<PAGE>
PURSUANT TO RULE NO. 424(b)(1)
REGISTRATION NO. 333-37881
333-42361
PROSPECTUS
4,000,000 SHARES
[LOGO] COINMACH LAUNDRY CORPORATION
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COINMACH COMMON STOCK
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KEEPING AMERICA CLEAN --------
ONE LAUNDRY ROOM AT A TIME
Of the 4,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Coinmach Laundry Corporation ("Coinmach Laundry") offered
hereby (the "Offering"), 2,665,000 shares are being sold by Coinmach Laundry
and 1,335,000 shares are being sold by certain stockholders of Coinmach
Laundry (the "Selling Stockholders"). Coinmach Laundry will not receive any
proceeds from the sale of shares by the Selling Stockholders. Coinmach
Laundry's Common Stock is traded on the Nasdaq National Market under the
trading symbol "WDRY." On December 15, 1997, the last reported sale price of
the Common Stock was $20.00 per share. See "Price Range of Common Stock."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 9.
--------
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.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $19.75 $1.03 $18.72 $18.72
- --------------------------------------------------------------------------------
Total(3)................... $79,000,000 $4,120,000 $49,888,800 $24,991,200
</TABLE>
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- --------------------------------------------------------------------------------
(1) Coinmach Laundry and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering, all of which will be payable by
Coinmach Laundry, estimated at $1,200,000.
(3) Certain of the Selling Stockholders and certain other stockholders have
granted the Underwriters a 30-day option to purchase up to 600,000
additional shares of Common Stock solely to cover over-allotments, if any.
To the extent that the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company, and Proceeds to Selling Stockholders
will be $90,850,000, $4,738,000, $49,888,800, and $36,223,200,
respectively. See "Underwriting."
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It
is expected that the delivery of the shares of Common Stock will be made at
the offices of BT Alex. Brown Incorporated, New York, New York on or about
December 19, 1997.
BT ALEX. BROWN
LEHMAN BROTHERS
RAYMOND JAMES & ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
JEFFERIES & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS DECEMBER 16, 1997
<PAGE>
Map of operating regions
[ART]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR
MAINTAIN THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ALSO ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<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, incorporated
by reference herein. As used in this Prospectus, unless the context otherwise
requires, all references to "Coinmach Laundry" herein refer to Coinmach Laundry
Corporation and all references to the "Company" herein refer to Coinmach
Laundry 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 by the
underwriters of the Offering (the "Underwriters"). "EBITDA" has the meaning set
forth in footnote (3) on page 8 hereof and "EBITDA margin" has the meaning set
forth in footnote (4) on page 8 hereof. Except as otherwise specified, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
GENERAL
The Company, established in 1947, is the leading supplier of outsourced coin-
operated laundry equipment services for multi-family housing properties in the
United States. The Company's business involves leasing laundry rooms from
building owners and property management companies, installing and servicing the
laundry equipment and collecting revenues generated from laundry machines. The
Company owns and operates approximately 420,000 coin-operated washers and
dryers in approximately 42,000 locations on routes throughout the United States
and in 151 retail laundromats located throughout Texas.
In January 1995, the Company initiated a strategy of controlled growth
through acquisitions. This strategy was designed to increase the installed
machine base in its then existing operating region as well as to provide the
Company with a strong market presence in new regions. Since January 1995, the
Company has completed six significant acquisitions adding revenues of
approximately $221 million and expanding its national presence from the
Northeast into the Mid-Atlantic, Southeast, South-Central, Midwest and Western
regions of the United States. Accordingly, the Company has grown its installed
base from approximately 54,000 machines to approximately 420,000 machines.
As a result of this strategy of growth, the Company's revenues and EBITDA
have grown from $72.9 million and $13.6 million, respectively, on a historical
basis for the twelve months ended March 31, 1995, to $306.9 million and $97.8
million (before deducting non-cash stock-based compensation charges),
respectively, for the twelve months ended March 28, 1997 (the "1997 fiscal
year"), on a pro forma basis, giving effect to the acquisitions consummated by
the Company since March 30, 1996.
INDUSTRY
The coin-operated laundry equipment services industry is characterized by
stable cash flows generated by long-term, renewable lease contracts with multi-
family property owners and management companies. The industry is highly
fragmented, 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 installed machines in
multi-family housing properties throughout the United States, approximately 2.5
million of which have been outsourced to independent operators such as the
Company and approximately 1.0 million of which continue to be operated by the
owners of such locations.
3
<PAGE>
BUSINESS STRATEGY
The Company's business strategy is to enhance its position as the largest
provider of outsourced coin-operated laundry equipment services in the United
States. Management intends to continue to grow the Company's installed machine
base both internally and through selective acquisitions to achieve benefits of
scale, increase its operating efficiencies and improve its financial
performance. Internal growth is comprised of: (i) adding new customers in
existing regions and securing contracts for additional locations from current
customers; (ii) converting owner-operated facilities to Company managed
facilities; (iii) improving the net contribution per machine through operating
efficiencies and selective price increases; and (iv) pursuing additional growth
opportunities presented by the Company's leading market position and access to
approximately four million individual housing units. The Company's acquisition
strategy is to continue to selectively acquire local, regional and multi-
regional route businesses from independent operators at attractive prices. The
Company is currently evaluating several acquisition opportunities, however,
there can be no assurance that, subsequent to ongoing negotiations and due
diligence reviews, the Company will complete any such acquisitions.
An important element of the Company's business strategy is to continue to
expand its geographic presence to gain additional regional and multi-regional
account opportunities with large multi-family housing property managers and
owners. Management believes that a significant portion of its customer base,
which manages multi-family housing and other residential properties, is
consolidating. Consequently, management believes that opportunities for
outsourcing coin-operated laundry equipment services to professionally managed,
multi-regional, well-capitalized independent operators such as the Company are
increasing.
The Company's business strategy also includes the continued development of
its management information systems (the "Integrated Computer Systems"), which
management believes are the most advanced in the industry. The Integrated
Computer Systems provide real-time operational and competitive data, which in
conjunction with the Company's multi-regional service capabilities, enhance the
Company's operating efficiencies throughout its regions and enable the Company
to deliver superior customer service. The Integrated Computer Systems also
provide the Company with the flexibility to integrate acquisitions on a timely
basis, including key functions such as sales, service, collections and
security. Finally, as the industry leader, the Company works closely with its
equipment vendors to assess ongoing technological changes and implements those
which the Company believes are beneficial to customer service, operating
efficiencies and financial performance.
FINANCIAL CHARACTERISTICS OF THE BUSINESS
The Company's business has the following financial characteristics:
Recurring Revenues. The Company derives a majority of its revenues from
outsourced coin-operated laundry equipment services typically performed under
long-term contracts with landlords, property management companies and owners of
rental apartment buildings, condominiums and cooperatives, university and
institutional housing and other multi-family housing properties. Management
estimates that approximately 90% of its locations are subject to long-term
contracts with initial terms of three to ten years, most of which have
automatic renewal or right of first refusal provisions. During the 1997 fiscal
year, the Company retained approximately 97% of its existing machine base. The
Company believes that its ability to retain its customers and machine base is
attributable to a number of factors, including the Company's national
reputation for superior service, the structure of its contracts and the
strength of its long-term customer relationships.
Diversified Customer Base. The Company provides outsourced coin-operated
laundry equipment services to over 42,000 laundry rooms in its operating
regions, and no one customer accounts for more than 2% of its revenues.
Management estimates that the Company's services are located in multi-family
housing properties containing over four million individual housing units.
4
<PAGE>
Leverageable Cash Flows. Due to the stable, recurring nature of the Company's
revenues and its consistent EBITDA levels, the Company has been able to obtain
debt financing on favorable terms to support its acquisition strategy. This use
of debt financing to support growth is an important component of the Company's
financial strategy, and the Company believes that access to both the public and
private debt markets provides it with a competitive advantage.
Benefits of Scale. By increasing its installed machine base, the Company has
benefited from economies of scale in both operating costs and purchasing power.
The Company is able to leverage its existing infrastructure, including its
sales, service, collections, security and corporate overhead, over a larger
installed machine base than its competition. As a result, the Company has been
able to improve its EBITDA margin as it has increased its size. For the twelve
months ended March 29, 1996, the 1997 fiscal year and the six months ended
September 26, 1997, the Company's EBITDA margins were 28.6%, 30.4% and 31.1%,
respectively. Furthermore, due to its purchasing power, management believes
that the Company is able to purchase equipment on terms more favorable than
those available to smaller industry participants.
Significant Portion of Capital Investment Related to Growth. During the 1997
fiscal year, the Company spent $213.0 million in capital expenditures, of which
$171.5 million, or approximately 80.6%, was used to finance acquisitions as
part of the Company's growth strategy. Of the remaining capital investment,
$12.5 million, or approximately 5.8%, was used for internally generated growth
and $29.1 million, or approximately 13.6%, related to the renewal of the
Company's existing machine base.
5
<PAGE>
THE OFFERING
Common Stock offered by Coinmach Laundry.... 2,665,000 shares
Common Stock offered by the Selling 1,335,000 shares(1)
Stockholders...............................
Common Stock to be outstanding after the 12,675,661 shares(2)
Offering...................................
Common Stock and non-voting common stock,
$.01 par value per share (the "Non-Voting
Common Stock"), to be outstanding after
the Offering...............................
13,156,309 shares(2)
Use of Proceeds............................. Repayment of debt and general
corporate purposes, which may
include certain selected
acquisitions. See "Use of
Proceeds."
Nasdaq National Market Symbol............... WDRY
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(1) Assumes no exercise of the Underwriters' over-allotment option. The Company
will not receive any of the proceeds from the sale of shares sold by the
Selling Stockholders (exclusive of amounts paid in respect of the exercise
of options).
(2) Does not include 1,109,147 shares of Common Stock issuable under the Second
Amended and Restated 1996 Employee Stock Option Plan (the "1996 Stock
Option Plan"), of which 85,500 shares of Common Stock underlie options that
have been granted thereunder and that will be exercisable immediately after
the Offering. Does not include 1,053,054 shares of Common Stock issuable
upon exercise of stock options granted outside of the 1996 Stock Option
Plan (collectively, the "Non-Plan Options"), of which 389,402 shares
underlie options that will be exercisable immediately after the Offering.
Includes approximately 6,383 shares of Common Stock to be issued upon
exercise of certain options held by a Selling Stockholder in connection
with the Offering.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT MACHINE DATA)
The following table presents consolidated summary historical financial data
and unaudited pro forma financial data of the Company for the 1997 fiscal year
and for the six months ended September 26, 1997 and the unaudited summary
historical financial data for the twelve months ended March 29, 1996 (which
consist of the combined operations of the Company's predecessors), and the six
months ended September 27, 1996. The pro forma financial data give effect to:
(i) certain acquisitions, including the Kwik Wash Acquisition, the Reliable
Acquisition, the Appliance Warehouse Acquisition and the National Coin
Acquisition (each, as defined); (ii) the Bond Offering (as defined); and (iii)
the Offering (as defined) (collectively, the "Transactions"), as if the
Transactions occurred at the beginning of the applicable 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 consolidated
financial statements and the related notes thereto incorporated by reference
into this Prospectus and under the headings "Unaudited Pro Forma Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Coinmach Laundry's Annual Report on Form 10-
K/A for the year ended March 28, 1997 and Quarterly Reports on Form 10-Q/A for
the quarters ended June 27, 1997 and September 26, 1997, respectively,
incorporated by reference herein.
<TABLE>
<CAPTION>
COMBINED
TWELVE YEAR ENDED SIX MONTHS ENDED
MONTHS -------------------- -----------------------------------------
ENDED PRO FORMA PRO FORMA
MARCH 29, MARCH 28, MARCH 28, SEPTEMBER 27, SEPTEMBER 26, SEPTEMBER 26,
1996(1) 1997 1997 1996 1997 1997
--------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............... $178,789 $206,852 $306,913 $ 94,446 $149,797 $156,983
Operating, general and
administrative
expenses.............. 127,636 144,059 209,234 65,719 103,227 107,636
Depreciation and amor-
tization.............. 36,635 46,316 71,973 20,192 34,580 35,912
Operating income....... 12,318 14,325 23,554 7,075 11,445 12,890
Interest expense,
net................... 23,817 26,859 40,010 12,142 21,129 21,220
Loss before extraordi-
nary items............ (8,639) (10,227) (13,205) (3,467) (7,779) (6,747)
BALANCE SHEET DATA (AT
END OF PERIOD):
Cash and cash equiva-
lents ................ $ 19,858 $ 14,729 $ 32,529 $ 16,815 $ 27,080
Property and equip-
ment, net............. 82,699 112,116 93,819 130,348 130,348
Contract rights, net... 59,745 180,557 63,217 217,371 217,371
Total assets........... 249,148 472,921 280,276 560,359 574,999
Total debt(2).......... 202,765 345,486 203,909 418,524 375,274
Stockholders' (defi-
cit) equity........... (1,308) 23,563 28,627 16,329 65,094
FINANCIAL RATIOS AND
OTHER DATA (UNAUDITED):
Cash flow from
operating
activities............ $ 24,403 $ 34,732 $ 50,078 $ 15,387 $ 22,386 $ 22,560
Cash used for
investing
activities............ 39,201 196,698 273,884 35,050 91,900 92,824
Cash from financing
activities............ 23,882 156,837 226,891 32,334 71,600 81,573
EBITDA(3).............. 51,153 62,793 97,833 28,727 46,570 49,347
EBITDA margin(4)....... 28.6% 30.4% 31.9% 30.4% 31.1% 31.4%
Capital Expendi-
tures(5)
Growth capital expen-
ditures............. $ -- $ 12,563 $ 12,563 $ 4,400 $ 8,000 $ 8,000
Renewal capital ex-
penditures.......... 27,333 29,025 43,728 13,100 17,600 18,500
Acquisition capital
expenditures(6)..... 11,925 171,455 233,938 17,600 66,300 66,300
-------- -------- -------- -------- -------- --------
Total Capital Expendi-
tures................. 39,258 213,043 290,229 35,100 91,900 92,800
Number of machines
(rounded)............. 220,000 337,000 415,000 247,000 420,000 420,000
</TABLE>
(footnotes on following page)
7
<PAGE>
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(1) The combined historical audited financial data for the twelve months ended
March 29, 1996 consist of the six month transition period ended March 29,
1996 and the six months ended September 29, 1995.
(2) Total debt does not include the premium of $9.875 million recorded on the
issuance by Coinmach Corporation ("Coinmach") of $100 million aggregate
principal amount of its 11 3/4% Series C Senior Notes due 2005 (the "Series
C Notes") in the Bond Offering.
(3) EBITDA represents earnings from continuing operations before deductions for
interest, income taxes, depreciation and amortization. EBITDA for the year
ending March 28, 1997 and the six months ending September 26, 1997 and
September 27, 1996 is before the deduction of stock-based compensation
charges, and EBITDA for the period ended March 29, 1996 is before the
deduction for restructuring costs. EBITDA is used by management and certain
investors as an indication of a company's historical ability to service
debt. Management believes that an increase in EBITDA is an indicator of the
Company's improved ability to service existing debt, to sustain potential
future increases in debt and to satisfy capital requirements. 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" included in Coinmach Laundry's Annual Report on
Form 10-K/A for the year ended March 28, 1997 and Quarterly Reports on Form
10-Q/A for the quarters ended June 27, 1997 and September 26, 1997,
respectively, incorporated by reference herein.
(4) 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.
(5) Capital expenditures represent amounts expended for property and equipment,
for advance rental payments to location owners and for acquisitions.
Acquisition capital expenditures represent the amounts expended to acquire
local, regional and multi-regional route operators, as well as
complementary businesses. Growth capital expenditures represent the amount
of capital expended that reflects a net increase in the installed base of
machines, excluding acquisitions. Renewal capital expenditures represent
the amount of capital expended assuming no net increase in the installed
base of machines.
(6) For the year ended March 28, 1997, includes approximately $16.2 million of
promissory notes issued by Coinmach Laundry related to certain
acquisitions.
8
<PAGE>
RISK FACTORS
This Prospectus and other reports and statements filed by Coinmach Laundry
(collectively, "Commission Filings") from time to time with the Securities and
Exchange Commission (the "Commission") contain or may contain certain forward
looking statements and information that are based on the beliefs of the
Company's management as well as estimates and assumptions made by, and
information currently available to, the Company's management. When used in
Commission Filings, the words "anticipate," "believe," "estimate," "expect,"
"future," "intend," "plan" and similar expressions, as they relate to Coinmach
Laundry or its management, identify forward looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions
relating to the Company's operations and results of operations, competitive
factors, shifts in market demand, and other risks and uncertainties,
including, in addition to any uncertainties specifically identified in the
text surrounding such statements, uncertainties with respect to changes or
developments in social, economic, business, industry, market, legal and
regulatory circumstances and conditions and actions taken or omitted to be
taken by third parties, including the Company's stockholders, customers,
suppliers, competitors, legislative, regulatory, judicial and other
governmental authorities. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary significantly from those anticipated, believed, estimated,
expected, intended or planned. 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 September
26, 1997, on a pro forma basis after giving effect to the Transactions, the
Company would have had outstanding indebtedness of approximately $375.3
million (excluding the premium on the Series C Notes) and stockholders' equity
of $65.1 million.
The Company's level of indebtedness will have several important effects on
its future operations, including, but not limited to, 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 agreements governing the Company's indebtedness will require
the Company to meet certain financial tests and will limit its ability to
borrow additional funds, to dispose of assets and to pay dividends; (iii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or 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 agreements governing Coinmach'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--Liquidity and Capital Resources."
An inability of the Company to comply with the financial covenants or other
conditions contained in the financing agreements governing its indebtedness
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 (including
for acquisitions), 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--Liquidity and Capital Resources."
Historical Net Losses. In the past, the Company has experienced net losses.
The Company incurred net losses before extraordinary items of approximately
$10.2 million and $7.8 million for the year ended March 28, 1997 and the six
months ended September 26, 1997, respectively. As of September 26, 1997,
9
<PAGE>
the Company had an accumulated deficit of approximately $37.0 million. No
assurance can be given that net losses will not continue 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 has historically focused on obtaining long-term,
renewable lease contracts, and management estimates that approximately 90% of
its locations are subject to long-term leases with initial terms of three to
ten years. There can be no assurance that the Company will be able to renew
its leases as they expire or that new leases will contain the same renewal and
other material terms. See "Business--Operations--Location Leasing."
Risks of Acquisitions and Integration of 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 businesses 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 would 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 operates in a capital intensive industry
and must continue to make capital expenditures to maintain its operating base.
The Company spent approximately $29.1 million on renewal capital expenditures
for the 1997 fiscal year. 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.
Management of Growth. The Company expects to grow through internal growth
and acquisitions. Management expects to expend significant time and effort in
evaluating, completing and integrating such acquisitions. There can be no
assurance that the Company's systems, procedures and controls will be adequate
to support the Company's operations as they expand. Any future growth will
also impose significant added responsibilities on members of senior
management, including the need to identify, recruit and integrate new senior
level managers and executives. There can be no assurance that such additional
management will be identified and retained by the Company. To the extent that
the Company is unable to manage its growth efficiently and effectively, or is
unable to attract and retain additional qualified management, the Company's
financial condition and results of operations could be materially adversely
affected. See "Business--Business Strategy."
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.
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, all of whom have employment agreements with the Company.
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.
Control by Principal Shareholder. Immediately after the Offering, Golder,
Thoma, Cressey, Rauner Fund IV ("GTCR") will own approximately 26.0% of
Coinmach Laundry's 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). GTCR and certain
holders of Common Stock are parties to a Voting Agreement dated July 23, 1996
(the "Voting Agreement") that gives GTCR
10
<PAGE>
the ability, at all times that it holds at least 20% of the outstanding voting
securities of Coinmach Laundry, to designate for election a majority of the
Company's directors and therefore influence the outcome of substantially all
issues submitted to Coinmach Laundry's stockholders, including mergers, sales
of all or substantially all of the Company's assets and similar fundamental
corporate changes.
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. Notwithstanding
the fragmentation of the industry, there are currently three companies,
including the Company, with significant operations in multiple regions
throughout the United States. Some of the Company's competitors may possess
greater financial and other resources than the Company. Furthermore, current
and potential competitors may make acquisitions or may establish relationships
among themselves or with third parties to increase their ability to compete
within the industry. Accordingly, it is possible that new competitors may
emerge and rapidly acquire significant market share. If this were to occur,
the business, operating results, financial condition and cash flows of the
Company could be materially adversely affected.
Significant Intangible Assets. Adjusted for the Bond Offering and the
Offering on a pro forma basis, approximately $326.4 million or 56.8% of the
Company's total assets would have been intangible assets, consisting primarily
of contract rights and goodwill as of September 26, 1997. 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. Coinmach Laundry 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, Coinmach Laundry is prohibited by the terms of
the Credit Agreement (as defined) from paying dividends on its capital stock.
See "Dividend Policy."
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 Coinmach Laundry's Third
Amended and Restated Certificate of Incorporation (the "Third Amended and
Restated Certificate of Incorporation") and the Third Amended and Restated
Bylaws (the "Third Amended and Restated Bylaws") may discourage, delay or make
more difficult a change in control of Coinmach Laundry, or prevent the removal
of incumbent directors even if some, or a majority, of Coinmach Laundry's
stockholders were to deem such an attempt to be in the best interest of the
Company. Among other things, the Third Amended and Restated Certificate of
Incorporation allows the Board of Directors of Coinmach Laundry (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 Coinmach Laundry 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 Coinmach Laundry. In addition,
Coinmach Laundry 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. 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 13,156,309
11
<PAGE>
shares of Common Stock and Non-Voting Common Stock that will be issued and
outstanding following the Offering, 6,855,025 shares of Common Stock 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 6,301,284 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 BT
Alex. Brown Incorporated, offer, sell, contract to sell or otherwise dispose
of their shares for a period of 90 days from the date of this Prospectus.
After expiration of such lock-up agreements, all of the 6,301,284 restricted
securities will be eligible for sale under Rule 144 of the Securities Act. See
"Shares Eligible for Future Sale."
Possible Volatility of Stock Price. Coinmach Laundry's stock price has been
volatile since its initial public offering. Coinmach Laundry believes that
factors such as quarterly fluctuations in results of operations, announcements
of acquisitions by the Company or by its competitors, changes in revenue,
EBITDA or earnings estimates by securities analysts, developments in
litigation affecting the Company, changes in accounting principles or their
application and other factors may cause the market price of Coinmach Laundry's
stock to continue to fluctuate, perhaps substantially. Due to market and
securities analysts' expectations of continued growth, any shortfall in
meeting such expectations may have a rapid and significant adverse effect on
the trading price of the Common Stock. These fluctuations, as well as general
economic, market and other conditions may adversely affect the market price of
the Common Stock in the future. Fluctuations in the market price of the Common
Stock may in turn adversely affect the Company's ability to complete any
targeted acquisitions, its access to capital and financing and its ability to
attract and retain qualified personnel. See "Price Range of Common Stock."
Decline in Revenues. Due to previous capital constraints and debt service
requirements, Coinmach Laundry experienced declines in revenues from
operations during certain periods prior to the 1997 fiscal year. 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 and actual revenue generated on a per-machine basis.
Coinmach Laundry 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.
Holding Company Structure. Coinmach Laundry is a holding company with no
independent business operations of its own and conducts all of its operations
through its operating subsidiaries. Coinmach Laundry is dependent upon
payments, dividends and distributions from Coinmach for funds to pay its
expenses, interest on its outstanding debt and future cash dividends or
distributions, if any, to holders of the Common Stock. Coinmach has no current
intention of paying dividends or making other distributions to Coinmach
Laundry in excess of amounts necessary to pay Coinmach Laundry's operating
expenses, taxes and outstanding indebtedness. Covenants contained in
Coinmach's credit facility and senior note indentures provide that Coinmach
may not declare any dividends or make any other payments or distributions to
Coinmach Laundry, except to the extent necessary (i) to pay Coinmach Laundry's
operating expenses, including, without limitation, reasonable accounting fees
and other support services, in an aggregate amount not to exceed $500,000 in
any fiscal year; (ii) to pay federal and state and other applicable income
taxes; (iii) to repurchase Common Stock from members of the Company's
management in connection with certain executive employment agreements in an
aggregate amount not to exceed $750,000 in any fiscal year; (iv) to satisfy
certain payment obligations (including administration costs and expenses)
under Coinmach's Laundry's stock-based compensation plans in an aggregate
amount not to exceed $500,000 in any fiscal year; and (v) to pay outstanding
indebtedness under the 9 7/8% Promissory Note (which indebtedness is expected
to be repaid in full from a portion of the net proceeds of the Offering).
There can be no assurances that Coinmach Laundry's operating subsidiaries will
continue to generate sufficient cash flow necessary to permit Coinmach Laundry
to pay its operating expenses and satisfy its other obligations. See "Use of
Proceeds," "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition--Liquidity and Capital Resources."
12
<PAGE>
THE COMPANY
The Company, established in 1947, is the leading supplier of outsourced
coin-operated laundry equipment services for multi-family housing properties
in the United States. The Company's business involves leasing laundry rooms
from building owners and property management companies, installing and
servicing the laundry equipment and collecting revenues generated from laundry
machines. The Company owns and operates approximately 420,000 coin-operated
washers and dryers in approximately 42,000 locations on routes throughout the
United States and in 151 retail laundromats located throughout Texas.
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.
Acquisitions. In January 1995, the Company initiated a strategy of
controlled growth through acquisitions. This strategy was designed to increase
the installed machine base in its then existing operating region as well as to
provide the Company with a strong market presence in new regions. Since
January 1995, the Company has completed six significant acquisitions adding
revenues of approximately $221 million and expanding its national presence
from the Northeast into the Mid-Atlantic, Southeast, South-Central, Midwest
and Western regions of the United States. Accordingly, the Company has grown
its installed base from approximately 54,000 machines to approximately 420,000
machines.
The acquisitions described below have enabled the Company to increase its
installed machine base, improve its EBITDA margins and expand its geographic
presence through the acquisition of operations in new regions:
<TABLE>
<CAPTION>
APPROXIMATE
HISTORICAL
ANNUAL
DATE ACQUISITION TARGET REVENUES DESCRIPTION OF OPERATIONS
- ----------------- ------------------------ ------------- ---------------------------------
(IN MILLIONS)
<S> <C> <C> <C>
November 30, 1995 Solon Automated $100 Multi-regional operator providing
Services, Inc. Mid-Atlantic, South-Central and
Southeast presence.
April 1, 1996 Allied Laundry Equipment 9 Regional operator providing
Company Midwest presence.
January 8, 1997 Kwik Wash Laundries, 63 Multi-regional operator providing
L.P. expanded South-Central presence
and operations in laundromat
business.
March 14, 1997 Atlanta Washer & Dryer 2 Regional operator providing
Leasing, Inc. expanded presence in Southeast
and operations in the machine
rental market for individual
housing units.
April 23, 1997 Reliable Holding Corp. 31 Regional operator providing
Western presence (California and
northern Mexico).
July 17, 1997 National Coin Laundry 16 Regional operator providing
Holding, Inc. expanded Midwest presence.
</TABLE>
On November 30, 1995, the Company acquired (the "Solon Acquisition") the
capital stock of Solon Automated Services, Inc. ("Solon"), a multi-regional
route operator for $141.5 million. The Solon Acquisition gave the Company an
immediate and significant operating presence in the Mid-Atlantic, South-
Central and Southeast regions.
13
<PAGE>
On April 1, 1996, Coinmach acquired (the "Allied Acquisition") substantially
all of the assets of Allied Laundry Equipment Company ("Allied"), a regional
route operator located in St. Louis, Missouri for $15.5 million in cash. The
Allied Acquisition provided the Company with a larger market presence in the
Mid-West region.
On January 8, 1997, Coinmach acquired (the "Kwik Wash Acquisition") 100% of
the outstanding voting securities of the partners of Kwik Wash Laundries, L.P.
("Kwik Wash") for $125 million in cash and a $15 million promissory note (the
"9 7/8% Promissory Note"). The Kwik Wash Acquisition increased the Company's
presence in the South-Central region by enabling the Company to provide coin-
operated laundry equipment services to multi-family housing properties in
Texas, Louisiana, Arkansas and Oklahoma and to operate 150 retail laundromats
throughout Texas.
On March 14, 1997, Coinmach acquired (the "Appliance Warehouse Acquisition")
substantially all of the assets of Atlanta Washer & Dryer Leasing, Inc.
("Appliance Warehouse"), for approximately $6.3 million in cash and promissory
notes aggregating $1.2 million. The Appliance Warehouse Acquisition increased
the Company's presence in the Southeast region and expanded the Company's
operations into the related machine rental market for individual housing units
providing an additional growth opportunity in a complementary market.
On April 23, 1997, Coinmach completed the acquisition and merger (the
"Reliable Acquisition") of Reliable Holding Corp. ("Reliable") and its
subsidiaries, Reliable Laundry Service Inc., Girard-Hopkins Acquisition Corp.,
Maquilados Automaticas S.A. de C.V., and Automatica S.A. de C.V.
(collectively, the "Reliable Entities") with and into the Company, for $44
million in cash. The Reliable Acquisition provided the Company with a strong
foothold in the California market and an entry into the northern Mexican
market.
On July 17, 1997, Coinmach acquired 100% of the outstanding voting
securities of National Coin Laundry Holding, Inc. ("National Coin"), and
National Laundry Equipment Company, an Ohio corporation ("NLEC") and the
assets of Whitmer Vend-O-Mat Laundry Services, Inc. ("Whitmer"). National Coin
is the parent of National Coin Laundry, Inc., an Ohio corporation ("NCL").
Coinmach acquired (the "National Coin Acquisition") National Coin, NLEC, NCL
and Whitmer (collectively, the "NCL Entities") for an aggregate purchase price
of approximately $19.0 million in cash. The National Coin Acquisition enabled
the Company to further expand its operations in the Mid-Atlantic, Southeast,
South-Central and Midwest regions by providing coin-operated laundry equipment
services to multi-family housing properties in the states of Ohio, Indiana,
Kentucky, Michigan, West Virginia, Pennsylvania, Georgia, Tennessee, Illinois
and Florida, as well as distributing exclusive lines of commercial coin and
non-coin laundry machines and parts, and selling service contracts.
As part of its growth strategy, the Company continues to evaluate additional
acquisition opportunities. There can be no assurance however that, subsequent
to ongoing negotiations and due diligence reviews, the Company will complete
any such acquisitions.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to Coinmach Laundry from the sale of the 2,665,000 shares
of Common Stock offered by it hereby are estimated to be $48.8(1) million, at
the offering price of $19.75 per share and after deducting underwriting
discounts and commissions and estimated offering expenses. The Company intends
to use such net proceeds to repay $23.5 million of outstanding Tranche B
indebtedness under the Credit Facility(2) (as defined), to repay $15 million
of outstanding indebtedness evidenced by the 9 7/8% Promissory Note,(3) and
for general corporate purposes, which may include certain selected
acquisitions. 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. Pending such uses, the
Company intends to invest the net proceeds from the Offering in short-term,
investment-grade, interest-bearing instruments. The Company will not receive
any of the proceeds from the sale of shares of Common Stock by the Selling
Stockholders.
In connection with the Offering, the Company intends to amend and restate
its existing senior credit facility (the "Credit Facility") established with
Bankers Trust Company, as administrative agent, and the other lenders named in
the Credit Agreement dated as of January 8, 1997 (as amended, and
supplemented, the "Credit Agreement"). See "Management's Discussion and
Analysis of Financial Condition--Liquidity and Capital Resources."
- --------
(1) Excludes proceeds to be received from the exercise of options by a Selling
Stockholder in connection with the Offering in an approximate amount of
$.1 million.
(2) The Tranche B term loan bears interest at an annual rate of LIBOR plus
2.75% (8.4375% as of November 10, 1997), matures on June 30, 2004 and was
incurred to finance the Kwik Wash Acquisition.
(3) Indebtedness evidenced by the 9 7/8% Promissory Note matures on June 15,
2004 and was issued by Coinmach Laundry as partial consideration for the
Kwik Wash Acquisition.
PRICE RANGE OF COMMON STOCK
Coinmach Laundry's Common Stock is traded on the Nasdaq National Market
under the symbol "WDRY." The following table sets forth for the periods
indicated, the high and low closing prices for the Common Stock as reported on
the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1997
Second Quarter (from July 16, 1996)......................... $20.13 $13.00
Third Quarter............................................... 22.75 17.25
Fourth Quarter.............................................. 20.25 17.00
FISCAL 1998
First Quarter............................................... 22.50 14.75
Second Quarter.............................................. 24.00 20.75
Third Quarter (through December 15, 1997)................... 24.63 19.75
</TABLE>
On December 15, 1997, the last reported sale price of the Common Stock on
the Nasdaq National Market was $20.00 per share. As of December 15, 1997,
there were approximately 33 holders of record of Common Stock, and the number
of beneficial holders of Common Stock was estimated to be in excess of 550.
15
<PAGE>
DIVIDEND POLICY
Coinmach Laundry has not declared or paid any cash dividends on the Common
Stock and does not intend to pay cash dividends on its capital stock in the
foreseeable future. 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. At the
present time, the Company is prohibited by the terms of the Credit Agreement
from paying dividends on its capital stock.
At the present time, dividend payments to Coinmach Laundry 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--Liquidity and
Capital Resources."
16
<PAGE>
DILUTION
The net tangible book value (deficit) of the Company as of September 26,
1997 was approximately ($310.1) million, or ($29.57) per share of Common
Stock. Net tangible book value per share represents the Company's total
tangible assets less its total liabilities, divided by 10,484,926 shares of
Common Stock outstanding. After giving effect to the Bond Offering, and the
Offering at the offering price of $19.75 per share, the pro forma net tangible
book value (deficit) of the Company as of September 26, 1997 would have been
approximately ($261.3) million, or ($19.86) per share. This adjustment
represents an immediate increase in net tangible book value of $9.71 per share
to the existing stockholders and an immediate net tangible book value dilution
of $39.61 per share to the investors purchasing shares of Common Stock in the
Offering. The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share.............................. $ 19.75
Net tangible book value (deficit) per share at September
26, 1997.................................................. $(29.57)
Increase in net tangible book value per share attributable
to new investors.......................................... 9.71
-------
Pro forma net tangible book value (deficit) per share after
the Offering.............................................. (19.86)
-------
Dilution per share to new investors.......................... $ 39.61
=======
</TABLE>
The following table summarizes, based on the assumptions set forth herein,
as of September 26, 1997, the number of shares of 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...... 10,484,926 79.7% $ 77,408,364 59.5% $ 7.38
New investors.............. 2,671,383 20.3 52,709,708 40.5% 19.73
---------- ----- ------------ -----
Total.................... 13,156,309 100.0% $130,118,072 100.0%
========== ===== ============ =====
</TABLE>
The computations in the tables set forth above exclude: (i) an aggregate of
933,054 shares of Common Stock underlying Non-Plan Options granted by the
Company to MCS Capital, Inc. ("MCS"), an entity beneficially owned by Stephen
R. Kerrigan, and to Robert M. Doyle, Michael E. Stanky, John E. Denson, David
Siegel, R. Daniel Osborne, James N. Chapman and certain other individuals (the
"Options"), of which 329,402 shares underlie options exercisable within sixty
days after December 15, 1997, including up to 11,474 shares of Common Stock
that may be issued upon the exercise of certain options if the Underwriters'
over-allotment option is exercised in full; (ii) an aggregate of 120,000
shares of Common Stock underlying non-qualified stock options (the
"Independent Director Options") granted by the Company to Dr. Arthur B. Laffer
and Stephen G. Cerri, independent directors of the Company, of which 60,000
shares underlie options exercisable within sixty days after December 15, 1997;
and (iii) an aggregate of 1,109,147 shares of Common Stock issuable under the
1996 Stock Option Plan, of which 85,500 shares underlie options exercisable
within sixty days after December 15, 1997.
The computations in the table set forth above include the issuance of 6,383
shares of Common Stock issuable upon the exercise of certain options, at
varying exercise prices, held by a Selling Stockholder in connection with the
Offering.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 26, 1997: (i) on an actual basis; (ii) as adjusted to give effect to
the Bond Offering; and (iii) as adjusted, to give effect to the Bond Offering,
the Offering and 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 incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 26, 1997
--------------------------------
AS ADJUSTED AS FURTHER
FOR THE ADJUSTED
BOND FOR THE
ACTUAL OFFERING OFFERING
-------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 16,815 $ 16,815 $ 27,080
======== ======== ========
Long-term debt:
11 3/4% Senior Notes due 2005(1)............ $196,655 $296,655 $296,655
Credit Facility(2).......................... 203,250 98,500 75,000
9 7/8% Promissory Note...................... 15,000 15,000 --
Other long-term debt........................ 3,619 3,619 3,619
-------- -------- --------
Total long-term debt...................... 418,524 413,774 375,274
Stockholders' equity (deficit):
Preferred Stock, $.01 par value: 1,000,000
shares authorized and no shares issued
and outstanding actual; 1,000,000 shares
authorized and no shares issued and
outstanding as adjusted.................. -- -- --
Common Stock, $.01 par value: 15,000,000
shares authorized and 10,004,278 shares
issued and outstanding actual; 15,000,000
shares authorized and 12,675,661 shares
issued and outstanding as adjusted(3).... 100 100 127
Non-Voting Common Stock, $.01 par value:
1,000,000 shares authorized and 480,648
shares issued and outstanding actual and
as adjusted.............................. 5 5 5
Additional paid-in capital.................. 53,705 53,705 102,443
Accumulated deficit......................... (37,042) (37,042) (37,042)
Less receivables from stockholders.......... (439) (439) (439)
-------- -------- --------
Total stockholders' equity................ 16,329 16,329 65,094
-------- -------- --------
Total capitalization.................... $434,853 $430,103 $440,368
======== ======== ========
</TABLE>
- --------
(1) Gross proceeds from the Bond Offering were $109.9 million consisting of
(i) $100 million aggregate principal amount of the Series C Notes and (ii)
$9.9 million premium on the Series C Notes (which premium is not included as
a liability in the presentation above). The issue price represents a 9.94%
yield to maturity.
(2) As of September 26, 1997, on a pro forma basis after giving effect to the
Bond Offering, the Offering and the application of the net proceeds
therefrom, the Company would have had $70.0 million of unused borrowing
capacity under the Credit Facility. Concurrently with the Offering, the
Company intends to amend and restate its Credit Facility. Such amended and
restated Credit Facility is expected to provide for $235 million of
financing consisting of (i) a $35 million working capital revolving credit
facility (undrawn at closing of the Offering), (ii) a $125 million
acquisition revolving credit facility (undrawn at closing of the Offering)
and (iii) a $75 million term loan facility (fully funded at closing of the
Offering). The working capital revolving credit facility and the acquisition
revolving credit facility are expected to have a maturity of six years, and
the term loan facility is expected to have a maturity of seven years. See
"Management's Discussion and Analysis of Financial Condition--Liquidity and
Capital Resources."
(3) Excludes: (i) an aggregate of 933,054 shares of Common Stock issuable upon
exercise of the Options, of which 329,402 shares of Common Stock underlie
options exercisable within sixty days after September 26, 1997; (ii) an
aggregate of 120,000 shares of Common Stock issuable upon exercise of the
Independent Director Options, of which 60,000 shares of Common Stock
underlie options exercisable within sixty days after September 26, 1997;
and (iii) an aggregate of 1,109,147 shares of Common Stock issuable
pursuant to the 1996 Stock Option Plan, of which 85,500 shares of Common
Stock underlie options exercisable within sixty days after September 26,
1997. Includes 6,383 shares of Common Stock issuable upon the exercise of
certain options held by a certain Selling Stockholder, in connection with
the Offering.
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined balance sheet of the Company as
of September 26, 1997, gives effect to the Bond Offering and the Offering and
the application of the proceeds therefrom as if such transactions occurred as
of September 26, 1997. The unaudited pro forma combined statements of
operations of the Company for the 1997 fiscal year and the six month interim
period ended September 26, 1997 give effect to the Transactions, as if such
transactions occurred on March 30, 1996. 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. Each
of the acquisitions comprising the Transactions were accounted for as a
purchase with assets recorded at their estimated fair market values.
Management believes that actual fair market value adjustments, if any, will
not differ materially from the preliminary allocation of the purchase price
contained in 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 had the foregoing transactions been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should
be read in conjunction with the notes thereto and the historical consolidated
financial statements of the Company, together with the related notes thereto,
incorporated by reference in this Prospectus.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 26, 1997
(In thousands)
<TABLE>
<CAPTION>
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS COMBINED
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents................ $ 16,815 $ 10,265(a) $ 27,080
Receivables, net......................... 8,633 -- 8,633
Inventories and prepaid expenses......... 16,184 -- 16,184
Advance rental payments.................. 47,540 -- 47,540
Property and equipment, net.............. 130,348 -- 130,348
Contract rights, net..................... 217,371 -- 217,371
Goodwill, net............................ 109,027 -- 109,027
Other assets............................. 14,441 4,375(b) 18,816
-------- ---------- --------
Total assets............................. $560,359 $ 14,640 $574,999
======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued
liabilities............................. $ 46,703 $ (750)(b) $ 45,953
Deferred income taxes.................... 78,803 -- 78,803
11 3/4% Series A/B/C Notes due 2005...... 196,655 100,000(b) 296,655
Premium on 11 3/4% Series C Notes due
2005.................................... -- 9,875(b) 9,875
Credit facility.......................... 203,250 (104,750)(b) 75,000
(23,500)(a)
9 7/8% Promissory Note................... 15,000 (15,000)(a) --
Other long-term debt..................... 3,619 -- 3,619
-------- ---------- --------
544,030 (34,125) 509,905
-------- ---------- --------
Stockholders' equity:
Common stock and capital in excess of par
value................................... 53,810 48,765(a) 102,575
Preferred Stock.......................... -- -- --
Accumulated Deficit...................... (37,042) -- (37,042)
-------- ---------- --------
16,768 48,765 65,533
Receivables from stockholders............ (439) -- (439)
-------- ---------- --------
Total stockholders' equity............... 16,329 48,765 65,094
-------- ---------- --------
Total liabilities and stockholder's
equity.................................. $560,359 $ 14,640 $574,999
======== ========== ========
</TABLE>
- --------
(a) Reflects as set forth in the following table the Offering and the
application of the proceeds therefrom:
<TABLE>
<S> <C> <C>
Gross proceeds from the issuance of 2,665,000 shares of
Common Stock at the offering price of $19.75 per
share.................................................. $52,634
Proceeds from the exercise of 6,383 options to purchase
Common Stock........................................... 76
Deduct transaction fees and expenses:
Transaction fees....................................... $2,745
Expenses............................................... 1,200
------
3,945
-------
Net proceeds from the Offering.......................... 48,765
Application of proceeds to repay indebtedness under
Credit Facility....................................... 23,500
Application of proceeds to repay 9 7/8% Promissory
Note.................................................. 15,000
------
38,500
-------
Net increase to cash and cash equivalents............... $10,265
=======
</TABLE>
(b) Reflects issuance of Series C Notes pursuant to the Bond Offering and the
application of the net proceeds therefrom. The Series C Notes were issued
at a premium of $9.875 million. Reflects payment of consent fee,
underwriter fees and accrual of transaction expenses for professional
fees.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year Ended March 28, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
COMPANY ACQUIRED PURCHASE PRO FORMA
HISTORICAL BUSINESSES (A) ACCOUNTING OTHER COMBINED
---------- -------------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES................ $206,852 $100,061 $ 0 $ 0 $306,913
COSTS AND EXPENSES
Operating, general and
administrative
expenses.............. 144,059 70,429 0 (5,254)(b) 209,234
Depreciation and
amortization.......... 46,316 15,824 (2,070)(c) 71,973
11,506 (d)
397 (e)
Stock based
compensation charge... 2,152 0 0 0 2,152
-------- -------- ---------- ---------- --------
192,527 86,253 9,833 (5,254) 283,359
Operating income........ 14,325 13,808 (9,833) 5,254 23,554
Interest expense, net... 26,859 2,879 0 10,272 (f) 40,010
Other nonoperating
expenses............... 0 472 (626) 0 (154)
-------- -------- ---------- ---------- --------
(Loss) income before
income taxes........... (12,534) 10,457 (9,207) (5,018) (16,302)
-------- -------- ---------- ---------- --------
Provision (benefit) for
income taxes........... (2,307) 280 (1,749)(g) 679 (g) (3,097)
-------- -------- ---------- ---------- --------
(Loss) income before
extraordinary item..... $(10,227) $ 10,177 $ (7,458) $ (5,697) $(13,205)
======== ======== ========== ========== ========
Loss per share before
extraordinary item..... $ (1.11) $ (1.11)
======== ========
</TABLE>
See Accompanying Notes
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
Year Ended March 28, 1997
(In thousands)
(a) Represents historical operating results of: (i) Kwik Wash for the period
prior to the Kwik Wash Acquisition; (ii) Appliance Warehouse for the
period prior to the Appliance Warehouse Acquisition; (iii) Reliable for
the year ended June 30, 1996; and (iv) the NCL Entities.
(b) Reflects anticipated cost savings directly related to the Kwik Wash
Acquisition of $3,750, the Reliable Acquisition of $1,014 and the National
Coin Acquisition of $490. Prior to completing an acquisition, the Company
formulates a cost savings program affecting corporate financial and
administrative functions and regional operations which is implemented upon
the completion of each acquisition. The cost savings from the Kwik Wash
Acquisition represents certain identifiable personnel cost savings
relating to the elimination of 83 employees of Kwik Wash for $3,350 and
certain identifiable cost savings for facility and other costs for $400
resulting from the reduction and consolidation of certain regional
operations in Texas and administrative functions in Roslyn, N.Y. pursuant
to the cost savings program. The cost savings from the Reliable
Acquisition represents certain identifiable personnel cost savings
relating to the elimination of 13 employees of Reliable for $881 and
certain other identifiable cost savings for $133 resulting from the
reduction and consolidation of certain regional operations in California
and administrative functions in Roslyn, N.Y. pursuant to the cost savings
program. The cost savings from the National Coin Acquisition represents
certain identifiable personnel cost savings relating to the elimination of
6 employees of the NCL Entities for $205 and certain identifiable cost
savings for facility and other costs for $285 resulting from the reduction
and consolidation of certain regional operations in Ohio and Indiana and
administrative functions in Roslyn, N.Y. pursuant to the cost savings
program. Each of the above-mentioned pro forma personnel and facility cost
savings are derived from actual historical amounts reflected on the
acquired entities' financial statements. Additionally, substantially all
the employees have been terminated and the expected cost savings have
begun to be realized with respect to all of the facilities for which cost
savings have been recorded. If the Company's integration plans had
occurred on March 30, 1996, the Company believes that there would have
been no effect on revenues or expenses other than as presented in the pro
forma statements of operations.
(c) Includes the decrease in depreciation expense of $959 and $1,137 for the
fixed assets of Kwik Wash and the Reliable Entities, respectively,
primarily resulting from extending the lives of laundry equipment and
components from 5 or 7 years to 8 years, to be consistent with the
Company's accounting policy.
(d) Represents the amortization of contract rights and goodwill over 15 years,
related to the Kwik Wash Acquisition, the Reliable Acquisition, the
National Coin Acquisition and the Appliance Warehouse Acquisition.
(e) Represents the amortization of the covenants not to compete over 5 years,
related to the Kwik Wash Acquisition, the National Coin Acquisition and
the Appliance Warehouse Acquisition.
22
<PAGE>
(f) The following table presents a reconciliation of pro forma interest
expense:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 28, 1997
--------------
<S> <C>
Historical combined interest expense....................... $29,738
-------
Add:
Interest on $130.0 million term loan to finance the Kwik
Wash Acquisition........................................ 7,987
Interest on $15.0 million promissory note to finance the
Kwik Wash Acquisition................................... 1,111
Interest on $44.0 million term loan to finance the
Reliable Acquisition.................................... 3,608
Interest on $16.0 million revolving loan to finance the
National Coin Acquisition............................... 1,312
Interest on $100.0 million Series C Notes at 11.75%...... 11,750
Amortization of deferred financing costs on new debt:
Credit Facility........................................ 129
Senior Notes........................................... 547
Deduct:
Interest of acquired businesses.......................... (2,879)
Interest on $105.5 million term loans repaid by proceeds
of the Bond Offering.................................... (8,651)
Interest on $23.5 million term loans repaid with proceeds
from the Offering....................................... (1,927)
Interest on $15.0 million promissory note repaid with
proceeds from the Offering.............................. (1,481)
Amortization of premium of $9.875 million recorded on the
issuance of the Series C Notes (8 years)................ (1,234)
-------
Pro forma adjustment....................................... 10,272
-------
Pro forma interest expense................................. $40,010
=======
</TABLE>
(g) Represents the income tax impact on purchase accounting adjustments and
other pro forma adjustments.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Six Months Ended September 26, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------
COMPANY ACQUIRED PURCHASE PRO FORMA
HISTORICAL BUSINESSES (A) ACCOUNTING OTHER COMBINED
---------- -------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES................ $149,797 $7,186 $ 0 $ 0 $156,983
COSTS AND EXPENSES
Operating, general and
administrative
expenses.............. 103,227 5,571 0 (1,162)(b) 107,636
Depreciation and
amortization.......... 34,580 823 489 (c) 0 35,912
84 (d)
(64)(e)
Stock-based
compensation charge... 545 0 0 0 545
-------- ------ --------- ----------- --------
138,352 6,394 509 (1,162) 144,093
-------- ------ --------- ----------- --------
Operating income........ 11,445 792 (509) 1,162 12,890
Interest expense, net... 21,129 153 0 (62)(f) 21,220
-------- ------ --------- ----------- --------
Net (loss) income before
income taxes........... (9,684) 639 (509) 1,224 (8,330)
Provision (benefit) for
income taxes: (1,905) 77 (97)(g) 342 (g) (1,583)
-------- ------ --------- ----------- --------
Net (loss) income....... $ (7,779) $ 562 $(412) $ 882 $ (6,747)
======== ====== ========= =========== ========
Loss per share.......... $ (0.74) $ (0.51)
======== ========
</TABLE>
See Accompanying Notes
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENTS OF OPERATIONS
Six Months Ended September 26, 1997
(In thousands)
(a) Represents historical combined operating results of: (i) Reliable for the
period prior to the Reliable Acquisition and (ii) the NCL Entities prior
to the National Coin Acquisition.
(b) Reflects anticipated cost savings directly related to the Kwik Wash
Acquisition of $500, the Reliable Acquisition of $508 and the National
Coin Acquisition of $154. Prior to completing an acquisition, the Company
formulates a cost savings program affecting corporate financial and
administrative functions and regional operations which is implemented upon
the completion of each acquisition. The cost savings from the Kwik Wash
Acquisition represents certain identifiable personnel cost savings
relating to the elimination of 6 employees of Kwik Wash for $230 and
certain identifiable cost savings for facility and other costs for $270
resulting from the reduction and consolidation of certain regional
operations in Texas and administrative functions in Roslyn N.Y. pursuant
to the cost savings program. The cost savings from the Reliable
Acquisition represents certain identifiable personnel cost savings
relating to the elimination of 13 employees of Reliable for $441 and
certain identifiable cost savings for professional fees, insurance and
other costs for $67 resulting from the reduction and consolidation of
certain regional operations in California and administrative functions in
Roslyn, N.Y. pursuant to the cost savings program. The cost savings from
the National Coin Acquisition represents certain identifiable personnel
cost savings relating to the elimination of 6 employees of the NCL
Entities for $85 and certain identifiable cost savings for professional
fees, facility, insurance and other costs for $69 resulting from the
reduction and consolidation of certain regional operations in Ohio and
Indiana and administrative functions in Roslyn, N.Y. pursuant to the cost
savings program. Each of the above-mentioned pro forma personnel and
facility cost savings are derived from actual historical amounts reflected
on the acquired entities' financial statements. Additionally,
substantially all the employees have been terminated and the expected cost
savings have begun to be realized with respect to all of the facilities
for which cost savings have been recorded. If the Company's integration
plans had occurred on March 30, 1996, the Company believes that there
would have been no effect on revenues or expenses other than as presented
in the pro forma statements of operations.
(c) Represents the amortization of contract rights and goodwill over 15 years,
related to the Reliable Acquisition and the National Coin Acquisition.
(d) Represents the amortization of the covenant not to compete over 5 years,
related to the National Coin Acquisition.
(e) Represents the decrease in depreciation expense for the fixed assets of
the Reliable Entities primarily resulting from extending the lives of
laundry equipment and components from 5 or 7 years to 8 years, to be
consistent with the Company's accounting policy.
25
<PAGE>
(f) The following table presents a reconciliation of pro forma interest
expense:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 26, 1997
------------------
<S> <C>
Historical combined interest expense................... $21,282
-------
Add:
Interest on $44.0 million term loan to finance the
Reliable Acquisition................................ 150
Interest on $16.0 million revolving loan to finance
the National Coin Acquisition....................... 410
Interest on $100.0 million Series C Notes at 11.75%.. 5,875
Amortization of deferred finance costs on new debt:
Senior Notes....................................... 273
Deduct:
Interest of acquired businesses...................... (153)
Interest on $104.75 million term loans repaid by
proceeds of the Bond Offering....................... (4,295)
Interest on $23.5 million term loan repaid with
proceeds from the Offering.......................... (964)
Interest on $15.0 million promissory note repaid with
proceeds from the Offering.......................... (741)
Amortization of $9.875 million premium recorded on
the issuance of the Series C Notes (8 years)........ (617)
-------
Pro forma adjustment................................... (62)
-------
Pro forma interest expense............................. $21,220
=======
</TABLE>
(g) Represents income tax impact on purchase accounting adjustments and other
pro forma adjustments.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
GENERAL
The Company's primary financial objective is to increase its EBITDA, which
is a source of funds to service indebtedness and for investment in both
continued internal growth and acquisitions. In the 1997 fiscal year and the
six months ended September 26, 1997, the Company experienced net losses. Such
net losses are attributable in part to significant non-cash charges associated
with the Company's execution of its business strategy, namely, (i) high levels
of depreciation and lease amortization expenses related to the addition of new
machines and customers and (ii) increases in goodwill amortization associated
with acquisitions accounted for under the purchase method of accounting.
The Company is principally engaged in the business of supplying outsourced
coin-operated laundry equipment services to multi-family housing properties.
The Company owns and operates approximately 420,000 coin-operated washers and
dryers in approximately 42,000 multi-family housing properties on routes
throughout the United States and 151 retail laundromats located throughout
Texas.
The Company provides outsourced coin-operated laundry equipment services to
locations by leasing laundry rooms from building owners and property
management companies, typically on a long-term, renewable basis. In return for
the exclusive right to provide these services, most of the Company's contracts
provide for commission payments to the location owners. Commission expense
(also referred to as rent expense), the Company's single largest expense item,
is included in laundry operating expenses and represents payments to location
owners. Commissions may be fixed amounts or percentages of revenues and are
generally paid monthly. Also included in laundry operating expenses are the
cost of servicing and collections in the route business, including, payroll,
parts, vehicles and other related items, the cost of sales associated with
Super Laundry Equipment Corp. ("Super Laundry") and certain expenses related
to the operation of retail laundromats.
In addition to commission payments, many of the Company's leases require the
Company to make advance rental payments to the location owners. These advance
payments are capitalized and amortized over the life of the applicable lease.
Other revenue sources for the Company include: (i) leasing laundry equipment
and other household appliances and electronic items to corporate relocation
entities, individuals, property owners and managers of multi-family housing
properties (approximately $1.5 million for the six months ended September 26,
1997); (ii) operating, maintaining and servicing retail laundromats
(approximately $10.5 million for the six months ended September 26, 1997); and
(iii) constructing complete turnkey retail laundromats, retrofitting existing
retail laundromats, distributing exclusive lines of commercial coin and non-
coin machines and parts, and selling service contracts (approximately $12.3
million for the six months ended September 26, 1997).
LIQUIDITY AND CAPITAL RESOURCES
As the Company has focused on increasing its EBITDA, it has made significant
capital investments, primarily consisting of acquisitions, renewal and growth
capital expenditures. For the twelve months ended March 29, 1996, the 1997
fiscal year and the six months ended September 26, 1997, cash flows used in
investing activities totaled approximately $39.2 million, $196.7 million and
$91.9 million, respectively. These investments have been primarily funded
through cash flows from operations and borrowings under the Credit Facility.
The Company intends to amend and restate the Credit Facility concurrently
with the Offering. The amended and restated Credit Facility is expected to
provide $235 million of secured financing consisting of (i) a $35 million
working capital revolving credit facility (undrawn at closing of the Offering)
bearing interest at an annual rate of LIBOR plus 1.50%; (ii) a $125 million
acquisition revolving credit facility (undrawn at closing of the Offering)
bearing interest at an annual rate of LIBOR plus 1.50%; and (iii) a $75
27
<PAGE>
million term loan facility (fully funded at closing of the Offering) bearing
interest at an annual rate of LIBOR plus 2.00%. The working capital revolving
credit facility and the acquisition revolving credit facility are expected to
mature in six years, and the term loan facility is expected to mature in seven
years. In addition to certain terms and provisions, events of default, and
customary restrictive covenants and agreements, the Credit Facility is
expected to contain certain covenants including, but not limited to, a maximum
leverage ratio, a minimum consolidated interest coverage ratio, and
limitations on indebtedness, capital expenditures, advances, investments and
loans, mergers and acquisitions, dividends, stock issuances, transactions with
affiliates and Coinmach's ability to pay dividends. Upon the amendment and
restatement of the Credit Facility, the Company expects that it will be in
full compliance with all presently proposed financial ratios and covenants
limiting the incurrence of indebtedness and, immediately following the
Offering, will have the ability to utilize the full amount of the $35 million
working capital revolving loan contained in the amended and restated Credit
Facility. There can be no assurances, however, that the Company will amend and
restate such Credit Facility.
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the six months ended September 26, 1997 were approximately
$91.9 million. Of such amount, the Company spent approximately $66.3 million
in acquisition and related transaction costs, including the Reliable
Acquisition, and approximately $8.0 million related to the net increase in the
installed base of machines. The balance was used for renewal of the Company's
existing machine base and for general corporate purposes.
During the 1997 fiscal year, the Company spent $213.0 million in capital
expenditures, of which $171.5 million, or approximately 80.6%, was used for
the execution of the Company's acquisition strategy. Of the remaining capital
investment, $12.5 million, or approximately 5.8%, was used for internally
generated growth and $29.1 million, or approximately 13.6%, related primarily
to expenditures for the renewal of the Company's existing machine base. The
full impact on revenues and EBITDA generated from capital expended on
acquisitions and the net increase in the installed base are not expected to be
reflected in the Company's financial results until subsequent reporting
periods. The age of the Company's equipment is evenly distributed over its
machine base, and management estimates that no more than approximately 12% of
its machine base is likely to be replaced in any given year. The Company
anticipates that renewal capital expenditures, which exclude acquisitions and
capital expenditures for internal growth, will be approximately $38.0 million
for the twelve months ending March 31, 1998. While the Company estimates that
it will generate sufficient cash flows from operations to finance anticipated
capital expenditures, there can be no assurances that it will be able to do
so. The Company also relies upon available credit under its existing credit
facility as an additional source of revenue for capital expenditures.
On a pro forma basis, after giving effect to all route acquisitions
consummated through July 1997 as if such transactions occurred at the
beginning of such period, the Company spent $290.2 million on capital
expenditures for the 1997 fiscal year (including approximately $233.9 million
in acquisition and related transaction costs).
The Company's working capital requirements are, and are expected to 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 certain of the financing agreements governing the Company's
indebtedness, Coinmach is required to make monthly cash interest payments
under the Credit Facility and semi-annual cash interest payments on the Series
B Notes and the Series C Notes.
The Company's depreciation and amortization expenses (aggregating
approximately $46.3 million and $34.6 million for the 1997 fiscal year and the
six months ended September 26, 1997, respectively) have the effect of reducing
net income but not operating cash flow. In accordance with GAAP, a significant
portion of the purchase prices of businesses acquired by the Company is
allocated to "contract rights", which costs are amortized over periods of up
to 15 years.
28
<PAGE>
On October 8, 1997, Coinmach completed the private placement (the "Bond
Offering") of $100 million aggregate principal amount of its Series C Notes on
substantially identical terms as its outstanding Series B 11 3/4% Senior Notes
due 2005 (the "Series B Notes"). The issue price was 109.875%, representing a
9.94% yield to maturity. Substantially all of the proceeds of the Bond
Offering were used to reduce Coinmach's outstanding indebtedness under the
Credit Facility, including the repayment of all revolving loan and Tranche A
term loan indebtedness.
Management believes that the Company's future operating activities will
generate sufficient cash flow to repay borrowings under the Series B Notes,
the Series C Notes and the Credit Facility or to permit any necessary
refinancings thereof. An inability of the Company, however, to comply with
covenants or other conditions contained in the indenture governing the Series
B Notes (the "Series B Indenture"), the indenture governing the Series C Notes
(the "Series C Indenture") or in the Credit Agreement could result in an
acceleration of all amounts due under the Series B Indenture, the Series C
Indenture and the Credit Agreement. 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
Credit Agreement, the Series B Indenture or the Series C Indenture.
The Company's ability to incur additional indebtedness to facilitate its
acquisition strategy is limited by the covenants and other restrictions
imposed by the Series B Indenture, the Series C Indenture and the Credit
Agreement, including, without limitation, compliance with certain financial
covenants and maintenance tests and ratios, including debt to equity and fixed
charge coverage ratios. As of November 1, 1997, subject to compliance with the
foregoing covenants, the Company would have had approximately $98.5 million of
availability under its revolving credit facility. The amount of additional
indebtedness the Company is able to incur to further facilitate its
acquisition strategy is dependent upon a number of variables, including,
without limitation, the pro forma effects of the acquisition with respect to
which such additional indebtedness is to be incurred.
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.
FORWARD-LOOKING INFORMATION
This Prospectus contains or may contain certain forward looking statements
and information that are based on the beliefs of the Company's management as
well as estimates and assumptions made by, and information currently available
to, the Company's management. The words "anticipate," "believe," "estimate,"
"expect," "future," "intend," "plan" and similar expressions, as they relate
to the Company or the Company's management, identify forward looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to certain risks, uncertainties and
assumptions relating to the Company's operations and results of operations,
competitive factors, shifts in market demand, and other risks and
uncertainties, including, in addition to any uncertainties specifically
identified in the text surrounding such statements, uncertainties with respect
to changes or developments in social, economic, business, industry, market,
legal and regulatory circumstances and conditions and actions taken or omitted
to be taken by third parties, including the Company's stockholders, customers,
suppliers, competitors, legislative, regulatory, judicial and other
governmental authorities. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect, actual
results may vary significantly from those anticipated, believed, estimated,
expected, intended or planned.
29
<PAGE>
BUSINESS
OVERVIEW
The Company, established in 1947, is the leading supplier of outsourced
coin-operated laundry equipment services for multi-family housing properties
in the United States. The Company's business involves leasing laundry rooms
from building owners and property management companies, installing and
servicing the laundry equipment and collecting revenues generated from laundry
machines. The Company owns and operates approximately 420,000 coin-operated
washers and dryers in approximately 42,000 locations on routes throughout the
United States and in 151 retail laundromats located throughout Texas.
In January 1995, the Company initiated a strategy of controlled growth
through acquisitions. This strategy was designed to increase the installed
machine base in its then existing operating region as well as to provide the
Company with a strong market presence in new regions. Since January 1995, the
Company has completed six significant acquisitions adding revenues of
approximately $221 million and expanding its national presence from the
Northeast into the Mid-Atlantic, Southeast, South-Central, Midwest and Western
regions of the United States. Accordingly, the Company has grown its installed
base from approximately 54,000 machines to approximately 420,000 machines.
As a result of this strategy of growth, the Company's revenues and EBITDA
have grown from $72.9 million and $13.6 million, respectively, on a historical
basis for the twelve months ended March 31, 1995, to $306.9 million and $97.8
million (before deducting non-cash stock based compensation charges),
respectively, for the 1997 fiscal year, on a pro forma basis, giving effect to
the acquisitions consummated by the Company since March 30, 1996.
BUSINESS STRATEGY
The Company's business strategy is to enhance its position as the largest
provider of outsourced coin-operated laundry equipment services in the United
States. Management intends to continue to grow the Company's installed machine
base both internally and through selective acquisitions to achieve benefits of
scale, increase its operating efficiencies and improve its financial
performance. Internal growth is comprised of: (i) adding new customers in
existing regions and securing contracts for additional locations from current
customers; (ii) converting owner-operated facilities to Company managed
facilities; (iii) improving the net contribution per machine through operating
efficiencies and selective price increases; and (iv) pursuing additional
growth opportunities presented by the Company's leading market position and
access to approximately four million individual housing units. The Company's
acquisition strategy is to continue to selectively acquire local, regional and
multi-regional route businesses from independent operators at attractive
prices. The Company is currently evaluating several acquisition opportunities,
however, there can be no assurance that, subsequent to ongoing negotiations
and due diligence reviews, the Company will complete any such acquisitions.
An important element of the Company's business strategy is to continue to
expand its geographic presence to gain additional regional and multi-regional
account opportunities with large multi-family housing property managers and
owners. Management believes that a significant portion of its customer base,
which manages multi-family housing and other residential properties, is
consolidating. Consequently, management believes that opportunities for
outsourcing coin-operated laundry equipment services to professionally
managed, multi-regional, well-capitalized independent operators such as the
Company are increasing.
The Company's business strategy also includes the continued development of
the Integrated Computer Systems which management believes are the most
advanced in the industry. The Integrated Computer Systems provide real-time
operational and competitive data, which in conjunction with the Company's
multi-regional service capabilities, enhance the Company's operating
efficiencies throughout
30
<PAGE>
its regions and enable the Company to deliver superior customer service. The
Integrated Computer systems also provide the Company with the flexibility to
integrate acquisitions on a timely basis, including key functions such as
sales, service, collections and security. Finally, as the industry leader, the
Company works closely with its equipment vendors to assess ongoing
technological changes and implements those which the Company believes are
beneficial to operating efficiencies and financial performance.
GROWTH STRATEGY
The Company's growth strategy is to increase operating cash flow and
profitability through a combination of internal expansion and acquisitions.
Internal Expansion. Internal expansion is comprised of: (i) increasing the
installed machine base by adding new customers and increasing the number of
locations with existing customers; (ii) converting owner-operated facilities
to Company managed facilities; (iii) improving the net contribution per
machine through operating efficiencies and selective price increases; and (iv)
pursuing additional growth opportunities presented by its leading market
position and access to approximately four million individual housing units.
New Customers and Locations. The Company's 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 services providers are near expiration. The
Company's Integrated Computer Systems track information on the lease
expirations of its competitors. The Company believes that its leading
market position and expanding geographic presence, primarily achieved
through acquisitions, enhances its ability to gain new customers and
additional locations from its existing customers.
Conversions. Management believes that there are approximately 1.0 million
machines installed in locations which continue to be 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, the Company pursues building owners and managers
who will contract with the Company to outsource their coin-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.
Operating Efficiencies and Price Increases. The Company focuses on
improving its net contribution per machine through achieving operating
efficiencies and selective price increases. Due to factors beyond the
Company's control, however, there can be no assurance that such efficiency
or price increases will occur.
Other Growth Opportunities. While management intends to continue its
focus on increasing its installed machine base, management believes that
its leading market position and its access to over four million housing
units provides the Company with additional growth and diversification
opportunities. These opportunities include laundry equipment rental as well
as other route based facilities management services. In addition, the
Company is discussing the formation of strategic alliances with vendors of
products complimentary to its customer base. See "--Other Operations."
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. Such growth, however,
will be dependent upon a number of factors beyond the Company's control, such
as the Company's ability to secure new contracts from owner-operators on
commercially favorable terms and competitive forces that may reduce the number
of opportunities to secure new locations or to effect price increases.
31
<PAGE>
Acquisitions. The Company intends to continue to capitalize on opportunities
within the fragmented coin-operated laundry equipment services industry
through selective acquisitions of additional route businesses. It has been the
Company's experience that there are numerous private, family-owned businesses
that often 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 existing contracts. Consequently, such independent operators,
especially those which are undergoing generational ownership changes,
represent potential acquisition opportunities for the Company. See "The
Company--Acquisitions."
Management believes the Company is well positioned to capitalize on
acquisition opportunities 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 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 potential operating
efficiencies and cost savings. The Company considers three types of
acquisition candidates: (i) small, local route 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
eliminating most of the target's existing cost structure through the
complete absorption of its machine base into the Company's operations. The
Company's experience has been that the acquisition of local route operators
has increased operating leverage within its operating regions. In many
instances, the Company is able to acquire routes adjacent to its existing
areas of operation without incurring significant incremental operating
costs.
Regional route operators. The Company's acquisition of regional route
operators provides opportunities to improve its cash flow by eliminating
duplicative corporate and administrative functions, reducing capital
expenditures through improved purchasing power and implementing the
Company's Integrated Computer Systems. Since April 1, 1996, the Company has
completed the Allied Acquisition, the Reliable Acquisition and the National
Coin Acquisition. The Allied Acquisition has been substantially integrated
and, in addition to improving the Company's cash flow, has allowed the
Company to establish a larger market presence in the Mid-West. Management
expects to integrate substantially all of the operations formerly conducted
by the Reliable Entities and the NCL Entities into the Company's operations
during 1997 and to achieve targeted cost savings as a result of such
integration.
Multi-regional route operators. Management believes that the acquisition
of a large, multi-regional route operator results 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 usually results in
reduced per unit capital expenditures. As is the case with all
acquisitions, the Company's Integrated Computer Systems are utilized to
provide further operating efficiencies and related cost savings. Kwik Wash
is an example of a multi-regional acquisition which enabled the Company to
substantially increase its operating base, add several experienced regional
managers, penetrate new markets and, along with the aforementioned regional
acquisitions, become the largest industry participant.
As part of the Company's growth strategy, the Company continues to evaluate
acquisition opportunities. There can be no assurance however that, subsequent
to ongoing negotiations and due diligence reviews, the Company will complete
any such acquisitions.
FINANCIAL CHARACTERISTICS OF THE BUSINESS
The Company's business has the following financial characteristics:
Recurring Revenues. The Company derives a majority of its revenues from
outsourced coin-operated laundry equipment services typically performed under
long-term contracts with landlords,
32
<PAGE>
property management companies and owners of rental apartment buildings,
condominiums and cooperatives, university and institutional housing and other
multi-family housing properties. Management estimates that approximately 90%
of its locations are subject to long-term contracts with initial terms of
three to ten years, most of which have automatic renewal or right of first
refusal provisions. During the 1997 fiscal year, the Company retained
approximately 97% of its existing machine base. The Company believes that its
ability to retain its customers and machine base is attributable to a number
of factors, including the Company's national reputation for superior service,
the structure of its contracts and the strength of its long-term customer
relationships.
Diversified Customer Base. The Company provides outsourced coin-operated
laundry equipment services to over 42,000 laundry rooms in its operating
regions, and no one customer accounts for more than 2% of its revenues.
Management estimates that the Company's services are located in multi-family
housing properties containing over four million individual housing units.
Leverageable Cash Flows. Due to the stable, recurring nature of the
Company's revenues and its consistent EBITDA levels, the Company has been able
to obtain debt financing on favorable terms to support its acquisition
strategy. This use of debt financing to support growth is an important
component of the Company's financial strategy, and the Company believes that
access to both the public and private debt markets provides it with a
competitive advantage.
Benefits of Scale. By increasing its installed machine base, the Company has
benefited from economies of scale in both operating costs and purchasing
power. The Company is able to leverage its existing infrastructure, including
its sales, service, collections, security and corporate overhead, over a
larger installed machine base than its competition. As a result, the Company
has been able to improve its EBITDA margin as it has increased its size. For
the twelve months ended March 29, 1996, the 1997 fiscal year and the six
months ended September 26, 1997, the Company's EBITDA margins were 28.6%,
30.4% and 31.1%, respectively. Furthermore, due to its purchasing power,
management believes that the Company is able to purchase equipment on terms
more favorable than those available to smaller industry participants.
Significant Portion of Capital Investment Related to Growth. During the 1997
fiscal year, the Company spent $213.0 million in capital expenditures, of
which $171.5, or approximately 80.6%, was used to finance acquisitions as part
of the Company's growth strategy. Of the remaining capital investment, $12.5
million, or approximately 5.8%, was used for internally generated growth and
$29.1 million, or approximately 13.6%, related to the renewal of the Company's
existing machine base.
INDUSTRY
The coin-operated laundry equipment services industry is characterized by
stable cash flows generated by long-term, renewable lease contracts with
multi-family housing property owners and management companies. The industry is
highly fragmented, 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 installed machines in
multi-family properties throughout the United States, approximately 2.5
million of which have been outsourced to independent operators such as the
Company and approximately 1.0 million of which continue to be operated by the
owners of such locations.
The industry is highly capital intensive and customers require prompt and
reliable service. The majority of capital costs are incurred upon procurement
of new leases. 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, since machines operate throughout
the term of the contract under which they are installed if serviced properly,
and variable costs are paid out of revenues collected from the machines.
33
<PAGE>
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 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.
OPERATIONS
The principal aspects of the Company's operations include: (i) sales and
marketing; (ii) location leasing; (iii) service; (iv) information management;
(v) remanufacturing and (vi) collection security.
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. Sales personnel must be proficient with the
application of sophisticated financial analyses which calculate minimum
returns on investment to achieve the Company's targeted goals in securing
location contracts and renewals. Management believes that its sales staff is
among the most competent and effective in the industry.
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 new and renewal 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.
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 property 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 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 opportunity to match competitive bids at the expiration of
the lease term) and termination rights if the Company does not receive minimum
net revenues from a lease. 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 advance rental payments.
The Company evaluates each lease opportunity through its Integrated Computer
Systems which are designed to achieve certain targeted levels of return on
investment.
Management estimates that approximately 90% of its locations are under long-
term leases with initial terms of three to ten years. Of the remaining
locations not subject to long term leases, the Company
34
<PAGE>
believes that it has retained a majority of such customers through long-
standing relationships and intends to continue to service such customers.
Approximately 42% of the Company's leases renew automatically, and the Company
has a right of first refusal on termination in approximately 40% 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 September 26, 1997, the Company's leases have an average
remaining life to maturity of approximately 50 months (without giving effect
to automatic renewals).
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 352 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 2,200 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
service areas. These operations coordinate the Company's radio-equipped
service vehicles that allow the Company to address customer needs quickly and
efficiently.
Information Management. Management believes that the Company's Integrated
Computer Systems serve three major functions: (i) tracking the service cycle
of equipment; (ii) monitoring revenues and costs by location, customer and
salesperson; and (iii) providing information on competitor's lease renewal
schedules.
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. 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. Management is able to obtain daily, monthly, quarterly and annual
reports on location performance, coin collection, service and sales activity
by salesperson.
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.
Management also believes that the Integrated Computer Systems enhance the
Company's ability to successfully integrate acquired businesses into its
existing operations. It has been the experience of the Company's management
that regional or muti-regional acquisitions can be integrated within 90 to 120
days, while a local acquisition can be integrated almost immediately.
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. Remanufactured machines are
restored to virtually new condition with the same estimated average life and
service requirements as new
35
<PAGE>
machines. Machines that can no longer be remanufactured are added to the
Company's inventory of spare parts.
The Company maintains four regional remanufacturing facilities which provide
for consistent machine quality and efficient operations and are strategically
located to service each of its operating regions.
Collection Security. Management believes that it provides the highest level
of collection 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 enforces
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.
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. The other large multiple region operators are Web Service
Company, Inc. and Macke Laundry Service, L.P.
OTHER OPERATIONS
In addition to supplying outsourced coin-operated laundry equipment
services, the Company has expanded its breadth of operations to other, related
lines of business:
Individual Housing Units. Through the acquisition of Appliance Warehouse,
the Company entered the business of renting laundry equipment and other
household appliances and electronic items to individuals. With access to
approximately four million individual housing units, the Company believes its
new business line represents an opportunity for growth in a new market segment
which is complementary to its core business.
Laundromat Construction. Super Laundry, a wholly owned subsidiary of
Coinmach, is a laundromat construction and 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 operated machines and parts,
and selling service contracts. Super Laundry's customers generally enter into
sales contracts pursuant to which Super Laundry constructs and equips a
complete laundromat operation, including location identification,
construction, plumbing, electrical wiring and all required permits.
Retail Laundromat Operations. The Company operates 151 retail laundromats
located throughout Texas, 150 of which were acquired in the Kwik Wash
Acquisition. The operation of the retail laundromats involves leasing store
locations in desired geographic areas, maintaining an appropriate mix of
washers and dryers at each store location and servicing such washers and
dryers at such locations. The Company is also responsible for maintaining the
premises at each laundromat and paying for utilities and related expenses.
FACILITIES
As of November 1, 1997, the Company leases 39 offices throughout its
operating regions serving various operational purposes, including sales and
service activities, collections and warehousing. The Company presently
maintains its headquarters in Roslyn, New York, leasing approximately 40,000
square feet pursuant to a five year lease terminating April 30, 2001. The
Company's Roslyn facility is used for general
36
<PAGE>
corporate purposes, as well as for remanufacturing and warehouse space for the
Northeast operating region. The Company has an option to purchase the Roslyn
facility, which it presently does not intend to exercise.
EMPLOYEES
As of November 1, 1997, the Company employed approximately 1,450 full-time
employees (including 334 laundromat attendants in the Company's retail
laundromats in Texas). Approximately 140 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.
LEGAL PROCEEDINGS
The Company and its predecessors have been named as defendants 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.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Coinmach Laundry are:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Stephen R. Kerrigan........... 44 Chairman of the Board and Chief Executive
Officer, Director
Mitchell Blatt................ 46 President, Chief Operating Officer,
Director
Robert M. Doyle............... 40 Chief Financial Officer, Senior Vice
President, Treasurer, Secretary
John E. Denson................ 60 Senior Vice President--Corporate
Development
Michael E. Stanky............. 46 Senior Vice President
Bruce V. Rauner............... 41 Director
David A. Donnini.............. 32 Director
James N. Chapman.............. 35 Director
Dr. Arthur B. Laffer.......... 57 Director
Stephen G. Cerri.............. 61 Director
</TABLE>
BACKGROUND AND EXPERIENCE
Mr. Kerrigan has been Chief Executive Officer of Coinmach Laundry since
April 1996 and of Coinmach since November 1995. Mr. Kerrigan was President and
Treasurer of Solon and Coinmach Laundry from April 1995 to April 1996, and
Chief Executive Officer of The Coinmach Corporation ("TCC"), a predecessor of
Coinmach, from January 1995 to November 1995. Mr. Kerrigan has been a director
and Chairman of the Board of Coinmach Laundry since April 1995 and of Coinmach
since November 1995. Mr. Kerrigan was a director of TCC from January 1995 to
November 1995 and a director of Solon from April 1995 to November 1995. Mr.
Kerrigan served as Vice President and Chief Financial Officer of TCC's
predecessor, Coinmach Industries from 1987 to 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 Coinmach Laundry
since April 1996 and of Coinmach since November 1995. Mr. Blatt was the
President and Chief Operating Officer of TCC from January 1995 to November
1995. Mr. Blatt has been a director of Coinmach Laundry and Coinmach since
November 1995. Mr. Blatt joined TCC 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, Treasurer
and Secretary of Coinmach Laundry since April 1996 and of Coinmach since
November 1995. Mr. Doyle has been a director of Coinmach since November 1995.
Mr. Doyle served as Vice President, Treasurer and Secretary of TCC from
January 1995 to November 1995. Mr. Doyle joined TCC in 1987 as Controller. In
1988, Mr. Doyle 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 Coinmach Laundry since April
1996 and of Coinmach since November 1995. Mr. Denson was Senior Vice
President, Finance of Solon from June 1987 to November 1995. Mr. Denson served
as an officer of Solon under various titles since 1973, and served as a
director and Co-Chief Executive Officer of Solon from November 1994 to April
1995.
38
<PAGE>
Mr. Stanky has been Senior Vice President of Coinmach Laundry since April
1996 and of Coinmach since November 1995. Mr. Stanky was a Senior Vice
President of Solon from July 1995 to November 1995. Mr. Stanky served Solon in
various capacities since 1976, and in 1985 was promoted to Area Vice President
responsible for Solon's South-Central Region. Mr. Stanky served as a Co-Chief
Executive Officer of Solon from November 1994 to April 1995.
Mr. Rauner has been a director of Coinmach Laundry since April 1995. Mr.
Rauner was a director of Coinmach from November 1995 to November 1996 and a
director of TCC from January 1995 to November 1995. Mr. Rauner has been a
Principal of GTCR since 1981. Mr. Rauner serves as a director of COREStaff,
Inc., Esquire Communications Ltd., Lason Systems, Inc., and Polymer Group,
Inc.
Mr. Donnini has been a director of Coinmach Laundry since April 1995. Mr.
Donnini was a director of Coinmach from November 1995 to November 1996 and a
director of TCC from January 1995 to November 1995. Mr. Donnini has been a
Principal of GTCR since 1993. From 1991 to 1993, Mr. Donnini was an Associate
with GTCR. Mr. Donnini serves as a director of Polymer Group, Inc.,
International Computer Graphics, Inc., U.S. Aggregates, Inc., Keystone Group
Holdings, Inc., Dickson Media, Inc. and Cherrydale Farms, Inc.
Mr. Chapman has been a director of Coinmach Laundry since April 1995. Mr.
Chapman is presently Vice President--Investment Banking with The Renco Group,
Inc., a financial services company. Mr. Chapman was a Principal of Fieldstone
Private Capital Group, L.P., a private holding company, from its inception in
1990 to May 1996. Mr. Chapman was a director of Coinmach from November 1995 to
November 1996 and a director of TCC from January 1995 to November 1995.
Dr. Laffer has been a director of Coinmach Laundry since September 1996. Dr.
Laffer is a director of Mastec, Inc., Nicholas Applegate Mutual Funds,
Nicholas Applegate Growth Equity Funds, Casmyn, Inc. and United States Filter
Corporation. Dr. Laffer has been Chairman and Chief Executive Officer of A.B.
Laffer, V.A. Canto & Associates, an economic consulting firm, since 1979,
Chief Executive Officer of Calport Asset Management, Inc., a money management
firm, since 1992 and Chief Executive Officer of Laffer Advisors, Inc., a
registered broker-dealer and investment advisor since 1985.
Mr. Cerri has been a director of Coinmach Laundry since September 1996. Mr.
Cerri has been Chairman and Chief Executive Officer of Alinabal Holdings
Corporation, manufacturer of electro-mechanical and mechanical products, since
November 1987 and a consultant with Capstone Management Resources, Inc., a
firm which provides consulting services to clientele involved in leverage
transactions.
The Board consists of seven members and is divided into three classes of
directors. Each class of directors is elected to serve for a term of three
years, so that the term of office of approximately one-third of the directors
will expire each year. 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. All executive officers serve at the discretion of the Board. There
are no family relationships between any of the directors or executive officers
of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 9, 1997, Coinmach paid Mr. Chapman $200,000 for financial
advisory services rendered in connection with the Bond Offering.
39
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Coinmach Laundry with
respect to the beneficial ownership of the Common Stock as of December 15,
1997, and as adjusted to reflect the sale of Common Stock offered hereby, by:
(i) each person or entity who is known by Coinmach Laundry to own beneficially
more than 5% of the Common Stock; (ii) each of Coinmach Laundry's directors;
(iii) the current executive officers of Coinmach Laundry; (iv) all current
directors and executive officers as a group; and (v) each Selling Stockholder.
Except as indicated in the footnotes to the table, the persons and entities
named in the table have sole voting and investment power with respect to all
shares of Common Stock which they respectively beneficially own.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)
--------------------- -----------------
NUMBER OF
SHARES
BEING
NAME AND ADDRESS NUMBER PERCENT OFFERED(2)(3) NUMBER PERCENT
---------------- --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, OFFICERS AND
5% STOCKHOLDERS
Golder, Thoma, Cressey,
Rauner, Fund IV,
L.P. ................. 4,556,114(4) 45.5% 1,264,104 3,292,010 26.0%
6100 Sears Tower
Chicago, IL 60606
MCS Capital, Inc. ...... 566,010(5) 5.7% -- 566,010 4.5%
c/o Coinmach
Corporation
521 East Morehead,
Suite 590
Charlotte, NC 28202
Bruce J. Rauner......... 4,556,114(4) 45.5% 1,264,104 3,292,010 26.0%
David A. Donnini........ 4,556,114(4) 45.5% 1,264,104 3,292,010 26.0%
Stephen R. Kerrigan..... 566,010(5) 5.7% -- 566,010 4.5%
Mitchell Blatt.......... 456,313(6) 4.6% -- 456,313 3.6%
Robert M. Doyle......... 157,964(7) 1.6% -- 157,964 1.2%
Michael E. Stanky....... 108,284(8) 1.1% -- 108,284 *
John E. Denson.......... 11,503(9) * -- 11,503 *
James N. Chapman........ 30,386(10) * 8,431 21,955 *
Arthur B. Laffer........ 30,000(11) * -- 30,000 *
Stephen G. Cerri........ 30,000(11) * -- 30,000 *
All Officers and
Directors as a group
(10 persons)........... 5,946,574(12) 59.4% 1,272,535 4,674,039 36.9%
--------- ---- --------- --------- ----
OTHER SELLING
STOCKHOLDERS
President and Fellows of
Harvard College........ 151,860 1.5% 42,134 109,726 *
Michael Marrus.......... 25,974(13) * 7,207 18,767 *
S.A. Spencer and Mary M.
Spencer................ 24,297 * 6,741 17,556 *
Ronald S. Brody......... 23,006(14) * 6,383 16,623 *
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed 1% of Common Stock
outstanding.
(1) Share percentage ownership is rounded to nearest tenth of 1% and reflects
the effect of dilution as a result of outstanding options to the extent
such options are, or within 60 days will become, exercisable. Shares of
Common Stock underlying any option which was exercisable on December 15,
1997 or becomes exercisable within the next 60 days ("Presently
Exercisable Options") are deemed outstanding only for purposes of
computing the share ownership and share ownership percentage of the
holder of such option. The number of shares of Common Stock deemed
outstanding prior to this Offering includes 10,004,278 shares of Common
Stock outstanding as of December 15, 1997 and such shares of Common Stock
issuable pursuant to Presently Exercisable Options held by the respective
person or group as set forth below. The number of shares of Common Stock
deemed outstanding after this Offering is comprised of the sum of: (i)
the outstanding shares of Common Stock immediately prior to the Offering
in an amount equal to 10,004,278 (which includes 1,328,617 shares of
Common Stock to be sold by Selling Stockholders in the Offering); (ii)
2,665,000 shares of Common Stock being offered for sale by the Company in
the Offering and (iii) 6,383 shares of Common Stock to be issued to a
Selling Stockholder upon the exercise of options in connection with the
Offering. Beneficial ownership is determined in accordance with the rules
of the Commission that deem shares to be beneficially owned by any person
who has or shares voting or investment power with respect to such
40
<PAGE>
shares. Presently Exercisable Options are deemed to be outstanding and to
be beneficially owned by the person or group holding such options for the
purpose of computing the percentage ownership of such person or group, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.
(2) Does not include 600,000 shares of Common Stock to be sold in the
Offering by Selling Stockholders and certain other stockholders of
Coinmach Laundry if the Underwriters' over-allotment option is exercised
in full, of which 22,792 shares of Common Stock would be sold by certain
members of management not named in the table above.
(3) If the Underwriters' over-allotment option is exercised in full, GTCR,
Mr. Chapman, President and Fellows of Harvard College, Mr. Marrus, S.A.
Spencer and Mary M. Spencer and Mr. Brody will sell an additional
283,608, 1,891, 9,453, 1,617, 1,512, and 1,432 shares of Common Stock in
the Offering, respectively. If the Underwriters' over-allotment option is
exercised in full, MCS, Mr. Blatt, Mr. Doyle, Mr. Stanky and Mr. Denson
will sell 120,900, 97,468, 33,741, 23,129 and 2,457 shares of Common
Stock in the Offering, respectively.
(4) Such shares are held by GTCR, of which GTCR IV, L.P. ("GTCR IV"), is the
general partner. Mr. Rauner and Mr. Donnini are principals of Golder,
Thoma, Cressey, Rauner, Inc., the general partner of GTCR IV. Mr. Rauner
and Mr. Donnini each disclaim beneficial ownership of such shares.
(5) Such shares are owned beneficially by MCS, a corporation controlled by
Mr. Kerrigan. Includes shares underlying Presently Exercisable Options
held by MCS to purchase an aggregate of 123,241 shares of Common Stock at
an exercisable price of $11.90 per share. Does not include shares
underlying options held by MCS to purchase an aggregate of 184,857 shares
of Common Stock at an exercise price of $11.90 per share, which options
are not Presently Exercisable Options.
(6) Includes shares underlying Presently Exercisable Options to purchase an
aggregate of 20,000 shares of Common Stock at an exercise price of $11.90
per share and 40,000 shares of Common Stock at an exercise price of
$14.00 per share. Does not include shares underlying options to purchase
an aggregate of 80,000 shares of Common Stock at an exercise price of
$11.90 per share and 60,000 shares of Common Stock at an exercise price
of $14.00 per share, which options are not Presently Exercisable Options.
(7) Includes shares underlying Presently Exercisable Options to purchase an
aggregate of 48,756 shares of Common Stock at an exercise price of $11.90
per share. Does not include shares underlying options to purchase an
aggregate of 123,134 shares of Common Stock at an exercise price of
$11.90 per share, which options are not Presently Exercisable Options.
(8) Includes shares underlying Presently Exercisable Options to purchase an
aggregate of 41,409 shares of Common Stock at an exercise price of $11.90
per share. Does not include shares underlying options to purchase an
aggregate of 62,112 shares of Common Stock at an exercise price of $11.90
per share, which options are not Presently Exercisable Options.
(9) Represents shares underlying Presently Exercisable Options to purchase an
aggregate of 11,503 shares of Common Stock at an exercisable price of
$11.90 per share. Does not include shares underlying options to purchase
an aggregate of 17,253 shares of Common Stock at an exercise price of
$11.90 per share, which options are not Presently Exercisable Options.
(10) Includes shares underlying Presently Exercisable Options to purchase an
aggregate of 11,503 shares of Common Stock at an exercise price of $11.90
per share. Does not include shares underlying options to purchase an
aggregate of 17,253 shares of Common Stock at an exercise price of $11.90
per share, which options are not Presently Exercisable Options.
(11) Represents shares underlying Presently Exercisable Options to purchase an
aggregate of 30,000 shares of Common Stock at an exercise price of $14.00
per share. Does not include shares underlying options to purchase an
aggregate of 30,000 shares of Common Stock at an exercise price of $14.00
per share, which options are not Presently Exercisable Options.
(12) In calculating the shares beneficially owned by executive officers and
directors as a group, (i) 4,556,114 shares of Common Stock owned by GTCR
and included in the beneficial ownership amounts of each of Messrs.
Rauner and Donnini, and (ii) 566,010 shares of Common Stock owned by MCS
and included in the beneficial ownership amount of Mr. Kerrigan, in each
case as set forth in the table above, are included only once. In
calculating the percentage of shares owned by executive officers and
directors as a group, the shares of Common Stock underlying all options
which are beneficially owned by executive officers and directors and
which are Presently Exercisable Options are deemed outstanding.
(13) Includes shares underlying Presently Exercisable Options to purchase an
aggregate of 11,503 shares of Common Stock at an exercise price of $11.90
per share. Does not include shares underlying options to purchase an
aggregate of 17,253 shares of Common Stock at an exercise price of $11.90
per share, which options are not Presently Exercisable Options.
(14) Represents shares underlying Presently Exercisable Options to purchase an
aggregate of 23,006 shares of Common Stock at an exercise price of $11.90
per share. Does not include shares underlying options to purchase an
aggregate of 34,506 shares of Common Stock at an exercise price of $11.90
per share, which options are not Presently Exercisable Options.
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DESCRIPTION OF CAPITAL STOCK
The following statements are brief summaries of certain provisions relating
to Coinmach Laundry's capital stock and are qualified in their entirety by
reference to the provisions of Coinmach Laundry's Third Amended and Restated
Certificate of Incorporation and Third Amended and Restated Bylaws, each of
which have been filed with the Commission.
Coinmach Laundry's authorized capital stock consists of 15,000,000 shares of
Common Stock, 1,000,000 shares of Class B Common Stock, par value $.01 per
share ("Non-Voting Common Stock") and 1,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock"). As of December 15, 1997, there were
10,004,278 shares of Common Stock, 480,648 shares of Non-Voting Common Stock
and no shares of Preferred Stock outstanding. Upon consummation of the
Offering, there will be 13,156,309 shares of Common Stock and Non-Voting
Common Stock outstanding.
DESCRIPTION OF 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.
Shares of Common Stock are not redeemable, and holders thereof have no
preemptive or conversion rights nor do holders have any subscription rights to
purchase any securities of the Company. There are no redemption or sinking
fund provisions applicable to the Common Stock. All shares of Common Stock are
fully paid and non-assessable and all shares of Common Stock to be offered by
the Company hereby, when issued, will be fully paid and non-assessable.
In the event of liquidation, dissolution or winding up of Coinmach Laundry,
the holders of Common Stock are entitled to receive, after payment of Coinmach
Laundry's debts and liabilities, the remaining assets of Coinmach Laundry 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 Common Stock is listed for quotation on The Nasdaq National Market under
the trading symbol "WDRY." The transfer agent and registrar for the Common
Stock is The Bank of New York.
DESCRIPTION OF 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 (i) restrictions on voting,
(ii) the manner in which dividends are paid, and (iii) the ability to convert
Non-Voting Common Stock into Common Stock, the Non-Voting Common Stock is
identical to the Common Stock.
PAYMENT OF DIVIDENDS ON COMMON STOCK AND NON-VOTING 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.
DESCRIPTION OF PREFERRED STOCK
In accordance with the provisions of the Company's Third Amended and
Restated Certificate of Incorporation, the Board may, without further action
by Coinmach Laundry's stockholders, from time to
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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 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 may be entitled to
receive a preference payment in the event of any liquidation, dissolution or
winding-up of Coinmach Laundry 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 Coinmach
Laundry's securities or the removal of incumbent management. The Board,
without stockholder approval, may issue shares of Preferred Stock with voting
and/or conversion rights which could adversely affect the holders of Common
Stock and Non-Voting Common Stock.
CERTAIN PROVISIONS OF THE THIRD AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION AND THIRD AMENDED AND RESTATED BYLAWS
The Third Amended and Restated Certificate of Incorporation and the Third
Amended and Restated Bylaws contain provisions that could discourage a change
in control of Coinmach Laundry. 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 Third Amended and Restated Certificate of Incorporation provides that
the Board be divided into three classes, with each class 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 Coinmach
Laundry. 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 Coinmach Laundry,
these provisions could also make it more difficult for existing stockholders
or another party to effect a change in management.
The Third Amended and Restated Certificate of Incorporation requires that
any action required or permitted to be taken by Coinmach Laundry'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 Third Amended and
Restated Certificate of Incorporation requires that special meetings of the
stockholders of Coinmach Laundry be called by the Chairman of the Board, the
president or the Board pursuant to a resolution adopted by the affirmative
vote of at least two members of the Board then in office.
The Third Amended and Restated Bylaws provides 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
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notice was given. The Third Amended and Restated Bylaws also specifies certain
requirements for a stockholder's notice to be in proper written form. These
provisions restrict the ability of stockholders to bring matters before the
stockholders or to make nominations for directors at meetings of stockholders.
The Third Amended and Restated Certificate of Incorporation further provides
that the Board, by a majority vote, may adopt, alter, amend or repeal
provisions of the Third Amended and Restated Bylaws. However, stockholders may
only adopt, alter, amend or repeal provisions of the Third Amended and
Restated Bylaws by a vote of 66 2/3% 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.
CERTAIN STATUTORY PROVISIONS
Coinmach Laundry is subject to Section 203 of the Delaware General
Corporation Law, which prohibits certain transactions between a Delaware
corporation and an "interested stockholder," which is defined as a person who,
together with any affiliates and/or associates of such person, beneficially
owns, directly or indirectly, 15 percent or more of the outstanding voting
shares of a Delaware corporation. This provisions prohibits certain business
combinations (defined broadly to include mergers, consolidations, sales or
other dispositions of assets having an aggregate value in excess of 10 percent
of the consolidated assets of the corporation, and certain transactions that
would increase the interested stockholder's proportionate share ownership in
the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless: (i) the business combination or the transaction resulting in
the person becoming an interested stockholder is approved by the corporation's
board of directors prior to the date the interested stockholder acquired
shares; (ii) the interested stockholder acquired at least 85 percent of the
voting stock of the corporation in the transaction in which it became an
interested stockholder; or (iii) the business combination is approved by a
majority of the board of directors and by the affirmative vote of two-thirds
of the votes entitled to be cast by disinterested stockholders at an annual or
special meeting. 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."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, there will be 12,675,661 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 and not
exercised in connection with the Offering. 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, 6,301,284 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
90 day lock-up period (the "Lock-up 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 one year 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 (131,563 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 two years is entitled to sell such shares
under Rule 144 without regard to the limitations described above.
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.
Coinmach Laundry its executive officers and directors, and GTCR 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 90 days after the date of this Prospectus, without the prior written
consent of BT Alex. Brown, as representative of the Underwriters.
Pursuant to the Company Registration Agreement, the pre-initial public
offering stockholders of Coinmach Laundry, who will hold in the aggregate
6,301,284 shares of Common Stock following the Offering, are entitled to
certain registration rights (such shares of Common Stock are hereinafter
referred to as the "Registrable Securities"). 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. Coinmach Laundry is responsible
for all registration expenses in connection with all such registrations.
Additionally, if Coinmach Laundry proposes to register any of its Common Stock
under the Securities Act, whether for
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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 Coinmach Laundry in all such registrations. Each
holder of Registrable Securities has agreed not to effect any public sale or
distribution of such securities during the Lock-up Period.
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock, 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 issued, 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 equity securities. Coinmach
Laundry 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."
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their representatives (collectively, the "Representatives") BT Alex.
Brown Incorporated ("BT Alex. Brown"), Lehman Brothers Inc. ("Lehman
Brothers"), Raymond James & Associates, Inc., Wheat, First Securities, Inc.
and Jefferies & Company, Inc. ("Jefferies"), have severally agreed to purchase
from Coinmach Laundry and the Selling Stockholders the following respective
numbers of shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated........................................... 1,600,000
Lehman Brothers Inc................................................... 1,000,000
Raymond James & Associates, Inc....................................... 600,000
Wheat, First Securities, Inc.......................................... 600,000
Jefferies & Company, Inc.............................................. 200,000
---------
Total................................................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby (other than those
subject to the over-allotment option described below) if any of such shares
are purchased.
Coinmach Laundry has been advised by the Representatives that the
Underwriters propose to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.60 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives.
Certain of the Selling Stockholders and certain other stockholders (if and
when the over-allotment option described herein is exercised, the "Additional
Selling Stockholders") have granted to the Underwriters an option, exercisable
by the Representatives not later than 30 days after the date of this
Prospectus, to purchase up to 600,000 additional shares of Common Stock at the
public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage thereof that the
number of shares of Common Stock to be purchased by it shown in the above
table bears to 4,000,000 and such Selling Stockholders and Additional Selling
Stockholders will be obligated, pursuant to the option, to sell such shares to
the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 4,000,000 shares are being offered.
Coinmach Laundry and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Coinmach Laundry's directors and executive officers, and GTCR have agreed
not to offer, sell or otherwise dispose of the shares of Common Stock held by
them immediately prior to completion of this Offering for a period of 90 days
after the commencement of this Offering without the prior written consent of
BT Alex. Brown except to the extent being sold in this Offering. Coinmach
Laundry has entered into a similar agreement, except that it may issue, and
grant options to purchase, shares of Common Stock under its current stock
option and purchase plans and pursuant to other currently
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outstanding options. BT Alex. Brown, at any time and without notice, may
release all or any part of the shares from these restrictions.
The Representatives have advised Coinmach Laundry that the Underwriters do
not intend to confirm sales to any account over which they exercise
discretionary authority.
The Underwriters have advised Coinmach Laundry that, pursuant to Regulation
M under the Securities Act, certain persons participating in this Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Underwriters to reclaim the selling
concession otherwise accruing to an Underwriter or dealer in connection with
this offering if the Common Stock originally sold by such Underwriter or
dealer is purchased by the Underwriters in a syndicate covering transaction
and has therefore not been effectively placed by such Underwriter or dealer.
The Underwriters have advised Coinmach Laundry that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
As permitted by Rule 103 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), Underwriters or prospective Underwriters that
are market markers ("passive market makers") in the Common Stock may make bids
for or purchases of Common Stock on the Nasdaq National Market until such
time, if any, when a stabilizing bid for such securities has been made. Rule
103 generally provides that: (i) a passive market maker's net daily purchases
of the Common Stock may not exceed 30% of its average daily trading volume in
such securities for the two full consecutive calendar months (or any 60
consecutive days ending within the 10 days) immediately preceding the filing
date of the registration statement of which this Prospectus forms a part; (ii)
a passive market maker may not effect transactions or display bids for the
Common Stock at a price that exceeds the highest independent bid for the
Common Stock by persons who are not passive market makers; and (iii) bids made
by passive market makers must be identified as such.
No action has been or will be taken in any jurisdiction by the Selling
Stockholders, the Company, or the Representatives that would permit an
offering to the general public of the shares of Common Stock offered by this
Prospectus in any jurisdiction other than the United States.
From time to time, certain of the Representatives have provided investment
banking services to the Company, for which they have received customary
underwriting fees. Lehman Brothers acted as a Representative in the Company's
Initial Public Offering in July 1996. An affiliate of BT Alex. Brown acts as
administrative agent and an affiliate of Lehman Brothers acts as documentation
agent, in each case for the Credit Facility. Jefferies and BT Alex. Brown
acted as Initial Purchasers in the Company's recent Bond Offering, and
Jefferies has provided and expects to continue to provide certain general
financial advisory services to the Company.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated and
Lehman Brothers Syndicated Loans, an affiliate of Lehman Brothers Inc., are
lenders under the Company's Credit Facility. A portion of the net proceeds of
this Offering will be used to repay a portion of the Company's indebtedness
under the Credit Facility. If the amount to be paid to Bankers Trust Company
or Lehman Brothers Syndicated is equal to or in excess of 10% of the net
proceeds of this Offering, the Offering will be conducted in accordance with
Rule 2710(c) (8) of the National Association of Securities Dealers, Inc.'s
Conduct Rules. In accordance with such Rules, and because a bona fide
independent market exists for the Common Stock, no qualified independent
underwriter is required to establish the price of the Common Stock offered
hereby. See "Use of Proceeds."
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<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered by this Prospectus and
certain legal matters in connection with the Offering for Coinmach Laundry and
for the Selling Stockholders will be passed upon by Anderson Kill & Olick,
P.C., New York, New York. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Cahill Gordon & Reindel
(a partnership including a professional corporation), New York, New York. A
member of Anderson Kill & Olick, P.C. holds options to purchase 57,512 shares
of Common Stock, of which 34,506 shares underlie options that are not
Presently Exercisable Options, and is a Selling Stockholder in the Offering.
See "Principal and Selling Stockholders".
EXPERTS
The consolidated financial statements of Coinmach Laundry and subsidiaries
appearing in Coinmach Laundry's Amendment No. 2 on Form 10-K/A to its Annual
Report on Form 10-K for the year ended March 28, 1997, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference; the consolidated
financial statements of Coinmach and subsidiaries (formerly Solon, which was
combined with TCC and subsidiaries, a company under common control, beginning
April 5, 1995) as of September 29, 1995, and for the period from April 5, 1995
to September 29, 1995 and from October 1, 1994 to April 4, 1995, appearing in
Coinmach Laundry's Amendment No. 2 on Form 10-K/A to its Annual Report on Form
10-K for the year ended March 28, 1997, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference; and the combined financial
statements of Kwik Wash Laundries, Inc. and KWL, Inc. appearing in Coinmach
Laundry's Amendment No. 3 on Form 8-K/A to its Current Report on Form 8-K
dated January 8, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such financial statements referred to above
are incorporated herein by reference in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' deficiency and cash
flows of CIC I Acquisition Corp. for the year ended December 31, 1994, the
consolidated statements of operations and accumulated deficit and cash flows
of CIC I Acquisition Corp. for the month ended January 31, 1995, and the
consolidated statements of operations and accumulated deficit and cash flows
of The Coinmach Corporation for the two months ended March 31, 1995,
incorporated by reference in this Prospectus and Registration Statement, have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as indicated in their reports thereon, which are incorporated by
reference herein, and have been so incorporated in reliance upon such reports
given upon the authority of said firm as experts in accounting and auditing.
The financial statements of Solon as of September 30, 1994, and for the
fiscal year then ended, incorporated by reference in this Prospectus and
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as stated in their report thereon which are incorporated
by reference herein, and have been so incorporated in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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AVAILABLE INFORMATION
Coinmach Laundry is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information may
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, and
at its Regional Offices located at, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Common Stock is listed for
trading on The Nasdaq National Market, and reports, proxy statements and other
information concerning the Company are on file for inspection at the offices
of The Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
Such material may also be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov.
Coinmach Laundry has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended, with respect to the
Common Stock offered hereby (the "Registration Statement"). This Prospectus
does not contain all of the information included in the Registration Statement
and the exhibits thereto. Statements contained in this Prospectus as to the
contents of any contract or other document referred to herein and filed as an
exhibit to the Registration Statement are not necessarily complete and, in
each instance, reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to Coinmach Laundry and its subsidiaries and the
Common Stock, reference is hereby made to the Registration Statement and the
exhibits thereto which may be obtained from the Commission in the manner set
forth above.
50
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Coinmach Laundry with the Commission are
hereby incorporated by reference in and made a part of this Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended March 28, 1997;
(2) Amendment No. 1 on Form 10-K/A to Annual Report on Form 10-K for the
fiscal year ended March 28, 1997;
(3) Quarterly Report on Form 10-Q for the fiscal quarter ended June 27,
1997;
(4) Amendment No. 1 on Form 10-Q/A to Quarterly Report on Form 10-Q for the
fiscal quarter ended June 27, 1997;
(5) Quarterly Report on Form 10-Q for the fiscal quarter ended September
26, 1997;
(6) Amendment No. 1 on Form 10-Q/A to Quarterly Report on Form 10-Q for the
fiscal quarter ended September 26, 1997;
(7) Amendment No. 3 on Form 8-K/A to Current Report on Form 8-K dated
January 8, 1997;
(8) Current Report on Form 8-K dated October 8, 1997;
(9) Amendment No. 1 on Form 8-K/A to Current Report on Form 8-K dated
October 8, 1997;
(10) Current Report on Form 8-K dated October 14, 1997; and
(11) Proxy Statement dated June 13, 1997, for the 1997 Annual Meeting of
Stockholders.
All documents filed by Coinmach Laundry with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the Offering shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained
herein or in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
Coinmach Laundry will furnish without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of such person,
including any beneficial owner, a copy of any and all of the information that
has been incorporated by reference into the Registration Statement of which
this Prospectus is a part but which has not been delivered with this
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that the Registration Statement incorporates by reference);
such requests should be directed to Coinmach Laundry Corporation, 55 Lumber
Road, Roslyn, New York 11576, Attention: Robert M. Doyle.
51
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 9
The Company................................................................ 13
Use of Proceeds............................................................ 15
Price Range of Common Stock................................................ 15
Dividend Policy............................................................ 16
Dilution................................................................... 17
Capitalization............................................................. 18
Unaudited Pro Forma Financial Data......................................... 19
Management's Discussion and Analysis of Financial Condition................ 27
Business................................................................... 30
Management................................................................. 38
Certain Relationships and Related Transactions............................. 39
Principal and Selling Stockholders......................................... 40
Description of Capital Stock............................................... 42
Shares Eligible for Future Sale............................................ 45
Underwriting............................................................... 47
Legal Matters.............................................................. 49
Experts.................................................................... 49
Available Information...................................................... 50
Incorporation of Certain Documents by Reference............................ 51
</TABLE>
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4,000,000 SHARES
[LOGO]
-------------------------
COINMACH
-------------------------
KEEPING AMERICA CLEAN
ONE LAUNDRY ROOM AT A TIME
COMMON STOCK
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PROSPECTUS
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BT ALEX. BROWN
LEHMAN BROTHERS
RAYMOND JAMES & ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
JEFFERIES & COMPANY, INC.
December 16, 1997
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