchase 1,000
shares to a financial advisor upon attainment of annual earnings
performance goals through 1995. Under both plans, the options were to
expire ten years from the dates of grant and were exercisable at $50
per share. No options have been exercised and in connection with the
subsequent event described in note 13, the stock option plans were
terminated and all outstanding options were cancelled.
(11) PROFIT SHARING PLAN
-------------------
Effective April 1, 1994, The Company established a profit sharing and
retirement plan (the "Coinmach Profit Sharing Plan") for substantially
all of its employees. Pursuant to the Coinmach Profit Sharing Plan,
eligible employees may defer up to 15% of their salaries up to a
maximum level imposed by applicable federal law. Coinmach makes
matching contributions in increasing amounts, based upon the number or
years of service performed by eligible participants, up to a maximum
of 6% of an eligible employee's salary. Matching contribution
percentages range from 5% for one to two years of service up to 25%
for five or more years of service and vest over a six year period.
Company contributions to the plan for the month ended January 31, 1995
amounted to $6.
(Continued)
F-79
<PAGE>
CIC ACQUISITION CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
January 31, 1995
(Dollars in Thousands)
(12) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The Company paid approximately $395 for interest for the month ended
January 31, 1995.
(13) SUBSEQUENT EVENT
----------------
On January 31, 1995, the Company sold its partnership interests in
Coinmach and Super Laundry to a new corporation, The Coinmach
Corporation ("Corp."). In connection with this sale, the Company,
Coinmach and Super Laundry paid off all amounts owed under their
existing revolver and term loan debt (see note 6). Corp. is owned by
an investor group (83%) and the management of Coinmach and Super
Laundry (17%). Corp. financed the transaction with approximately
$11,600 of new equity, and debt financing of up to $50,000. Under the
terms of the financing, no principal payments on the debt are due
until April 1996.
F-80
<PAGE>
LETTERHEAD OF KPMG PEAT MARWICK
Independent Auditors' Report
----------------------------
The Board of Directors
The Coinmach Corporation:
We have audited the accompanying consolidated balance sheet of The Coinmach
Corporation and subsidiaries (the Company) as of March 31, 1995, and the
related consolidated statements of operations and accumulated deficit and
cash flows for the two-month period then ended. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Coinmach Corporation and subsidiaries as of March 31, 1995, and the results
of their operations and their cash flows for the two-month period then
ended, in conformity with generally accepted accounting principles.
New York, New York /s/ KPMG Peat Marwick LLP
July 7, 1995
F-81
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
March 31, 1995
(dollars in thousands)
ASSETS
------
Cash $ 922
Receivables 3,163
Inventories 2,584
Prepaid commissions 3,222
Property and equipment:
Laundry equipment 20,039
Leasehold improvements 3,418
Office equipment 578
Automobiles and trucks 1,154
-------
25,189
Less accumulated depreciation 859
-------
Net property and equipment 24,330
Contract rights, net of accumulated amortization of $813 19,327
Other intangibles, net of accumulated amortization of $364 6,692
Other assets 795
-------
$61,035
======
(Continued)
The accompanying notes are an integral part of these consolidated financial
statements.
F-82
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(Dollars in Thousands)
March 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable $ 2,198
Accrued expenses 3,230
Commissions payable 2,994
Long-term debt 42,351
Other long-term liabilities 407
Minority interest 126
Stockholders' equity:
Class A Common, par value $.01; 77,350
shares authorized, issued and outstanding 1
Class B Common, par value $.01; 15,500
shares authorized; 14,500 shares issued
and outstanding --
Class C Common, par value $.01; 7,650
shares authorized, issued and outstanding --
Class D Common, par value $.01; 7,650
shares authorized; no shares issued
or outstanding --
Preferred stock, par value $.01; 10,000
shares authorized; no shares issued
or outstanding --
Additional paid-in capital 11,221
Accumulated deficit (1,155)
-------
10,067
Notes receivable from management (338)
-------
Total stockholders' equity 9,729
------
$61,035
=======
The accompanying notes are an integral part of these consolidated financial
statements.
F-83
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations and Accumulated Deficit
For the two months ended March 31, 1995
(Dollars in Thousands)
Revenues $11,515
Laundry operating expenses 8,951
General and administrative expenses 799
Depreciation and amortization of
property and equipment 859
Amortization of intangibles and
prepaid commissions 1,285
-------
Operating loss (379)
Interest expense 774
-------
Loss before income taxes (1,153)
Income taxes 2
-------
Net loss (1,155)
Accumulated deficit,
beginning of period --
-------
Accumulated deficit, end of period $(1,555)
========
The accompanying notes are an integral part of these consolidated financial
statements.
F-84
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the two months ended March 31, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss ($1,155)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 2,144
Minority interest in loss of consolidated
subsidiary (7)
Provision for bad debts 3
Changes in assets and liabilities:
Decrease in receivables 94
Decrease in prepaid commissions
net of decrease in commissions payable (438)
(Increase) in inventories (231)
Decrease in other assets 209
(Decrease) in accounts payable and
accrued liabilities (546)
-------
Net cash provided by operating activities 73
-------
Cash flows from investing activities:
Purchase of laundry equipment (918)
Purchase of fixed assets (72)
----
Net cash used in investing activities (990)
-----
Cash flows from financing activities:
Repayments under revolving
credit facility (191)
Payment of other debt (82)
Principal payments of capital lease
obligations (54)
----
Net cash used in financing activities (327)
-----
Net decrease in cash (1,244)
Cash at beginning of period 2,166
-----
Cash at end of period $ 922
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-85
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
(1) ORGANIZATION AND ACQUISITION
----------------------------
The Coinmach Corporation ("Corp."; together with its subsidiaries, the
"Company") was incorporated in January 1995. The Company was
capitalized primarily through an equity investment by an investor
group led by the majority shareholder (the "Majority Shareholder") and
senior management and bank financing (see note 3 and note 6).
Corp. is a holding company which was formed to acquire partnership
interests in Coinmach Industries Co. ("Coinmach") and Super Laundry
Equipment Co. L.P. ("Super Laundry"). Coinmach is principally engaged
in providing laundry equipment and related services to multi-family
housing complexes in the New York metropolitan area. Super Laundry is
principally a supplier of coin-operated laundromat equipment and
turnkey laundromat retail stores in the New York metropolitan area.
On January 31, 1995, the Company acquired its partnership interests in
Coinmach and Super Laundry from CIC I Acquisition Corp. ("CIC I").
The transaction resulted in the Company owning 100% interests in both
Coinmach and Super Laundry. The aggregate purchase price for these
interests was $8,570, paid in cash.
The acquisition was accounted for using the purchase method of
accounting. The fair value of assets acquired (based on an
independent appraisal for certain assets) less liabilities assumed
exceeded the purchase price by approximately $7,700. The excess was
allocated to property, equipment and intangible assets ratably based
on their respective fair values as prescribed by Accounting Principles
Board Opinion No. 16, "Business Combinations." The acquisition was
funded by a net equity investment (see Note 3) of approximately
$10,884 and the assumption of liabilities aggregating approximately
$52,627. The total purchase price of $63,511 was allocated to assets
acquired, based on fair market value, as follows:
Cash $ 2,166
Receivables 3,260
Inventories 2,353
Prepaids and other assets 4,337
Property and equipment 24,199
Contract rights 20,140
Covenants not to compete 915
Computer software 3,271
Deferred financing costs 2,870
-------
$63,511
=======
The Company was capitalized, acquired its interests in Coinmach and
Super Laundry, and entered into the financing agreement described in
note 6 on January 31, 1995. The Company's fiscal year-end is March
31.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
(Continued)
F-86
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
(b) INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
principally determined using the first-in, first-out method.
Inventories include laundry equipment, spare parts and construction
costs.
(c) REVENUE RECOGNITION
Super Laundry's customers generally sign sales contracts whereby Super
Laundry will construct and equip a complete laundromat operation,
including location identification, construction, plumbing, electrical
wiring and all required permits. Revenue is recognized on the
completed contract method. A contract is considered complete when all
costs have been incurred and either the installation is operating
according to specifications or has been accepted by the customer. The
duration of such contracts is normally less than six months.
Sales of laundromats were $1,574 for the two months ended March 31,
1995.
(d) PROPERTY AND EQUIPMENT
Laundry equipment, consisting primarily of commercial washers and
dryers, and fixed assets acquired in the purchase, are stated as
described in Note 1, with subsequent additions recorded at cost. The
cost of remanufacturing equipment is included in the costs of laundry
equipment. The cost of laundry room improvements relating to new
locations is included in leasehold improvements. The Company
capitalized remanufacturing and laundry room improvement costs of
approximately $259 for the two months ended March 31, 1995.
Depreciation of laundry equipment and fixed assets is calculated using
the straight-line method over their estimated useful lives, generally
five years. Leasehold improvements are amortized using the straight-
line method over the shorter of the lease term or estimated useful
life of the asset. The Company's policy is to write-off fully
depreciated assets and the related accumulated depreciation and
amortization. Depreciation and amortization expense was approximately
$859 for the two months ended March 31, 1995.
The Company reviews the undiscounted cash flows of its laundry
locations in assessing whether its property and equipment (primarily
laundry equipment and laundry room improvements) may be impaired. The
Company does not believe that the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long Lived Assets to be Disposed Of" will have a
material impact on the Company's financial position or results of
operations.
(e) PREPAID COMMISSIONS
The Company capitalizes contractually required advance commissions and
certain incentive payments paid in connection with the acquisition of
its contractual rights to laundry room locations. Such amounts are
amortized on a straight-line basis over the life of the related lease
or the related contractual agreement. Amortization expense on prepaid
commissions amounted to approximately $108 for the two months ended
March 31, 1995.
(f) CONTRACT RIGHTS
Contract rights represent amounts expended for location contracts
arising from the acquisition of laundry machines on location. The
carrying amount of contract rights acquired in connection with
(Continued)
F-87
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
the purchase transaction is based on the accounting described in note
1, and are amortized over periods ranging from 3 to 15 years.
Contract rights relating to written contracts are amortized on a
straight-line basis over the remaining life of the corresponding
contract, and verbal contracts are amortized over an estimated useful
life based on a turnover analysis performed by an independent
appraisal company. Amortization expense on contract rights was $813
for the two months ended March 31, 1995.
(g) INTANGIBLES
Intangibles, consisting principally of covenants not to compete,
computer software and deferred financing costs are amortized over
their estimated useful lives. Amortization expense on intangibles
amounted to $364 for the two months ended March 31, 1995.
(h) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Statement 109 requires the asset and liability method of accounting
for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(3) CAPITAL STOCK
-------------
In connection with the initial capitalization of the Company, 77,350
shares of Class A, 14,500 shares of Class B and 7,650 shares of Class
C Common Stock were issued in exchange for gross proceeds of
approximately $11,200, $422 and $0, respectively. Such amounts
aggregated approximately $11,222, net of a transaction fee of $400
paid to the Majority Shareholder.
The Class A Common Stock is guaranteed a yield before any other class
of common stock receives dividends. In addition, the Class A Common
Stock has full liquidation preference, including its guaranteed yield,
over all other classes of common stock. The liquidation preference
for Class A Common Stock as of March 31, 1995, including the
guaranteed yield, was approximately $11,350. Class A and Class B
Common Stock have equal voting rights.
The Class B Common Stock was purchased by certain members of
management of the Company. Certain members of management also
purchased Class A shares. A portion of the purchase price of Class B
Common Stock was financed through the Company in the form of
promissory notes. The notes, which bear interest at 8% and are
payable in four equal annual installments commencing January 31, 1996,
are presented as a reduction of stockholders' equity in the
accompanying consolidated balance sheet. The underlying stock
purchased was pledged as collateral against these notes. The
liquidation preference for Class B Common Stock, which is subordinated
to Class A Common Stock, as of March 31, 1995 was approximately $422.
The Class C Common Stock, which was purchased by the lenders described
in note 6 for a nominal amount and whose value was deemed to not be
material at the date of purchase, is subordinated in liquidation to
both Class A and Class B Common Stock. Class C Common Stock has no
voting rights and is convertible into Class D Common Stock (which has
voting rights) upon
(Continued)
F-88
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
the occurrence of certain conversion events including public offerings
of the Company's stock or changes in control. No such events have
occurred.
All of the agreements pursuant to which common stock was purchased
contain restrictions on the transfer of Company stock. In addition,
pursuant to management agreements with the purchasers of the Class B
Common stock, the Company may exercise certain call provisions based
on agreed upon formulae.
Pursuant to a stockholders agreement with the Company, certain
stockholders are granted co-sale rights, whereby, if the Majority
Shareholder proposes to transfer (other than pursuant to a public
offering or sale of the Company), any shares of common stock that
results in the Majority Shareholder owning directly or indirectly less
than 60% of the then outstanding common stock of the Company, any
stockholder of the Company is given the opportunity to sell a ratable
portion of his or her shares of common stock contemporaneously with
such sale by the Majority Shareholder.
The Majority Shareholder and other stockholders of the Company are
also entitled to certain registration rights pursuant to the terms of
a registration rights agreement entered into between such stockholders
and the Company.
The Company incurred fees and expenses in connection with the purchase
transaction and the related financing agreement aggregating $2,870.
Such fees are being amortized over the five year term of the revolving
line of credit agreement and are included in other intangibles in the
accompanying consolidated balance sheets.
The Company has entered into a management agreement with the Majority
Shareholder which provides for a fee of $100 per year.
(4) RECEIVABLES
-----------
Receivables consist of the following:
Accounts receivable $1,045
Notes receivable 1,705
Finance reserves 413
------
$3,163
======
At March 31, 1995, notes receivable bear interest at a weighted
average interest rate of approximately 10% and mature through 1998.
The notes are collateralized by the underlying laundry equipment. The
Company periodically sells notes receivable arising from the sale of
laundromats to third party finance companies. Finance reserves arise
when the Company sells notes and a portion of the proceeds are
retained by the finance company. As the notes are collected, the
finance companies remit a portion of the collections to the Company.
Many of the notes receivable are sold with recourse to the Company
(see note 7). Control of the notes sold with recourse is surrendered
by the Company on the date of transfer. The Company generally sells
its receivables with recourse at cost, recognizing no gain or loss.
(Continued)
F-89
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
(5) INTANGIBLES
-----------
Intangibles consist of the following:
Estimated
useful lives
-----------------
Covenants not compete $ 915 Lives of Contract
Computer software 3,271 3 years
Deferred financing costs 2,870 5 years
------
7,056
Accumulated Amortization ( 364)
------
$ 6,692
======
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following:
Revolving line of credit, due
January 31, 2000 interest at prime
plus 1.25% (10.25% at March 31,
1995) (a) $ 1,499
Term loan A, quarterly payments of
$250 commencing April 1, 1996, and
increasing to $500 April 1, 1997,
$1,250 April 1, 1998 and $1,500
April 1, 1999. Interest at prime
plus 1.25% (10.25% at March 31,
1995) (a) 14,000
Term loan B, quarterly payments of
$1,750 commencing April 1, 2000 and
increasing to $2,000 April 1, 2001
with the final two payments of
$1,750 on April 1, 2002 and July 1,
2002. Interest at prime plus 1.75%
(10.75% at March 31, 1995) (a) 18,500
Term loan C, due July 1, 2002.
Interest at 12.5% (a) 7,500
Other (b) 852
-------
$42,351
=======
(a) In connection with the purchase transaction described in note 1, the
Company entered into a financing agreement (the "Financing Agreement")
with a group of lenders (the "Lenders"). The Financing Agreement
provides for $40,000 in term loans and $10,000 in aggregate for
revolving credit and acquisition loan facilities.
(Continued)
F-90
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
The revolving line of credit agreement provides for up to $5,000 in
borrowings, including letters of credit up to a maximum of $1,000.
There is a one-half of one percent fee per annum on the unused portion
of this facility and a two percent letter of credit fee.
The Financing Agreement also provides for acquisition loans of up to
$5,000. The acquisition loans must be used to finance acquisitions or
capital expenditures attributed to growth. Any amounts outstanding
under the acquisition line as of January 31, 2000 will be repaid in
equal quarterly installments through July 1, 2002. Borrowings under the
acquisition line bear interest at prime plus 1.75%. The Company has no
acquisition loans outstanding as of March 31, 1995.
The Financing Agreement requires the Company, among other things, to
maintain certain financial ratios and restricts additional investments,
indebtedness and the payment of dividends. The Company is in compliance
with all covenants contained in the Financing Agreement. Loans
outstanding under this agreement are subject to prepayment upon the
occurrence of certain events such as asset dispositions, public
offerings and the generation of excess cash flow, as defined. The
Company may be subject to prepayment penalty on any fixed rate
borrowings.
Coinmach and Super Laundry are the borrowers under the Financing
Agreement. The facility is guaranteed by Corp. Borrowing under the
Financing Agreement are secured by all of the assets of the Company.
(b) Other debt includes payments due under noncompete agreements.
Maturities of long-term debt at March 31, 1995 are contractually payable
as follows:
Years Ending March 31,
----------------------
1996 $ 417
1997 1,380
1998 2,055
1999 5,000
2000 7,499
Thereafter 26,000
-------
$42,351
=======
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Coinmach is obligated under long-term leases relating to revenue
equipment locations. The terms of these leases principally range from
three to six years, most of which provide for fixed monthly commission
payments and contain renewal options. The majority of these leases
contain provisions permitting cancellation of the lease and/or
adjustment of the commission by Coinmach if minimum revenue levels are
not achieved. In addition, Coinmach rents office and warehouse space.
The lease, which expired on May 1, 1995, provided for annual rentals of
$368 and for the payment by Coinmach of all operating expenses. The
lease is currently on a month-to-month basis under the same terms.
Super Laundry leases its facilities from a related party under an
operating lease that expires on December 31, 1996 and provides for a
minimum annual rental of $60 in 1995 increasing to $63 in 1996. Under
the terms of the lease, Super Laundry is required to pay operating
costs. Rental expense for this lease amounted to $17 for the two months
ended March 31, 1995. In addition, Super Laundry also leases a
warehouse from a related party on a month-to-month basis. Rental
(Continued)
F-91
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
expense for this lease amounted to $6 for the two months ended March 31,
1995. Effective January 1, 1993, Super Laundry entered into a five year
lease for a sales office. This lease expires December 31, 1997 and
provides for a minimum annual rental of $23 in 1993, increasing by 4%
each successive year through 1997. The lease also calls for Super
Laundry to pay operating costs. Rental expense including operating
costs for this lease amounted to $5 for the two months ended March 31,
1995.
Future minimum lease payments under noncancellable operating leases
(excluding commissions for laundry equipment locations) as of March 31,
1995 are as follows:
Years ending March 31,
----------------------
1996 $558
1997 167
1998 37
----
Total future minimum lease
payments $762
====
Rent expense, excluding commission payments for laundry equipment
locations, amounted to approximately $90 for the two months ended March
31, 1995.
Super Laundry is contingently liable on receivables sold, with recourse,
to finance companies. The total amount outstanding is approximately
$7,442 as of March 31, 1995.
Coinmach has entered into leasing arrangements for automobiles and
trucks and office equipment which are accounted for as capital leases.
Future minimum lease payments as of March 31, 1995 are as follows:
Years ending March 31,
----------------------
1996 $307
1997 123
1998 32
----
Minimum lease payments 462
Less amount representing interest 55
----
Present value of net minimum
lease payments $407
====
The Company is party to certain lawsuits and claims relating to its
operations. It is the opinion of management, based on the advice of
outside counsel, that such lawsuits and claims will be resolved without
material effect to the Company's consolidated financial statements.
(8) INCOME TAXES
------------
Income tax expense of $2 for the two months ended March 31, 1995
primarily represents state and local taxes.
Corp. will file a consolidated Federal Income tax return with Super
Laundry and include its equity in the earnings or loss of Coinmach. It
is anticipated that no Federal taxes will be due for the period ended
March 31, 1995.
(Continued)
F-92
<PAGE>
THE COINMACH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Dollars in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets are presented below:
March 31,
1995
----
Deferred tax assets:
Difference between book and tax basis
of long-lived assets $ 460
Less valuation allowance (460)
---
Net deferred tax assets $ -0-
====
(9) PROFIT SHARING PLAN
-------------------
Effective April 1, 1994, the Company established a profit sharing and
retirement plan (the "Coinmach Profit Sharing Plan") for
substantially all of its employees. Pursuant to the Coinmach Profit
sharing Plan, eligible employees may defer up to 15% of their salaries
up to a maximum level imposed by applicable federal law. Coinmach
makes matching contributions in increasing amounts, based upon the
number of years of service performed by eligible participants, up to a
maximum of 6% of an eligible employee's salary. Matching contribution
percentages range from 5% for one to two years of service up to 25%
for five or more years of service and vest over a six year period.
Company contributions to the plan for the two months ended March 31,
1995 amounted to $16.
(10) SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
The Company paid approximately $774 for interest for the two months
ended March 31, 1995.
F-93
<PAGE>
[GRAPHIC] [GRAPHIC]
[LOGO]
--------
Coinmach
--------
Superior Laundry Services
[GRAPHIC] [GRAPHIC]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCOR-
PORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 6
The Company.............................................................. 10
Use of Proceeds.......................................................... 11
Dividend Policy.......................................................... 12
Dilution................................................................. 13
Capitalization........................................................... 14
Unaudited Pro Forma Financial Data....................................... 15
Selected Historical Consolidated Financial Data.......................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 33
Management............................................................... 39
Principal Stockholders................................................... 45
Certain Relationships and Related Transactions........................... 47
Description of Capital Stock............................................. 51
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 56
Legal Matters............................................................ 57
Experts.................................................................. 57
Available Information.................................................... 58
Index to Financial Statements............................................ F-1
</TABLE>
------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,000,000 SHARES
LOGO
--------
Coinmach
--------
Superior Laundry Services
COINMACH LAUNDRY
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
, 1996
------------------
LEHMAN BROTHERS
DILLON, READ & CO. INC.
LAZARD FRERES & CO. LLC
FIELDSTONE
FPCG SERVICES, L.P.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses payable by the Company
in connection with the filing of this Registration Statement. All of such
expenses, other than the filing fees for the Commission and the NASD, are
estimates.
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee.......................... $ 28,550
National Association of Securities Dealers fee............................... 7,745
Blue sky fees and expenses (including attorneys' fees and expenses).......... 30,000
Printing and engraving expenses.............................................. 300,000
Transfer agent's fees and expenses........................................... 1,000
Accounting fees and expenses................................................. 150,000
Legal fees and expenses...................................................... 350,000
Directors and Officers insurance premiums.................................... 100,000
Miscellaneous fees and expenses.............................................. 32,705
------------
Total.................................................................... $1,000,000
============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Amended and Restated Bylaws provide that the Company
shall indemnify and hold harmless, to the fullest extent which it is empowered
to do so unless prohibited from doing so by the Delaware General Corporation
Law, as it exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the corporation
to provide prior to such amendment), any person who was or is a party or is
threatened to be made a party to or is otherwise involved (including involvement
as a witness) in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she was a
director or officer of the Company, or while a director or officer of the
Company, is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, including service with respect to an employee benefit plan,
against all expense, liability and loss (including attorneys' fees, judgements,
fines, ERISA exercise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such person in connection therewith and that
such indemnification shall continue as to any such person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and that the Company may, by
action of its board of directors, provide indemnification to employees and
agents of the Company with the same scope and effect as indemnification of
directors and officers.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful; and further that a
corporation may indemnify such person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent
II-1
<PAGE>
that the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper. To the extent that a director, officer,
employee or agent of a corporation has been successful on the merits or
otherwise in defense of any such action, suit or proceeding, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
The Second Amended and Restated Bylaws further provide that the Company
shall indemnify any such person seeking indemnification in connection with a
proceeding initiated by such person only if such proceeding was authorized by
the board of directors of the Company, except that it shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any, has been tendered to the Company) that the
claimant has not met the standards of conduct (as set forth above) which make it
permissible under the Delaware General Corporation Law for the Company to
indemnify the claimant for the amount claimed, but the burden of such defense
shall be on the Company.
The Second Amended and Restated Bylaws further provide that the right to
indemnification shall be a contract right and shall include the right to be paid
by the Company for the expenses incurred in defending any such proceeding in
advance of its final disposition unless otherwise determined by the board of
directors of the Company in the specific case upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he or she is not entitled to be indemnified by the
Company; and that such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors of the
Company deems appropriate. The rights conferred in the Second Amended and
Restated Bylaws to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition are not exclusive of
any other right which any person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, by-law, agreement, vote
of stockholders or disinterested directors or otherwise.
Section 102 of the Delaware General Corporation Law allows a corporation to
eliminate or limit the personal liability of a director of a corporation to the
corporation or to any of its stockholders for monetary damage for a breach of
fiduciary duty as a director, except in the case where the director (i) breaches
his duty of loyalty to the corporation or its stockholders, (ii) fails to act in
good faith, engages in intentional misconduct or knowingly violates a law, (iii)
authorizes the payment of a dividend or approves a stock purchase or redemption
in violation of Section 174 of the Delaware General Corporation Law or (iv)
obtains an improper personal benefit. Article Eleven of the Company's Second
Amended and Restated Certificate of Incorporation includes a provision which
eliminates directors' personal liability to the fullest extent permitted under
the Delaware General Corporation Law.
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Sale of Capital Stock
In connection with the Solon Acquisition, Inc. in April 1995, Coinmach
Laundry (formerly, SAS Acquisitions Inc. ("SAS")) issued the following
securities to the persons and for the consideration described below:
(1) 72,153 shares of Class A Common Stock to GTCR for $5,517,582.35 cash;
(2) 300 shares of Class A Common Stock James N. Chapman for $22,941.18 cash;
(3) 228 shares of Class A Common Stock to Michael E. Marrus for $17,435.30
cash;
(4) 398 shares of Class A Common Stock to Mitchell Blatt for $30,435.29
cash;
(5) 3,806 shares of Class A Common Stock to Heller Financial, Inc. for
$291,047.06 cash;
(6) 3,425 shares of Class A Common Stock to Jackson National Life Insurance
Company for $261,911.77 cash;
(7) 381 shares of Class A Common Stock to Jackson National Life Insurance
Company of Michigan for $29,135.29 cash;
(8) 2,405 shares of Class A Common Stock to President and Fellows of Harvard
College for $183,911.76 cash;
(9) 1,479 shares of Class A Common Stock to MCS Capital, Inc. for
$113,100.00 cash;
(10) 425 shares of Class A Common Stock to Michael Stanky for $32,500.00
cash;
(11) 2,000 shares of Class B Common Stock to Robert M. Doyle for $4,620.80
cash and a promissory note in the aggregate principal amount of
$26,184.80;
(12) 1,500 shares of Class B Common Stock to Michael Stanky for $3,465.64
cash and a promissory note in the aggregate principal amount of
$19,638.56;
(13) 4,000 shares of Class B Common Stock to MCS Capital, Inc. for $9,241.68
cash and a promissory note in the aggregate principal amount of
$52,369.52; and
(14) 4,000 shares of Class B Common Stock to Mitchell Blatt for $9,241.68
cash and a promissory note in the aggregate principal amount of
$52,369.52.
In connection with the Merger in November 1995, SAS issued the following
securities to the persons and for the consideration described below:
(1) 125,532.4476 shares of Class F Common Stock to GTCR in exchange for
72,516 shares of Class A Common Stock of TCC;
(2) 4,184.0687 shares of Class F Common Stock to President and Fellows of
Harvard College in exchange for 2,417 shares of Class A Common Stock of
TCC;
(3) 463.9348 shares of Class F Common Stock to MCS Capital, Inc. in exchange
for 268 shares of Class A Common Stock of TCC;
(4) 2,108.4798 shares of Class F Common Stock to MCS Capital Management,
Inc. for 1,218 shares of Class A Common Stock of TCC;
(5) 692.44 shares of Class F Common Stock to Mitchell Blatt in exchange for
400 shares of Class A Common Stock of TCC;
(6) 519.33 shares of Class F Common Stock to James N. Chapman in exchange
for 300 shares of Class A Common Stock of TCC;
(7) 399.8841 shares of Class F Common Stock to Michael E. Marrus in exchange
for 231 shares of Class A Common Stock of TCC;
(8) 10,386.6 shares of Class G Common Stock to MCS Capital, Inc. in exchange
for 6,000 shares of Class B Common Stock of TCC;
(9) 10,386.6 shares of Class G Common Stock to Mitchell Blatt in exchange
for 6,000 shares of Class B Common Stock of TCC;
(10) 1,731.1 shares of Class G Common Stock to Robert M. Doyle in exchange
for 1,000 shares of Class B Common Stock of TCC;
(11) 1,298.3250 shares of Class G Common Stock to Charles Prato in exchange
for 750 shares of Class B Common Stock of TCC;
(12) 865.55 shares of Class G Common Stock to David Tulkop in exchange for
500 shares of Class B Common Stock of TCC;
(13) 432.775 shares of Class G Common Stock to Russell Harrison in exchange
for 250 shares of Class B Common Stock of TCC;
II-3
<PAGE>
(14) 6,621.4575 shares of Class C Common Stock to Heller Financial, Inc. in
exchange for 3,825 shares of Class C Common Stock of TCC;
(15) 5,960.1773 shares of Class C Common Stock to Jackson National Life
Insurance Company in exchange for 3,443 shares of Class C Common Stock
of TCC;
(16) 661.2802 shares of Class C Common Stock to Jackson National Life
Insurance Company of Michigan in exchange for 382 shares of Class C
Common Stock of TCC;
(17) 3,806 shares of Class E Common Stock to Heller Financial, Inc. in
exchange for 3,806 shares of Class A Common Stock of SAS;
(18) 3,425 shares of Class E Common Stock to Jackson National Life Insurance
Company in exchange for 3,425 shares of Class A Common Stock of SAS;
and
(19) 381 shares of Class E Common Stock to Jackson National Life Insurance
Company of Michigan in exchange for 381 shares of Class A Common Stock
of SAS.
Such sales and issuances of securities were deemed exempt from registration
under the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof,
as transactions not involving a public offering.
The Solon Exchange Offer
On November 30, 1995, the Company consummated, pursuant to an exemption from
registration set forth in Section 4(2) of the Securities Act, an offering (the
"Solon Exchange Offer") to holders of the Company's 12 3/4% Senior Notes due
2001 (the "Old Senior Notes") and 13 3/4% Senior Subordinated Debentures due
2002 (the "Old Subordinated Debentures," and, together with the Old Senior
Notes, the "Solon Notes") to exchange, for each $1,000 principal amount of Solon
Notes, $1,055 principal amount of 11 3/4% Senior Notes due 2005 of Coinmach
Corporation (the "Private Notes"), plus payment in cash of accrued and unpaid
interest on the Solon Notes to the exchange date. An aggregate principal amount
of $127,123,000 of Private Notes were issued in exchange for the Old Solon
Notes. As of November 29, 1995, the expiration date of the Solon Exchange
Offer, (i) $90,500,000 in aggregate principal amount of the Old Senior Notes
were tendered out of a total of $99,000,000 in aggregate principal amount issued
and outstanding, and (ii) $30,000,000 in aggregate principal amount of the Old
Subordinated Debentures were tendered for exchange out of a total of $30,000,000
in aggregate principal amount issued and outstanding. The underwriting discount
and commission was $1,652,300.
The 144A Private Placements and Additional Exchange Offer
Concurrently with the Solon Exchange Offer, the Company successfully
consummated an offering (the "Debt Offering") of an additional $50,840,000 of
Private Notes in a Rule 144A private placement transaction under the Securities
Act. On December 14, 1995, following the consummation of the Solon Exchange
Offer and the Debt Offering, the Company issued (i) an additional $15,000,000
aggregate principal amount of Private Notes in a Rule 144A transaction (the
"Additional Debt Offering"), and (ii) an additional $3,692,000 aggregate
principal amount of Private Notes in exchange for $3,500,000 aggregate principal
amount of Old Senior Notes in a privately negotiated transaction on the same
terms applicable to the Solon Exchange Offer. Pursuant to the Debt Offering and
the Additional Debt Offering, the Company sold an aggregate $65,840,000 face
amount of Private Notes. Lazard Freres & Co. LLC, acting as initial purchaser
in the Debt Offering and Additional Debt Offering, acquired the Private Notes
from the Company (prior to resale under Rule 144A) in reliance on an exemption
from registration set forth in Section 4(2) of the Securities Act. The
underwriting discount and commission was $1,175,000.
<TABLE>
<CAPTION>
ITEM 16. EXHIBITS
(a) Exhibits
<S> <C>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------
1.1* Form of Underwriting Agreement
2.1 Agreement and Plan of Merger, dated November 30, 1995, of TCC, Solon
and SAS Acquisitions Inc. ("SAS") (incorporated by reference from exhibit
number 2.1 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1* Form of Second Amended and Restated Certificate of Incorporation
of the Company
3.2* Certificate of Powers, Designations, Preferences and Relative
Participating, Optional and other Special Rights of Preferred
Stock and Qualifications, Limitations and Restructurings Thereof
3.3* Form of Second Amended and Restated Bylaws of the Company
4.1* Form of certificate representing Common Stock of the Company
5.1* Opinion and Consent of Anderson Kill Olick & Oshinsky, P.C.
regarding the validity of the Common Stock
10.1 Indenture, dated as of November 30, 1995, by and between Coinmach,
as Issuer, and Fleet National Bank of Connecticut (formerly,
Shawmut Bank Connecticut, National Association), as Trustee
(incorporated by reference from exhibit number 4.1 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.2 First Supplemental Indenture, dated as of December 11, 1995, by
and between Coinmach, as Issuer, and Fleet National Bank of
Connecticut (formerly, Shawmut Bank Connecticut, National
Association), as Trustee (incorporated by reference from exhibit
number 4.2 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.3 First Supplemental Indenture, dated as of November 28, 1995, by
and between Solon and U.S. Trust Company of New York, as Trustee
(incorporated by reference from exhibit number 4.3 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.4 Registration Rights Agreement, dated as of November 30, 1995, by
and between Coinmach and Lazard Freres & Co. LLC ("Lazard"), as
Initial Purchaser (incorporated by reference from exhibit number
4.6 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
10.5 Addendum to Registration Rights Agreement, dated December 14,
1995, by and between Coinmach and Lazard, as Initial Purchaser
(incorporated by reference from exhibit number 4.8 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.6 Purchase Agreement, dated as of January 31, 1995, by and among
TCC, CIC I Acquisition Corp. ("CIC"), the stockholders of CIC and
Coinmach Holding Corp. (incorporated by reference from exhibit
number 10.1 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.7 Equity Purchase Agreement, dated as of January 31, 1995, by and
between TCC and GTCR Fund IV, subsequently amended by the Omnibus
Agreement (as hereinafter defined) (incorporated by reference from
exhibit number 10.2 to Coinmach's Registration Statement on Form
S-1,file number 333-00620)
</TABLE>
- ------------
* To be filed by amendment.
** Previously filed.
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPITON
- ------ -----------
10.8 Investor Purchase Agreement, dated as January 31, 1995, by and
between TCC, GTCR Fund IV and President and Fellows of Harvard
College, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.3 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.9 Investor Purchase Agreement, dated as January 31, 1995, by and
between TCC, GTCR Fund IV, MCS Capital Management, Inc. and
Stephen R. Kerrigan, subsequently amended by the Omnibus Agreement
(as hereinafter defined) (incorporated by reference from exhibit
number 10.4 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.10 Stock Pledge Agreement, dated as of January 31, 1995, by and
between TCC and MCS Capital, Inc. (incorporated by reference from
exhibit number 10.5 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.11 Stock Pledge Agreement, dated as of January 31, 1995, by and
between TCC and Mitchell Blatt (incorporated by reference from
exhibit number 10.6 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.12 Promissory Note, dated January 31, 1995, of MCS Capital, Inc. in
favor of TCC, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.7 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.13 Promissory Note, dated January 31, 1995, of Mitchell Blatt in
favor of TCC, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.8 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.14 Management and Consulting Services Agreement, dated as of January
31, 1995, by and between GTCR Fund IV and TCC, subsequently
amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.9 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.15 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Stephen R. Kerrigan, MCS Capital, Inc. and GTCR Fund
IV, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.10 to
Coinmach's Registration Statement on Form S-1, file number 333-
00620)
10.16 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Mitchell Blatt and
GTCR Fund IV, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.11 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.17 Senior Management Agreement, dated January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Robert M. Doyle and
GTCR Fund IV, subsequently amended by the Omnibus Agreement (as
hereinafter defined) (incorporated by reference from exhibit
number 10.12 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
- -------------
* To be filed by amendment.
** Previously filed.
II-6
<PAGE>
EXHIBIT
NUMBER DESCRIPITON
- ------ -----------
10.18 Employment Agreement, dated as of August 4, 1995, by and between
Solon and John E. Denson (incorporated by reference from exhibit
number 10.13 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.19 Employment Agreement, dated as of July 1, 1995, by and between
Solon, Michael E. Stanky and GTCR Fund IV (incorporated by
reference from exhibit number 10.14 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
10.20 Stock Purchase Agreement, dated as of March 7, 1995, by and among
Ford Coin Laundries, Inc., Kwik Wash Laundries, Inc., Solon and
the Sellers (incorporated by reference from exhibit number 10.15
to Coinmach's Registration Statement on Form S-1, file number 333-
00620)
10.21** Equity Purchase Agreement, dated as of July 26, 1995, between GTCR
Fund IV and SAS, subsequently amended by the Omnibus Agreement (as
hereinafter defined)
10.22** Investor Purchase Agreement, dated as of July 26, 1995, among SAS,
GTCR Fund IV, Heller, Jackson National Life Insurance Company,
Jackson National Life Insurance Company of Michigan, James N.
Chapman, Michael E. Marrus, President and Fellows of Harvard
College, MCS Capital, Inc., Mitchell Blatt, and Michael Stanky,
subsequently amended by the Omnibus Agreement (as hereinafter
defined)
10.23** Executive Stock Agreement, dated as of July 26, 1995, among SAS,
GTCR Fund IV, MCS Capital, Inc., Mitchell Blatt, Robert M. Doyle
and Michael Stanky (with spousal consents), subsequently amended
by the Omnibus Agreement (as hereinafter defined)
10.24** Stockholders Agreement, dated as of July 26, 1995, as amended and
restated as of November 30, 1995, among SAS and GTCR Fund IV,
Robert M. Doyle, Heller, Jackson National Life Insurance Company,
Jackson National Life Insurance Company of Michigan, James N.
Chapman, Michael E. Marrus, President and Fellows of Harvard
College, MCS Capital, Inc., Mitchell Blatt, and Michael Stanky
(collectively, the "SAS Stockholders")
10.25** Registration Agreement, dated as of July 26, 1995, among SAS and
each of the SAS Stockholders
10.26** Management Consulting Services Agreement, dated as of July 26,
1995, between SAS Acquisitions Inc. and GTCR IV, L.P.
10.27 Supply Agreement, dated July 26, 1995, by and among SAS
Acquisitions Inc., Solon and Speed Queen Company (incorporated by
reference from exhibit number 10.16 to Coinmach's Registration
Statement on Form S-1, file number 333-00620)
10.28 Dealer Manager Agreement, dated October 20, 1995, by and among
TCC, Solon, Lazard and Fieldstone Private Capital Group, L.P.
(incorporated by reference from exhibit number 10.17 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
- ----------
* To be filed by amendment.
** Previously filed.
II-7
<PAGE>
EXHIBIT
NUMBER DESCRIPITON
- ------ -----------
10.29 Purchase Agreement, dated November 15, 1995, by and among TCC,
Solon and Lazard (incorporated by reference from exhibit number
10.18 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.30 Addendum to Purchase Agreement, dated December 11, 1995, by and
between Coinmach and Lazard (incorporated by reference from
exhibit number 10.19 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.31 Omnibus Agreement, dated as of November 30, 1995, among SAS,
Solon, TCC and each of the other parties executing a signature
page thereto (the "Omnibus Agreement") (incorporated by reference
from exhibit number 10.20 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.32 Credit Agreement, dated as of November 30, 1995, by and between
Coinmach, as Borrower and Heller (incorporated by reference from
exhibit number 10.21 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.33 First Amendment to Credit Agreement, dated as of December 9, 1995,
by and among Coinmach, Heller, SAS, and Super Laundry Equipment
Corp. ("SLEC") (incorporated by reference from exhibit number
10.22 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.34 Form of Note, dated November 30, 1995, of Coinmach in favor of
Heller (included as an exhibit to Exhibit 10.26 hereto)
(incorporated by reference from exhibit number 10.23 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.35 Pledge Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number
10.24 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.36 Guaranty, dated as of January 31, 1995, by Super Laundry
Management Corp. in favor of Heller (incorporated by reference
from exhibit number 10.25 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.37 Guaranty, dated as of November 30, 1995, by SLEC in favor of
Heller (incorporated by reference from exhibit number 10.26 to
Coinmach's Registration Statement on Form S-1, file number 333-
00620)
10.38 Security Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number
10.27 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.39 Security Agreement, dated as of November 30, 1995, by and between
SLEC and Heller (incorporated by reference from exhibit number
10.28 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.40 Collateral Assignment of Leases of Coinmach to Heller, dated as of
November 30, 1995 (incorporated by reference from exhibit number
10.29 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
- ------------
* To be filed by amendment.
** Previously filed.
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPITON
- ------ -----------
<S> <C>
10.41 Collateral Assignment of Leases of SLEC to Heller, dated as of November
30, 1995 (incorporated by reference from exhibit number 10.30 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.42* 1996 Employee Stock Option Plan of the Company
10.43* Reclassification Agreement, dated _______, 1996, among the Company and
the SAS Stockholders
10.44* Option Agreement, dated _______, 1996, between the Company and MCS
Capital, Inc.
10.45* Lock-Up Agreement, dated _______, 1996, among the Company, GTCR
Fund IV, President and Fellows of Harvard Collage, MCS Capital,
Inc., Heller, Mitchell Blatt, Robert M. Doyle, Michael E. Stanky,
James N. Chapman, Michael E. Marrus, Charles Prato, David Tulkop,
Russell Harrison and Jackson National Life Insurance Company
10.46 Waiver of Registration Rights, dated May 8, 1996, among the
Company and the SAS Stockholders
10.47* Form of Voting Agreement among the Company, Golder, Thoma,
Cressey, Rauner Fund IV, L.P. ("GTCR Fund IV"), and the
signatories thereto
11.1 Pro Forma Computation of Loss Per Common Share
12.1** Computation of ratios
16.1 Letter, dated June 29, 1995, from Arthur Andersen LLP to the
Securities and Exchange Commission regarding change in certifying
accountants (incorporated by reference from exhibit number 16.1 to
Coinmach's Registration Statement on Form S-1, file number 333-
00620)
21.1** Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4* Consent of Anderson Kill Olick & Oshinsky, P.C. (Included in
Exhibit 5.1)
24.1 Power of Attorney
24.2 Certified copy of Action by Written Consent in Lieu of a Meeting
of the Board of Directors of Coinmach Laundry Corporation, dated
May 9, 1996.
27.1** Financial Data Schedule
</TABLE>
(b) Financial Statements Schedules
None.
- -----------
* To be filed by amendment
** Previously filed
II-9
<PAGE>
ITEM 17. UNDERTAKINGS.
The Company (or the "Registrant") hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933, as amended, and, is therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Roslyn, State of
New York on June ___, 1996.
COINMACH LAUNDRY CORPORATION
STEPHEN R. KERRIGAN *
By:_________________________________________
Stephen R. Kerrigan
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed below by the following persons in the
capacities indicated on June ___, 1996.
<TABLE>
<CAPTION>
Signature Title
- ----------------------- -------------------------------------------------
<S> <C>
STEPHEN R. KERRIGAN *
- --------------------- Chairman of the Board of Directors and Chief
Stephen R. Kerrigan Executive Officer
MITCHELL BLATT *
- --------------------- Director, President and Chief Operating Officer
Mitchell Blatt
ROBERT M. DOYLE
- --------------------- Chief Financial Officer and Senior Vice President
Robert M. Doyle
JOHN E. DENSON *
- --------------------- Senior Vice President
John E. Denson
MICHAEL E. STANKY *
- --------------------- Senior Vice President
Michael E. Stanky
DAVID A. DONNINI *
- --------------------- Director
David A. Donnini
JAMES N. CHAPMAN *
- --------------------- Director
James N. Chapman
BRUCE V. RAUNER *
- --------------------- Director
Bruce V. Rauner
</TABLE>
* By executing his name hereto, Robert M. Doyle is signing this document on
behalf of the persons indicated above pursuant to powers of attorney duly
executed by such persons and filed with the Securities and Exchange
Commission.
By: ROBERT M. DOYLE
----------------------
Robert M. Doyle
Attorney-in-fact
II-11
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<S> <C> <C>
1.1* Form of Underwriting Agreement
2.1 Agreement and Plan of Merger, dated November 30, 1995, of TCC, Solon
and SAS Acquisitions Inc. ("SAS") (incorporated by reference from exhibit
number 2.1 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
3.1* Form of Second Amended and Restated Certificate of Incorporation of the
Company
3.2* Certificate of Powers, Designations, Preferences and Relative Participating,
Optional and other Special Rights of Preferred Stock and Qualifications,
Limitations and Restructurings Thereof
3.3* Form of Second Amended and Restated Bylaws of the Company
4.1* Form of certificate representing Common Stock of the Company
5.1* Opinion and Consent of Anderson Kill Olick & Oshinsky, P.C. regarding the
validity of the Common Stock
10.1 Indenture, dated as of November 30, 1995, by and between Coinmach, as
Issuer, and Fleet National Bank of Connecticut (formerly, Shawmut Bank
Connecticut, National Association), as Trustee (incorporated by reference
from exhibit number 4.1 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.2 First Supplemental Indenture, dated as of December 11, 1995, by and
between Coinmach, as Issuer, and Fleet National Bank of Connecticut
(formerly, Shawmut Bank Connecticut, National Association), as Trustee
(incorporated by reference from exhibit number 4.2 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.3 First Supplemental Indenture, dated as of November 28, 1995, by and
between Solon and U.S. Trust Company of New York, as Trustee
(incorporated by reference from exhibit number 4.3 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.4 Registration Rights Agreement, dated as of November 30, 1995, by and
between Coinmach and Lazard Freres & Co. LLC ("Lazard"), as Initial
Purchaser (incorporated by reference from exhibit number 4.6 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.5 Addendum to Registration Rights Agreement, dated December 14, 1995, by
and between Coinmach and Lazard, as Initial Purchaser (incorporated by
reference from exhibit number 4.8 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
- --------------------
* To be filed by amendment
** Previously filed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<S> <C> <C>
10.6 Purchase Agreement, dated as of January 31, 1995, by and among TCC, CIC
I Acquisition Corp. ("CIC"), the stockholders of CIC and Coinmach Holding
Corp. (incorporated by reference from exhibit number 10.1 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.7 Equity Purchase Agreement, dated as of January 31, 1995, by and between
TCC and GTCR Fund IV, subsequently amended by the Omnibus Agreement
(as hereinafter defined) (incorporated by reference from exhibit number 10.2
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.8 Investor Purchase Agreement, dated as January 31, 1995, by and between
TCC, GTCR Fund IV and President and Fellows of Harvard College,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.3 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.9 Investor Purchase Agreement, dated as January 31, 1995, by and between
TCC, GTCR Fund IV, MCS Capital Management, Inc. and Stephen R.
Kerrigan, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.4 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.10 Stock Pledge Agreement, dated as of January 31, 1995, by and between TCC
and MCS Capital, Inc. (incorporated by reference from exhibit number 10.5
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.11 Stock Pledge Agreement, dated as of January 31, 1995, by and between TCC
and Mitchell Blatt (incorporated by reference from exhibit number 10.6 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.12 Promissory Note, dated January 31, 1995, of MCS Capital, Inc. in favor of
TCC, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.7 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.13 Promissory Note, dated January 31, 1995, of Mitchell Blatt in favor of TCC,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.8 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.14 Management and Consulting Services Agreement, dated as of January 31,
1995, by and between GTCR Fund IV and TCC, subsequently amended by
the Omnibus Agreement (as hereinafter defined) (incorporated by reference
from exhibit number 10.9 to Coinmach's Registration Statement on Form S-1,
file number 333-00620)
10.15 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Stephen R. Kerrigan, MCS Capital, Inc. and GTCR Fund IV,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.10 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
- ---------------
* To be filed by amendment.
** Previously filed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<S> <C> <C>
10.16 Senior Management Agreement, dated as of January 31, 1995, by and
between TCC, Coinmach Industries Co., L.P., Mitchell Blatt and GTCR
Fund IV, subsequently amended by the Omnibus Agreement (as hereinafter
defined) (incorporated by reference from exhibit number 10.11 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.17 Senior Management Agreement, dated January 31, 1995, by and between
TCC, Coinmach Industries Co., L.P., Robert M. Doyle and GTCR Fund IV,
subsequently amended by the Omnibus Agreement (as hereinafter defined)
(incorporated by reference from exhibit number 10.12 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.18 Employment Agreement, dated as of August 4, 1995, by and between Solon
and John E. Denson (incorporated by reference from exhibit number 10.13 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.19 Employment Agreement, dated as of July 1, 1995, by and between Solon,
Michael E. Stanky and GTCR Fund IV (incorporated by reference from
exhibit number 10.14 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.20 Stock Purchase Agreement, dated as of March 7, 1995, by and among Ford
Coin Laundries, Inc., Kwik Wash Laundries, Inc., Solon and the Sellers
(incorporated by reference from exhibit number 10.15 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.21** Equity Purchase Agreement, dated as of July 26, 1995, between GTCR
Fund IV and SAS, subsequently amended by the Omnibus Agreement (as
hereinafter defined)
10.22** Investor Purchase Agreement, dated as of July 26, 1995, among SAS, GTCR
Fund IV, Heller, Jackson National Life Insurance Company, Jackson National
Life Insurance Company of Michigan, James N. Chapman, Michael E.
Marrus, President and Fellows of Harvard College, MCS Capital, Inc.,
Mitchell Blatt, and Michael Stanky, subsequently amended by the Omnibus
Agreement (as hereinafter defined)
10.23** Executive Stock Agreement, dated as of July 26, 1995, among SAS, GTCR
Fund IV, MCS Capital, Inc., Mitchell Blatt, Robert M. Doyle and Michael
Stanky (with spousal consents), subsequently amended by the Omnibus
Agreement (as hereinafter defined)
10.24** Stockholders Agreement, dated as of July 26, 1995, as amended and restated
as of November 30, 1995, among SAS and GTCR Fund IV, Robert M.
Doyle, Heller, Jackson National Life Insurance Company, Jackson National
Life Insurance Company of Michigan, James N. Chapman, Michael E.
Marrus, President and Fellows of Harvard College, MCS Capital, Inc.,
Mitchell Blatt, and Michael Stanky (collectively, the "SAS Stockholders")
10.25** Registration Agreement, dated as of July 26, 1995, among SAS and each of
the SAS Stockholders
- ------------------
* To be filed by amendment.
** Previously filed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<C>
<S> <C>
10.26** Management Consulting Services Agreement, dated as of July 26, 1995,
between SAS Acquisitions Inc. and GTCR IV, L.P.
10.27 Supply Agreement, dated July 26, 1995, by and among SAS Acquisitions
Inc., Solon and Speed Queen Company (incorporated by reference from
exhibit number 10.16 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.28 Dealer Manager Agreement, dated October 20, 1995, by and among TCC,
Solon, Lazard and Fieldstone Private Capital Group, L.P. (incorporated by
reference from exhibit number 10.17 to Coinmach's Registration Statement on
Form S-1, file number 333-00620)
10.29 Purchase Agreement, dated November 15, 1995, by and among TCC, Solon
and Lazard (incorporated by reference from exhibit number 10.18 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.30 Addendum to Purchase Agreement, dated December 11, 1995, by and
between Coinmach and Lazard (incorporated by reference from exhibit
number 10.19 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.31 Omnibus Agreement, dated as of November 30, 1995, among SAS, Solon,
TCC and each of the other parties executing a signature page thereto (the
"Omnibus Agreement") (incorporated by reference from exhibit number 10.20
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.32 Credit Agreement, dated as of November 30, 1995, by and between
Coinmach, as Borrower and Heller (incorporated by reference from exhibit
number 10.21 to Coinmach's Registration Statement on Form S-1, file
number 333-00620)
10.33 First Amendment to Credit Agreement, dated as of December 9, 1995, by
and among Coinmach, Heller, SAS, and Super Laundry Equipment Corp.
("SLEC") (incorporated by reference from exhibit number 10.22 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.34 Form of Note, dated November 30, 1995, of Coinmach in favor of Heller
(included as an exhibit to Exhibit 10.26 hereto) (incorporated by reference
from exhibit number 10.23 to Coinmach's Registration Statement on Form
S-1, file number 333-00620)
10.35 Pledge Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number 10.24
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.36 Guaranty, dated as of January 31, 1995, by Super Laundry Management
Corp. in favor of Heller (incorporated by reference from exhibit number
10.25 to Coinmach's Registration Statement on Form S-1, file number
333-00620)
- -------------------
* To be filed by amendment.
** Previously filed.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<C>
<S> <C>
10.37 Guaranty, dated as of November 30, 1995, by SLEC in favor of Heller
(incorporated by reference from exhibit number 10.26 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
10.38 Security Agreement, dated as of November 30, 1995, by and between
Coinmach and Heller (incorporated by reference from exhibit number 10.27
to Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.39 Security Agreement, dated as of November 30, 1995, by and between SLEC
and Heller (incorporated by reference from exhibit number 10.28 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.40 Collateral Assignment of Leases of Coinmach to Heller, dated as of
November 30, 1995 (incorporated by reference from exhibit number 10.29 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.41 Collateral Assignment of Leases of SLEC to Heller, dated as of November
30, 1995 (incorporated by reference from exhibit number 10.30 to
Coinmach's Registration Statement on Form S-1, file number 333-00620)
10.42* 1996 Employee Stock Option Plan of the Company
10.43* Reclassification Agreement, dated _______, 1996, among the Company and
the SAS Stockholders
10.44* Option Agreement, dated _______, 1996, between the Company and MCS
Capital, Inc.
10.45* Lock-Up Agreement, dated _______, 1996, among the Company, GTCR
Fund IV, President and Fellows of Harvard Collage, MCS Capital, Inc.,
Heller, Mitchell Blatt, Robert M. Doyle, Michael E. Stanky, James N.
Chapman, Michael E. Marrus, Charles Prato, David Tulkop, Russell
Harrison and Jackson National Life Insurance Company
10.46 Waiver of Registration Rights, dated May 8, 1996, among the Company and
the SAS Stockholders
10.47* Form of Voting Agreement among the Company, Golder, Thoma, Cressey,
Rauner Fund IV, L.P., and the signatories thereto
11.1 Pro Forma Computation of Loss Per Common Share
12.1** Computation of ratios
16.1 Letter, dated June 29, 1995, from Arthur Andersen LLP to the Securities and
Exchange Commission regarding change in certifying accountants
(incorporated by reference from exhibit number 16.1 to Coinmach's
Registration Statement on Form S-1, file number 333-00620)
21.1** Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
</TABLE>
- --------------
* To be filed by amendment
** Previously filed.
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------------------------------------------------------------------------- ----------
<C>
<S> <C>
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Anderson Kill Olick & Oshinsky, P.C. (Included in Exhibit 5.1)
24.1 Power of Attorney
24.2 Certified copy of Action by Written Consent in Lieu of a Meeting of
the Board of Directors of Coinmach Laundry Corporation, dated May 9,
1996
27.1** Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed.
<PAGE>
EXHIBIT 10.46
WAIVER OF REGISTRATION RIGHTS
Reference is hereby made to that certain Registration Agreement, dated
July 26, 1995, by and among SAS Acquisitions Inc., a Delaware corporation (the
"Company") and each of the signatories thereto, as amended by that certain
Omnibus Agreement, dated as of November 30, 1995 (together, the "Registration
Agreement").
WHEREAS, the Company has determined to sell certain shares of its
common stock through an initial underwritten public offering registered under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Initial Public Offering");
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
The Holders hereby agree to waive any and all registration rights
granted to them under Section 2 (entitled "Piggyback Registrations") of the
Registration Agreement, including, without limitation, any notice provisions
contained therein, which registration rights may arise in connection with the
Initial Public Offering. This Waiver of Registration Agreement shall only apply
to the Initial Public Offering and shall not affect or waive any other rights or
remedies of the undersigned under the Registration Agreement.
This Waiver of Registration Rights shall be construed, and the
obligations of the parties hereunder shall be determined, in accordance with
applicable federal law and the internal laws of the State of Delaware, without
giving effect to any choice of law or conflict provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the laws of any
jurisdiction other than the State of Delaware to be applied.
This Waiver of Registration Rights constitutes the full and entire
understanding and agreement of the undersigned regarding the subject matter
hereof.
This Waiver of Registration Rights may be signed in one or more
counterparts, each of which together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this Waiver of Registration
Rights effective upon the 8th day of May, 1996.
AGREED TO AND ACCEPTED:
COINMACH LAUNDRY CORPORATION
/s/ ROBERT M. DOYLE
By: _____________________________
Name: Robert M. Doyle
Title: Senior Vice President
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: GTCR IV, L.P.
Its: General Partner
By: GOLDER, THOMA, CRESSEY, RAUNER, INC.
Its: General Partner
/s/ BRUCE V. RAUNER
By: __________________________
Name: Bruce V. Rauner
Title: Principal
MCS CAPITAL, INC.
/s/ STEPHEN R. KERRIGAN
By: __________________________
Stephen R. Kerrigan
President
HELLER FINANCIAL, INC.
/s/ ELLEN COOK
By: __________________________
Name: Ellen Cook
Title: Asst. Vice President
<PAGE>
JACKSON NATIONAL LIFE INSURANCE
COMPANY
By: PPM American, Inc.,
its authorized agent
/s/ WILLIAM T. CONSIDINE
By: __________________________
Name: William T. Considine
Title: Vice President
JACKSON NATIONAL LIFE INSURANCE COMPANY OF
MICHIGAN
By: PPM American, Inc.,
its authorized agent
/s/ WILLIAM T. CONSIDINE
By: __________________________
Name: William T. Considine
Title: Vice President
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
By: HARVARD MANAGEMENT COMPANY, INC.
/s/ TIMOTHY S. PETERSON
By: __________________________
Name: Timothy S. Peterson
Title: Authorized Signatory
/s/ JACK R. MEYER
By: __________________________
Name: Jack R. Meyer
Title: Authorized Signatory
/s/ JAMES N. CHAPMAN
_____________________________
James N. Chapman
/s/ MICHAEL E. MARRUS
_____________________________
Michael E. Marrus
<PAGE>
/s/ MITCHELL BLATT
_____________________________
Mitchell Blatt
/s/ ROBERT M. DOYLE
_____________________________
Robert M. Doyle
/s/ MICHAEL STANKY
_____________________________
Michael Stanky
<PAGE>
Exhibit 11.1
Pro Forma Computation of Loss Per Common Share
----------------------------------------------
<TABLE>
<CAPTION>
Six-month transition April 5, 1995 to
period ended September 29,
March 29, 1996 1995
-------------------- ------------------
<S> <C> <C>
Net loss applicable to common stock $(11,448,000) $(6,116,000)
============ ===========
Shares outstanding from the beginning of the period 6,193,830 6,193,830
Shares issued to management in May 1996 at prices below the
assumed initial public offering price reduced by shares
through the application of the treasury stock method 75,723 75,723
Options granted to management in May 1996 at 85 percent of
the assumed initial public offering price reduced by shares
through the application of the treasury stock method 109,018 109,018
Estimated number of shares which would have to be sold at
the assumed initial public offering price of $17.00 to fund the
following:
Shares issued to management for preferred stock 23,317 23,317
Cash used to repurchase remaining preferred stock 1,125,446 1,125,446
------------ -----------
Total weighted average number of shares 7,527,334 7,527,334
------------ -----------
Pro forma net loss per common share $(1.52) $(.81)
============ ===========
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated December 19, 1994 and to all references to our firm included in or made a
part of this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
June 17, 1996
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated May 3, 1996, with respect to the combined consolidated
financial statements of Coinmach Laundry Corporation, and March 20, 1996, with
respect to the combined consolidated financial statements of Coinmach
Corporation, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-
3587) and related Prospectus of Coinmach Laundry Corporation for the
registration of 4,000,000 shares of its common stock.
ERNST & YOUNG LLP
Melville, New York
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the restatement of capital accounts described in Note 11 to the financial
statements.
/s/ ERNST & YOUNG LLP
Melville, New York
June 14, 1996
<PAGE>
EXHIBIT 23.3
Consent of Independent Auditors
The Board of Directors
Coinmach Laundry Corporation
We consent to the inclusion of our reports dated April 28, 1995, with respect to
the consolidated balance sheets of CIC I Acquisition Corp. and subsidiaries as
of January 31, 1995 and December 31, 1994, and the related statements of
operations and accumulated deficit and cash flows for the one-month period ended
January 31, 1995 and each of the years in the two-year period ended December 31,
1994, which reports appear in the Form S-1 of Coinmach Laundry Corporation. We
also consent to the inclusion of our report dated July 7, 1995, with respect to
the consolidated balance sheet of The Coinmach Corporation and subsidiaries as
of March 31, 1995, and the related statements of operations and accumulated
deficit and cash flows for the two-month period then ended, which report appears
in the Form S-1 of Coinmach Laundry Corporation. In addition, we consent to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
New York, New York
June 14, 1996
<PAGE>
EXHIBIT 24.1
SIGNATURES
Pursuant to the requirements of the Securities Act, Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roslyn, State of New York
on May 13, 1996.
COINMACH LAUNDRY CORPORATION
By: /s/ STEPHEN R. KERRIGAN
--------------------------------------
Stephen R. Kerrigan
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Coinmach Laundry Corporation
hereby constitute and appoint Stephen R. Kerrigan and Robert M. Doyle, and each
of them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact and
agents, for him and in his name, place, and stead, in any and all capacities, to
sign on his behalf any and all amendments (including post-effective amendments
and amendments thereto) to this Registration Statement and any other
registration statement (and any amendments thereto) filed for the purpose of
registering additional shares of Common Stock pursuant to Rule 462 under the
Securities Act, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Commission granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
about the premises as fully as to all intents and purposes as he or she might or
could do in person, and hereby ratify and confirm that all such attorneys-in-
fact or agents, or any of them, or their substitutes shall lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities indicated on May 13, 1996.
<TABLE>
<CAPTION>
<S> <C>
Signature Title
--------- -----
/s/ STEPHEN R. KERRIGAN Chairman of the Board of Directors
------------------------------------- and Chief Executive Officer
Stephen R. Kerrigan
/s/ MITCHELL BLATT Director, President and Chief Operating Officer
-------------------------------------
Mitchell Blatt
/s/ ROBERT M. DOYLE Chief Financial Officer and Senior Vice
------------------------------------- President
Robert M. Doyle
/s/ JOHN E. DENSON Senior Vice President
-------------------------------------
John E. Denson
/s/ MICHAEL STANKY Senior Vice President
-------------------------------------
Michael Stanky
</TABLE>
<PAGE>
Signature Title
--------- -----
/s/ DAVID A. DONNINI Director
-----------------------------------------
David A. Donnini
/s/ JAMES N. CHAPMAN Director
------------------------------------------
James N. Chapman
/s/ BRUCE V. RAUNER Director
---------------------------------------
Bruce V. Rauner
<PAGE>
EXHIBIT 24.2
OFFICER'S CERTIFICATE
OF
COINMACH LAUNDRY CORPORATION
The undersigned hereby certifies that: (i) he is the Secretary of
Coinmach Laundry Corporation, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"); (ii) the attached is a true
and correct copy of the resolution duly adopted by unanimous written consent of
the Board of Directors of the Corporation as of May 9, 1996; and (iii) said
resolution is in full force and effect as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Officer's Certificate as of the 17th day of June, 1996.
/s/ ROBERT M. DOYLE
________________________________
Robert M. Doyle
Secretary
[corporate seal]
<PAGE>
- --------------------------------------------------------------------------------
ACTION BY WRITTEN CONSENT
IN LIEU OF A MEETING OF THE BOARD OF
DIRECTORS OF COINMACH LAUNDRY CORPORATION
- --------------------------------------------------------------------------------
As of May 9, 1996
The undersigned, being all of the members of the Board of Directors of
Coinmach Laundry Corporation, a Delaware corporation (the "Corporation"), in
accordance with Section 141(f) of the General Corporation Law of the State of
Delaware, hereby consent to the taking of the following actions and direct that
this consent be filed in the minute book of the Corporation:
1. The following resolution with respect to Stephen R. Kerrigan and Robert
M. Doyle being designated as the Powers of Attorney on behalf of the
Corporation, to execute the Corporation's registration statement on Form S-1
(the "Registration Statement"), is hereby adopted:
RESOLVED, that Stephen R. Kerrigan and Robert M. Doyle are hereby
authorized and directed to execute and deliver a power of attorney,
substantially in the form submitted to this Board of Directors, whereby
Messrs. Kerrigan and Doyle be, and each of them hereby are, authorized to
sign such Registration Statement, any amendments and post-effective
amendments to such Registration Statement, and to take such further action,
as may be deemed necessary or advisable by such officers in connection with
such Registration Statement.
2. The following resolution with respect to the implementation of
the foregoing resolution is hereby adopted:
RESOLVED, that the appropriate officers of the Corporation and the
Corporation's counsel be, and each of them hereby is, authorized and
directed to prepare and to execute such documents, to make such filings, to
seek necessary approvals and to take such actions as may be necessary or
desirable in order to carry out the purpose of the foregoing resolution and
the intent thereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being all of the members of the
Board of Directors of the Corporation, do hereby consent to the foregoing action
as of the day and year first above written.
/s/ DAVID A. DONNINI
---------------------------
David A. Donnini
/s/ BRUCE V. RAUNER
---------------------------
Bruce V. Rauner
/s/ STEPHEN R. KERRIGAN
---------------------------
Stephen R. Kerrigan
/s/ JAMES N. CHAPMAN
---------------------------
James N. Chapman
/s/ MITCHELL BLATT
---------------------------
Mitchell Blatt
