<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MAC-GRAY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7215 04-3361982
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(I.R.S. EMPLOYER
(STATE OR OTHER IDENTIFICATION NO.)
JURISDICTION OF
INCORPORATION OR
ORGANIZATION)
----------------
22 WATER STREET
CAMBRIDGE, MASSACHUSETTS 02141
(617) 492-4040
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------------
STEWART GRAY MACDONALD, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MAC-GRAY CORPORATION
22 WATER STREET
CAMBRIDGE, MASSACHUSETTS 02141
(617) 492-4040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
STUART M. CABLE, ESQ. EDWIN L. MILLER, JR., ESQ.
GOODWIN, PROCTER & HOAR LLP TESTA, HURWITZ & THIBEAULT, LLP
EXCHANGE PLACE 125 HIGH STREET
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
(617) 570-1000 (617) 248-7000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
----------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
----------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED
SECURITIES TO BE MAXIMUM AGGREGATE AMOUNT OF
REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value................ $50,000,000 $15,151.52
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</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
AUGUST 14, 1997
PROSPECTUS
[LOGO]
SHARES
MAC-GRAY CORPORATION
COMMON STOCK
($.01 PAR VALUE)
All of the shares of Common Stock, $.01 par value (the "Common Stock"),
being offered hereby (the "Shares") are being issued and sold by Mac-Gray
Corporation (the "Company"). It is anticipated that the initial public offering
price will be between $ and $ per share.
Prior to this offering, there has been no public market for the Common Stock.
See "Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. Application will be made to list
the Common Stock on the New York Stock Exchange under the trading symbol " ."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY (1)
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(2)...................................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) Before deducting offering expenses, payable by the Company, estimated at
$ .
(2) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock at the Price to Public, less
Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters,
to prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC SMITH BARNEY INC.
The date of this Prospectus is , 1997.
<PAGE>
DESCRIPTION OF GRAPHICS:
[INSIDE FRONT COVER: MAP OF UNITED STATES FROM THE EAST COAST TO THE ROCKY
MOUNTAINS DISPLAYING STATES IN WHICH THE COMPANY CONDUCTS OPERATIONS (MARKED
IN BLUE), AS WELL AS DISPLAYING THE COMPANY'S CORPORATE HEADQUARTERS, REGIONAL
OFFICES AND RECENT ACQUISITIONS.]
[INSIDE FRONT GATEFOLD: GRAPHICAL DEPICTION OF THE COMPANY'S TARGET CUSTOMER
BASE AS WELL AS ITS CURRENT USE OF SMART CARD TECHNOLOGY IN VARIOUS
APPLICATIONS, INCLUDING LAUNDRY EQUIPMENT AND DOOR ACCESS UNITS FOR VARIOUS
CUSTOMER GROUPS.]
----------------
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
PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. The information contained in this Prospectus gives effect to:
(i) the reorganization (the "Mac-Gray Combination") of Mac-Gray Services, Inc.,
a Delaware corporation that was formerly known as Mac-Gray Co., Inc. ("Mac-Gray
Co."), and Mac-Gray, L.P., a Delaware limited partnership (the "Limited
Partnership"); and (ii) the acquisition (the "Sun Services Acquisition") of Sun
Services of America, Inc., a Florida corporation ("SSA"), and R. Bodden Coin-
Op-Laundry, Inc., a Florida corporation ("RBCO" and, together with SSA, "Sun
Services"), both of which occurred on April 17, 1997. Unless the context
requires otherwise, all references to the Company shall mean Mac-Gray
Corporation and its subsidiaries and predecessors, including Mac-Gray Co. and
the Limited Partnership, and businesses that it has acquired from their
respective dates of acquisition, including Sun Services. See "The Company."
Unless otherwise indicated, information in this Prospectus: (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) does not include
shares issuable upon exercise of outstanding options or reserved for issuance
pursuant to the Company's stock option and incentive plan, and (iii) has been
adjusted to reflect a -for- stock split effected on , 1997. See
"Underwriting" and "Management--1997 Stock Option and Incentive Plan."
THE COMPANY
The Company, founded in 1927, is among North America's largest suppliers of
card and coin-operated laundry services in multiple housing facilities such as
apartment buildings, colleges and universities and public housing complexes,
and is North America's largest supplier of such services to the college and
university market. The Company owns and operates approximately 113,000 card and
coin-operated washers and dryers in more than 17,000 multiple housing laundry
rooms located in 22 states in the Northeast, Midwest and Southeast regions of
the United States. In addition, the Company believes that it is the largest
operator of commercial laundry equipment manufactured by The Maytag Corporation
("Maytag"). The Company's revenue, EBITDA and net income, on a pro forma basis,
for the twelve months ended June 30, 1997, were approximately $79.2 million,
$17.9 million and $4.8 million, respectively.
Approximately 90% of the Company's revenue is derived from the operation of
washers and dryers in laundry rooms under long-term leases with property owners
("Laundry Route Revenue"). Under these long-term leases, which have an average
remaining life of more than seven years, the Company typically receives the
exclusive right to operate laundry rooms within a multiple housing property in
exchange for a percentage of the revenue collected. The Company's revenue base
is well diversified, as no lessor currently represents more than 1% of the
Company's machine base. The Company has been able to retain 99% of its existing
machine base, while also adding an average of 5.2% to its machine base, during
each of the past four years. The Company believes that its superior sales and
service efforts position it to continue to grow its customer base in its
existing markets, as well as to pursue opportunities in other geographic
markets and related industries.
The card and coin-operated laundry services industry, which the Company
estimates to have aggregate annual revenue of over $2.0 billion, is highly
fragmented and has recently begun to experience significant consolidation
primarily as a result of two factors: the consolidation of the real estate
ownership and management industries, most noticeably through the proliferation
of real estate investment trusts ("REITs") and large national property
management companies; and the increasing financial and technological demands
being placed upon smaller, family-owned service providers. The
3
<PAGE>
consolidation in the real estate industry has resulted in a smaller number of
decision-makers overseeing a larger and more geographically diverse portfolio
of properties. These decision-makers, who are increasingly seeking outsourcing
opportunities to allow them to focus on their core real estate business, prefer
financially stable and geographically diverse service providers, including
laundry service providers. Many of these larger property owners and managers
are demanding that their service providers deliver both enhanced and integrated
services in order to retain residents, the critical factor in a property's
profitability. In addition, the Company believes that a significant number of
the smaller, independent owner-operators of laundry service businesses, many of
whom are confronting generational ownership changes, have elected not to expend
the financial and managerial resources necessary to meet expanding customer
demands and instead are choosing to sell their businesses. The Company, with a
solid customer reputation, a strong capital base and a proven record of
acquiring and integrating compatible businesses, believes that it is well
positioned to take advantage of these changes in the industry.
The Company has accelerated its acquisition efforts during the past 16 months
by adding to its senior management team and substantially increasing the funds
available under its credit facility. The Company's recent efforts are intended
to build upon the Company's successful acquisition record. Since May 1996, the
Company has acquired seven laundry route ("Laundry Route") businesses,
representing approximately 35,000 machines. These acquisitions include the
acquisition of Sun Services, which added a substantial number of machines to
the Company's existing machine base in Florida, the state with the third
largest multiple housing market in the country.
The Company, through its relationship with Schlumberger Technologies, Inc.,
an international leader in cashless payment technologies ("Schlumberger"), has
introduced and intends to expand its use of newly available smart card payment
systems to improve its existing operations and to offer enhanced products and
services to customers. Smart card based payment systems are less expensive to
install and operate than other cashless payment systems, such as debit cards,
and as a result have a greater potential for use in the multi-housing market.
The Company, which has experienced increased usage at existing facilities
which have been equipped with smart card readers, believes that these smart
card based payment technologies may also be used to increase revenue by
facilitating modest price increases and variable time pricing. Since 1991, the
Company has installed more than 11,000 debit card operated laundry machines in
response to customer demand in the college and university market and, since
April 1, 1997, the Company has installed smart card readers in more than 1,000
laundry machines primarily in the multi-housing market. The Company believes
that its seven-year experience with cashless payment systems provides it with a
competitive advantage as it further pursues the roll-out of smart card operated
laundry equipment.
The Company's strategic objectives are to (i) grow its revenue and customer
base and increase profitability and cash flow by refining and expanding its
present operations and (ii) capitalize on the consolidation opportunities that
exist in its existing and related industries. In order to achieve these
objectives, the Company intends to:
EXPAND CUSTOMER BASE IN EXISTING MARKETS--The Company intends to use its
sales and marketing resources, which have significantly increased during
the past 16 months, to secure additional customers in its existing markets.
The Company's sales force is organized to focus on specific markets
including larger property owners, such as REITs; public housing
authorities; geographically diversified property managers; and colleges and
universities. The Company relies substantially on referrals from existing
customers and intends to continue its historical, proactive attention to
customer service and satisfaction. This focus has resulted in a 99% machine
retention rate over the past four years.
4
<PAGE>
IMPLEMENT NEWLY AVAILABLE TECHNOLOGY--The Company intends to accelerate
the use of cost-effective smart card based payment and door access systems
to increase revenue at existing facilities and to attract additional
customers through a broader product offering. As card based technologies
become more prevalent, their use may also permit the Company to offer other
smart card based services to its customers, including perimeter access,
photocopying, vending machines, telephones, rent collection and other
ancillary services.
PURSUE STRATEGIC ACQUISITION OPPORTUNITIES--The Company intends to
continue to acquire and integrate businesses that both increase penetration
in existing markets and also strategically expand the Company's geographic
presence. The Company believes that in-market acquisitions will allow it to
capitalize on operating efficiencies and increase market penetration. In
addition, the Company intends to acquire laundry room operations in new
markets in order to increase its geographic diversity and broaden its
potential customer base. The Company will continue its disciplined approach
to evaluating expansion opportunities, including an analysis of each
acquisition candidate's projected cash flow as compared to the Company's
desired internal rate of return.
INCREASE LEADING POSITION IN COLLEGE AND UNIVERSITY MARKET--The Company
intends to strengthen its leading position in the college and university
market and to use it as a foundation for growth in both existing and new
geographic markets. The Company will continue to utilize a sales force
which focuses exclusively on this specialized market which is often the
first to demand new products and services. In addition, the Company intends
to broaden the services offered to its existing college and university
customers, including ancillary services outside the Company's current core
business.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company............................ shares
Common Stock to be outstanding after
the offering....................... shares(1)
Use of proceeds..................... For repayment of certain indebtedness and
other general corporate purposes.
New York Stock Exchange symbol......
</TABLE>
- --------
(1) Excludes (i) 642,090 shares of Common Stock issuable upon exercise of
outstanding stock options granted pursuant to the Company's 1997 Stock
Option and Incentive Plan (the "1997 Stock Plan") at a weighted average
exercise price of $8.86 per share and (ii) 107,910 shares of Common Stock
available for future grants under the 1997 Stock Plan, subject to increase
upon consummation of this offering. See "Management--1997 Stock Option and
Incentive Plan."
5
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
Set forth below are summary historical combined and pro forma combined
financial data of the Company. The summary historical combined financial data
for the three years in the period ended December 31, 1996 were derived from the
historical combined financial statements of the Company presented elsewhere in
this Prospectus. The summary historical combined data for the six months ended
June 30, 1996 and 1997 have not been audited. Results for interim periods
include all adjustments, consisting only of normal recurring adjustments, which
management considers necessary for the fair presentation of the results of such
periods; however, they are not necessarily indicative of results for the full
year. The unaudited pro forma combined financial data set forth below do not
purport to represent the Company's combined results of operations or financial
position for any future period. The summary combined financial data set forth
below should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------------------------- -----------------------------
TWELVE SIX MONTHS
SIX MONTHS MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30,
------------------------- ---------------- DECEMBER 31, ----------------
1994 1995 1996 1996 1997 1996(1) 1996(1) 1997(1)
------- ------- ------- ------- ------- ------------ ------- -------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Revenue................. $48,031 $50,710 $64,427 $29,025 $38,288 $71,091 $32,256 $40,320
Cost of revenue:
Commissions............ 19,168 20,471 25,760 11,622 14,639 28,478 13,037 15,436
Laundry route
expenditures.......... 7,889 8,251 10,955 4,600 6,231 11,775 5,003 6,414
Depreciation and
amortization.......... 4,756 4,899 6,216 2,715 3,776 7,455 3,159 4,131
Cost of equipment
sales................. 2,673 2,938 5,189 2,280 3,831 5,466 2,315 3,995
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue.. 34,486 36,559 48,120 21,217 28,477 53,174 23,514 29,976
Operating expenses:
General and
administration........ 3,085 3,901 3,952 1,874 2,076 4,897 2,324 2,246
Sales and marketing.... 2,501 2,531 3,803 1,541 2,697 3,963 1,614 2,744
Depreciation........... 442 455 517 242 382 542 253 388
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 6,028 6,887 8,272 3,657 5,155 9,402 4,191 5,378
------- ------- ------- ------- ------- ------- ------- -------
Income from operations.. 7,517 7,264 8,035 4,151 4,656 8,515 4,551 4,966
Interest expense....... (1,217) (1,175) (1,956) (751) (1,431) (852) (483) (425)
Other income (expense),
net................... 70 55 (87) 1 39 (147) (2) 39
------- ------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes...... 6,370 6,144 5,992 3,401 3,264 7,516 4,066 4,580
Provision for income
taxes................. (388) (374) (465) (255) (232) (3,028) (1,626) (1,832)
------- ------- ------- ------- ------- ------- ------- -------
Net income.............. $ 5,982 $ 5,770 $ 5,527 $ 3,146 $ 3,032 $ 4,488 $ 2,440 $ 2,748
======= ======= ======= ======= ======= ======= ======= =======
Pro forma net income
per common share(2)... $ -- $ --
======= =======
Pro forma weighted
average common shares
outstanding(2)........ -- --
======= =======
OTHER FINANCIAL DATA:
EBITDA(3).............. $12,785 $12,673 $14,681 $ 7,109 $ 8,853 $16,365 $ 7,961 $ 9,524
Depreciation and
amortization.......... 5,198 5,354 6,733 2,957 4,158 7,997 3,412 4,519
Capital expenditures... 5,679 4,421 7,635 2,986 2,998 8,079 3,175 3,013
Cash flows from
operating activities.. 10,650 10,417 13,650 5,682 3,546 14,553 5,927 3,935
</TABLE>
- --------
See footnotes on page 7.
6
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL AT PRO FORMA AT
JUNE 30, 1997 JUNE 30, 1997(4)
------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $68,971
Long-term debt, net of current portion........... 32,902
Redeemable common stock(5)....................... 7,797
Stockholders' equity............................. 14,542
</TABLE>
- --------
(1) Reflects (i) the Sun Services Acquisition for the year ended December 31,
1996 and the six months ended June 30, 1996 as if it occurred on January 1,
1996. For the six months ended June 30, 1997, the historical results of Sun
Services for the period from April 1, 1997 to April 16, 1997 have not been
included and are not material to the Company, (ii) certain adjustments
directly attributable to the Sun Services Acquisition for the
aforementioned periods, (iii) the Company's change in income tax status
from an S corporation for income tax purposes to a C corporation and the
application of an estimated income tax rate of 40%, and (iv) this offering
and the application of the net proceeds therefrom as described under "Use
of Proceeds." See "Unaudited Pro Forma Financial Data."
(2) Pro forma net income per common share and pro forma weighted average number
of common shares outstanding include all Common Stock equivalents and are
reflective of: (i) the Mac-Gray Combination and (ii) the shares of
Common Stock issued in this offering. Pro forma net income per share was
computed using the treasury stock method and all Common Stock and Common
Stock equivalents issued within twelve months of this offering have been
included in computing Common Stock and Common Stock equivalents.
(3) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is used by security analysts in
the evaluation of companies. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(4) Reflects (i) the planned distribution of approximately $12.75 million to
the Company's existing stockholders immediately prior to the consummation
of this offering, (ii) the increase in the Company's net deferred tax
liabilities of approximately $4.3 million pursuant to the Company's change
in tax status from an S corporation to a C corporation and (iii) this
offering and the application of the net proceeds therefrom as described
under "Use of Proceeds."
(5) Redeemable Common Stock was issued in connection with the Sun Services
Acquisition.
----------------
This Prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ significantly from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Prospectus.
7
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the following risk
factors, in addition to other information contained in this Prospectus, in
evaluating an investment in the shares of Common Stock offered hereby.
GROWTH STRATEGY--RECENT AND FUTURE ACQUISITIONS
The Company's growth strategy depends, in part, on its ability to acquire
and successfully operate additional Laundry Route businesses. The success of
any completed acquisition will depend in large measure on the Company's
ability to integrate the assets, maintain and improve the results of
operations and increase the revenue of the acquired business. The process of
integrating acquired businesses, and in particular, geographically diverse
operations, with the Company's business may involve unforeseen difficulties
and may require a disproportionate amount of the Company's financial and other
resources, including management time. While the Company generally believes
that its management team and business structure enable it to operate a
significantly larger and more geographically diverse operation, there is no
assurance that the Company will be able to successfully integrate acquired
businesses into its existing operations and to implement effective cost
savings programs.
The Company has experienced increased competition in its acquisition
activities. Growing competition may increase purchase prices for future
acquisitions to levels that make the acquisitions less attractive or
uneconomic. In addition, future acquisitions accounted for under the purchase
method of accounting may result in the recording of goodwill, the amortization
of which may reduce the Company's net income. If further acquisitions are
made, the Company expects to continue to use cash and securities, including
shares of Common Stock, as consideration for such acquisitions. Use of the
Company's Common Stock as acquisition consideration may result in dilution to
the Company's stockholders. In the event that the Common Stock does not
maintain a sufficient valuation or if potential acquisition candidates are
unwilling to accept shares of Common Stock as consideration, the Company will
be required to use more cash resources or other consideration to continue its
acquisition program. In addition, if the Company is unable to generate
sufficient cash for further acquisitions from existing operations, the
Company's acquisition program could be adversely affected unless the Company
is able to obtain additional capital through external financings or can borrow
sufficient amounts. Any such debt financing will result in additional leverage
and any further equity financing may result in dilution to the Company's
stockholders. There can be no assurance that suitable additional acquisitions
can be identified, financed, consummated on acceptable terms and integrated
into the Company's operations or that future acquisitions will be financially
and operationally successful. In addition, the Company is currently restricted
through September 2000 in its ability to acquire or operate laundry rooms in
multi-housing facilities in the District of Columbia, Maryland, Tennessee,
Virginia and West Virginia pursuant to a non-competition agreement entered
into in connection with a transaction consummated in 1990. This restriction on
the Company's activities, which will remain in effect after consummation of
this offering, would terminate before September 2000 upon certain changes in
the Company's ownership. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Company Strategy."
COMPETITION
The card and coin-operated laundry services industry is highly competitive.
In most of the Company's markets, laundry services may be available through
property owners and managers that operate their own laundry rooms ("Self-
Owners"), private, family-owned businesses or large regional and national
laundry services companies. The Company frequently faces competition in the
acquisition of laundry service businesses from a number of other bidders. In
the competition to supply services to property owners, local private
businesses tend to have long-standing relationships with customers in
8
<PAGE>
their specific geographic market, and the larger companies participating in
the industry consolidation tend to have significant operational and managerial
resources to devote to expansion and to capture additional market share.
Accordingly, there can be no assurance that the Company will be able to
compete effectively in any specific geographic location in the business of
supplying laundry equipment services to property owners and managers or in the
acquisition of other businesses. See "Business--Competition."
DEPENDENCE UPON SENIOR EXECUTIVES
The Company is currently dependent to a significant degree upon the ability
and experience of five senior executives: Stewart Gray MacDonald, Jr., John S.
Olbrych, Neil F. MacLellan, III, Patrick A. Flanagan and Lisa E. Duffy. The
Company has elected not to enter into employment agreements with any of these
executives. The Company's preference to not utilize employment agreements for
its senior executives may affect the Company's ability to attract and retain
senior executives in the future. The loss of any of the Company's senior
executives could adversely affect the Company's ability to maintain its
current operating performance or to achieve growth through acquisitions. See
"Management."
CAPITAL EXPENDITURES
The industry in which the Company operates is capital intensive.
Accordingly, the Company must continue to make capital expenditures in order
to periodically replace its existing equipment. In addition, the Company's
plan to utilize newly available smart card based technologies with its
equipment will also result in significant capital expenditures. While the
Company anticipates that its existing capital resources, including the net
proceeds from this offering and its line of credit, as well as cash from
operations, will be adequate to finance anticipated capital expenditures,
there can be no assurance that such resources or cash flows will be sufficient
or that the incremental revenue and cost efficiencies associated with
technological enhancements, such as the smart card, will justify the
significant capital expenditures. To the extent that its available resources
are insufficient to fund capital requirements, the Company may need to raise
additional funds through public or private financings that may or may not be
on terms favorable to the Company and, in the case of equity financings, could
result in dilution to the Company's stockholders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Business--Card and Coin-Operated Laundry Route
Business" and "--Technology."
MARKET ACCEPTANCE OF NEW PRODUCTS
The Company currently is developing and introducing new products and
services utilizing smart card based technologies. While the Company believes
that cashless transactions will be attractive to its customers and will
provide the Company with certain benefits, there can be no assurance that
there will be widespread acceptance of these products by property owners,
managers, colleges and universities and residents, or that technical or
operational problems will not arise from their implementation. See "Business--
Technology."
DEPENDENCE UPON LEASE RENEWALS
The Company's business is highly dependent upon the renewal of its leases
with property owners, colleges and universities and public housing
authorities. The Company has traditionally relied upon exclusive, long-term
leases with its customers, as well as frequent customer interaction and an
historical emphasis on customer service, to assure continuity of financial and
operating results. There can be no assurance that the Company will be able to
continue to secure long-term exclusive leases with its customers or that it
will continue to successfully renew expiring leases. Any failure by the
Company to continue to obtain long-term exclusive leases with a substantial
number of its customers, or to successfully renew its existing leases as they
expire, could have a material adverse effect on the
9
<PAGE>
Company's business, results of operations, financial condition and prospects.
In addition, the Company has occasionally experienced loss of business when
property owners or management companies choose to vacate properties as a
result of economic downturns that impact occupancy levels. There can be no
assurance that future economic downturns will not result in similar losses of
business. See "Business--Card and Coin-Operated Laundry Route Business--
Facility Leasing."
DEPENDENCE UPON SUPPLIERS
The Company currently purchases a large portion of the equipment that it
utilizes in its Laundry Route business from Maytag. In addition, the Company
derives a significant amount of its non-Laundry Route revenue, as well as
certain competitive advantages, from its position as a distributor of Maytag
commercial laundry products. Although the purchase and distribution agreements
between the Company and Maytag are terminable by either party upon written
notice, the Company has never had such an agreement terminated by Maytag. The
Company also purchases smart card based equipment from Schlumberger, a
manufacturer of card based electronic transaction systems. The Company may
choose to rely substantially in the future on the Schlumberger technology and
its relationship with Schlumberger in general. A termination of, or
substantial revision of the terms of, the contractual arrangements or business
relationships with Maytag or Schlumberger could have a material adverse effect
on the Company's business, results of operations, financial condition and
prospects. See "Business--Technology" and "--Laundry Equipment Sales, Leasing
and Service."
INDEBTEDNESS
The Company has a credit agreement with State Street Bank and Trust Company
and CoreStates Bank, which provides the Company with a $50.0 million revolving
credit facility (the "Credit Facility"). As of June 30, 1997, the Company owed
$26.3 million under the Credit Facility. The Credit Facility contains various
covenants limiting the discretion of the Company's management with respect to
certain business matters, including financial and other operating covenants.
Failure to comply with any such covenants would permit the lender to
accelerate the maturity of the loan. The Company intends to use the proceeds
of this offering to pay off all outstanding amounts of indebtedness under the
Credit Facility; however, the Company will continue to have access to funds
under the Credit Facility should the need for financing arise provided the
Company is not in default under the terms of the Credit Facility. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capitalization."
CERTAIN SIGNIFICANT STOCKHOLDERS
After giving effect to the sale of the shares of Common Stock offered
hereby, the directors and executive officers of the Company and their
affiliates will beneficially own in the aggregate approximately % of the
outstanding Common Stock. This percentage ownership does not give effect to
the exercise of options to purchase 425,315 shares of Common Stock held by
certain of these individuals, which, if exercised in whole or in part, will
further concentrate ownership of the Common Stock. As a result, the above-
referenced stockholders will retain the voting power required to elect all of
the Company's directors and to approve all other matters requiring approval by
a majority of the stockholders of the Company including, in many cases,
significant corporate transactions, such as mergers and sales of all or
substantially all of the Company's assets. Such concentration of ownership may
have the effect of delaying or preventing a change in control of the Company.
See "Management--Directors and Executive Officers" and "Principal
Stockholders."
TERMINATION OF S CORPORATION STATUS AND DISTRIBUTION TO CURRENT STOCKHOLDERS
The Company and certain of its predecessors have been treated for federal
income tax purposes as S corporations under the Internal Revenue Code of 1986,
as amended (the "Code"). Upon consummation of this offering (the "Termination
Date"), the Company's status as an S corporation
10
<PAGE>
under the Code will automatically terminate and the Company will thereafter be
subject to federal and state income taxes. As an S corporation, the Company's
and certain of its predecessors' earnings have been taxed, for federal and
state income tax purposes, directly to the stockholders. The Company has
historically retained a significant portion of its earnings, which would
otherwise have been available for distribution to its stockholders, in order
to capitalize the Company. The Company intends to use a portion of the
proceeds of this offering to repay indebtedness incurred under the Credit
Facility to fund a distribution to the Company's existing stockholders as of
the Termination Date in the amount of approximately $12.75 million. This
distribution represents a substantial portion of the historical earnings that
have previously been taxed directly to the stockholders of the Company and
certain of its predecessors and which were available for distribution to them.
Purchasers of Common Stock in this offering will not receive any portion of
the distribution. In addition, in connection with the automatic termination of
its S corporation status, the Company will recognize a non-recurring charge of
approximately $4.3 million in the quarter during which the Termination Date
occurs as well as an addition of approximately $4.3 million in net deferred
tax liabilities in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." See "Termination of S Corporation
Status," "Use of Proceeds," "Principal Stockholders," "Certain Transactions"
and Note 15 of the Notes to the Mac-Gray Co., Inc and Mac-Gray L.P. Combined
Financial Statements for December 31, 1996.
COMMON STOCK CONTINGENT REPURCHASE OBLIGATION
The Company is obligated to repurchase up to 612,026 shares of Common Stock
issued in connection with the Sun Services Acquisition at a purchase price of
$12.74 per share in the event the holder or holders of such shares elects to
require the Company to repurchase such shares (the "Put Right"). This Put
Right terminates on the third anniversary of the closing of this offering. In
the event the Company was required to repurchase such shares, it may be
required to incur additional indebtedness under its Credit Facility to fund
such repurchase. In the event the Company was unable to borrow such funds
under its Credit Facility, the Company would need to pursue alternative
financing sources which, if available, may be at higher interest rates than
presently available under the Company's existing Credit Facility. There can be
no assurance that the holder or holders of such shares will not exercise the
Put Right, nor can there be any assurance that, once exercised, the Company
will be able to obtain financing to satisfy such Put Right on terms
satisfactory to the Company, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Certain Transactions."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market after
this offering could adversely affect the market price of the Common Stock. In
addition to the shares of Common Stock offered hereby, 6,979,826 shares of
Common Stock (including 612,026 shares of redeemable Common Stock) owned by
current stockholders of the Company will be eligible for sale in the public
market beginning April 17, 1998. The holders of all of such shares have agreed
not to publicly offer, sell or otherwise dispose of any shares of Common Stock
owned by them for 180 days from the date of this Prospectus without the
consent of Salomon Brothers Inc. Upon the later of the expiration of such
agreement or such date, pursuant to Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), such stockholders may sell such shares
without registration, subject to certain limitations, including limitations on
volume of sales. If such stockholders should sell or otherwise dispose of a
substantial amount of Common Stock in the public market, the prevailing market
price for the Common Stock could be adversely affected. The holders of
6,979,826 shares of Common Stock have the right in certain circumstances to
require the Company to register their shares under the Securities Act for
resale to the public and to include some or all of their shares of Common
Stock in a registration statement filed by the Company. The Company also
intends to register, soon after the
11
<PAGE>
consummation of this offering, at least 750,000 shares of Common Stock issuable
pursuant to the 1997 Stock Plan. See "Management--1997 Stock Option and
Incentive Plan," "Certain Transactions" and "Shares Eligible for Future Sale."
POTENTIAL VOLATILITY OF STOCK PRICE
The trading price of the Common Stock may be subject to fluctuations in
response to quarter-to-quarter variations in operating results, changes in
earnings estimates by investment analysts or changes in business or regulatory
conditions affecting the Company, its customers or its competitors. The stock
market historically has experienced volatility which sometimes has been
unrelated to the operating performance of such companies. These market
fluctuations may adversely affect the price of the Common Stock.
NO DIVIDENDS
Following the consummation of this offering, the Company intends to retain
earnings to finance the growth and development of its business and does not
anticipate paying cash dividends in the foreseeable future. Declaration of
dividends will in the future depend upon, among other things, the Company's
results of operations, financial condition, acquisitions, capital requirements
and general business condition. The Credit Facility also restricts dividend
payments in certain limited circumstances. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no public market for the Common Stock.
There can be no assurance that an active trading market will develop after this
offering, or, if developed, that it will be sustained. The initial public
offering price will be determined by negotiation between the Company and
representatives of the Underwriters and may not be indicative of prices that
will prevail in the trading market. See "Underwriting" for a description of the
factors to be considered in determining the initial public offering price.
ANTI-TAKEOVER EFFECT OF CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and By-laws, certain sections of the Delaware General Corporation
Law and the ability of the Company's Board of Directors (the "Board of
Directors") to issue shares of preferred stock and to establish the voting
rights, preferences and other terms thereof, may be deemed to have an anti-
takeover effect and may discourage takeover attempts not first approved by the
Board of Directors, including takeovers which certain stockholders may deem to
be in their best interests. These provisions and the ability of the Board of
Directors to issue preferred stock without further action by stockholders could
delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption of control would be
beneficial to stockholders. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even if such events would be
beneficial, in the short term, to the interests of stockholders. Such anti-
takeover provisions include, among other things, a classified Board of
Directors serving staggered three-year terms, the elimination of stockholder
voting by written consent, the removal of directors only for cause, the vesting
of exclusive authority in the Board of Directors to determine the size of the
Board of Directors and (subject to certain limited exceptions) to fill
vacancies thereon, the vesting of exclusive authority in the Board of Directors
(except as otherwise required by law) to call special meetings of stockholders,
and certain advance notice requirements for stockholder proposals and
nominations for election to the Board of Directors. The Company is subject to
Section 203 of the Delaware General Corporation Law
12
<PAGE>
which, in general, imposes restrictions upon certain acquirors (including their
affiliates and associates) of 15% or more of the Company's Common Stock. See
"Description of Capital Stock--Certain Provisions of Certificate and By-laws"
and "--Statutory Business Combination Provision."
DILUTION
The proposed initial public offering price is substantially higher than the
book value per share of Common Stock. Accordingly, purchasers in this offering
will suffer immediate and substantial dilution in the net tangible book value
per share of Common Stock. Additional dilution will occur upon the exercise of
outstanding options to purchase shares of Common Stock granted by the Company
to independent members of its Board of Directors and certain of the Company's
employees, including certain members of the Company's management, pursuant to
the 1997 Stock Plan. See "Dilution" and "Management--1997 Stock Option and
Incentive Plan."
13
<PAGE>
THE COMPANY
Certain predecessors to the Company have engaged in the Company's principal
business since 1927. Mac-Gray Co., the Company's largest operating subsidiary,
was incorporated in 1952 and was reincorporated in Delaware in 1992. The
Limited Partnership, of which Mac-Gray Co. was the sole general partner, was
organized in Delaware in 1995 to hold a significant portion of the Company's
operations in the Midwest. On April 17, 1997, Mac-Gray Co. and the Limited
Partnership were reorganized to create the Company and to operate as wholly
owned subsidiaries of the Company. The Limited Partnership was thereafter
immediately merged with and into Mac-Gray Co. Concurrently with the Mac-Gray
Combination, the Company acquired Sun Services for cash, the assumption of
certain liabilities and the issuance of shares of Common Stock. Mac-Gray Co.,
RBCO and a corporate successor to SSA continue to operate as wholly owned
subsidiaries of the Company.
Mac-Gray Corporation, incorporated in Delaware in 1997 in connection with
the Mac-Gray Combination and the Sun Services Acquisition, operates as a
holding company for its wholly owned subsidiaries which operate Laundry Routes
and distribute commercial laundry products. Unless the context otherwise
requires, all references to the Company shall mean Mac-Gray Corporation and
its subsidiaries and predecessors, including Mac-Gray Co. and the Limited
Partnership, and businesses that it has acquired from their respective dates
of acquisition, including Sun Services.
The Company's executive offices are located at 22 Water Street, Cambridge,
Massachusetts 02141, and its telephone number is (617) 492-4040.
TERMINATION OF S CORPORATION STATUS
The Company and certain of its predecessors elected Subchapter S status
under the Code and comparable provisions of certain state income tax laws. An
S corporation, generally, is not subject to income tax at the corporate level
(with certain exceptions under certain state income tax laws). Instead, the S
corporation's income, generally, passes through to its stockholders and is
taxed personally to them. As a result, the Company's and certain of its
predecessors' earnings have been taxed for federal and state income tax
purposes, with certain exceptions, directly to the stockholders of the
Company. The Company and certain of its predecessors have historically
retained a significant portion of their respective earnings, which would
otherwise have been available for distribution to their stockholders, in order
to capitalize such companies.
Upon the Termination Date, the Company's status as an S corporation under
the Code will automatically terminate. The Company intends to distribute
approximately $12.75 million of previously taxed but undistributed earnings to
its existing stockholders on or prior to the Termination Date. This
distribution represents a substantial portion of the Company's and certain of
its predecessors' undistributed historical earnings through June 30, 1997
which have previously been taxed for federal and state income tax purposes
directly to the stockholders of such companies. The Company intends to fund
the distribution by borrowing funds under its existing Credit Facility.
Proceeds from this offering will be used to repay the Company's indebtedness
under the Credit Facility, including the amount used to fund the distribution.
The borrowings made to fund the distribution will significantly increase the
Company's debt under the Credit Facility. See "Risk Factors--Termination of S
Corporation Status and Substantial Distribution to Current Stockholders," "Use
of Proceeds," "Principal Stockholders," "Certain Transactions" and Note 15 of
the Mac-Gray Co., Inc. and Mac-Gray L.P. Notes to Combined Financial
Statements for December 31, 1996.
In connection with the automatic termination of its S corporation status,
the Company will recognize a non-recurring charge of approximately $4.3
million in the quarter during which the Termination Date occurs, as well as an
addition of approximately $4.3 million in net deferred tax liabilities in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Further, the Company, which has not previously
been subject to federal and state taxes on its corporate earnings, will
thereafter be subject to such taxes. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company hereby (after deducting underwriting discounts
and estimated offering expenses payable by the Company) will be approximately
$ million ($ million if the Underwriters' over-allotment option is
exercised in full) assuming an initial public offering price of $ per
share. The uses of such net proceeds will be as follows: (i) approximately
$ million will be used to repay senior secured indebtedness incurred under
the Credit Facility which was incurred, among other reasons, to finance, in
part, the consideration paid in connection with the acquisitions consummated
during the past twelve months and the distribution of approximately $12.75
million of previously taxed but undistributed earnings to the Company's
existing stockholders immediately prior to the consummation of this offering;
and (ii) the balance of approximately $ million will be used for general
corporate purposes. The indebtedness under the Credit Facility (i) bears
interest, prior to the consummation of this offering, at the Company's option,
at the prime rate plus 0.5% or LIBOR plus 2.5% and, following the consummation
of this offering, at the Company's option, at the prime rate minus 0.5% or
LIBOR plus 2.0% and (ii) is payable on April 14, 1999. Funds will be available
under the Credit Facility, including the amounts repaid with the proceeds of
this offering, to the Company following the consummation of this offering.
Until used, the proceeds of this offering will be invested in short-term,
investment grade, interest-bearing obligations.
DIVIDEND POLICY
Following the consummation of this offering, the Company currently intends
to retain earnings to finance the growth and development of its business and
does not anticipate paying cash dividends in the foreseeable future. Any
payment of cash dividends in the future will be at the discretion of the Board
of Directors and will depend upon the financial condition, capital
requirements and earnings of the Company and such other factors as the Board
of Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Prior to the consummation of this offering, the Company intends to
distribute approximately $12.75 million of previously taxed but undistributed
earnings to its existing stockholders. See "Termination of S Corporation
Status" and "Use of Proceeds." The Company, as an S corporation, distributed
an aggregate of approximately $3.4 million and $4.5 million to its
stockholders during 1996 and 1995, respectively, the majority of which funded
the stockholders' tax liabilities incurred as a result of the Company's and
certain of its predecessors' earnings being taxed directly to the
stockholders.
15
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
June 30, 1997; and the pro forma capitalization which gives effect to: (i) the
planned distribution of approximately $12.75 million of previously taxed but
undistributed earnings to the Company's existing stockholders immediately prior
to the consummation of this offering, (ii) the increase in the Company's net
deferred tax liabilities of approximately $4.3 million pursuant to the
Company's change in tax status from an S corporation to a C corporation and
(iii) this offering and the application of the net proceeds therefrom as
described under "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL (1)(2) PRO FORMA (1)
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Short-term debt:
Credit Facility (3).............................. $ -- $ --
Other debt....................................... 2,370
Long-term debt:
Credit Facility (3).............................. 26,282 --
Other debt....................................... 6,620
Redeemable Common Stock, 612,026 shares (4)........ 7,797
Stockholders' equity:
Common Stock of Mac-Gray Corporation ($.01 par
value; 30,000,000 shares authorized, 6,367,800
actual shares and pro forma shares issued and
outstanding, respectively)...................... 64
Additional paid-in capital....................... -- --
Retained earnings................................ 14,220 --
Net unrealized gain on available-for-sale
security, net of tax............................ 258 --
------- ----
Total stockholders' equity..................... 14,542
------- ----
Total capitalization........................... $57,611 $
======= ====
</TABLE>
- --------
(1) Excludes (i) 642,090 shares of Common Stock issuable upon exercise of
outstanding stock options granted pursuant to the 1997 Stock Plan at a
weighted average exercise price of $8.86 per share and (ii) 107,910 shares
of Common Stock available for future grants under the 1997 Stock Plan,
subject to increase upon consummation of this offering. See "Management--
1997 Stock Option and Incentive Plan."
(2) See unaudited June 30, 1997 balance sheet included in the Company's 1996
audited financial statements.
(3) Following the consummation of this offering, the Company will have
approximately $ available under the Credit Facility, which has a maximum
availability of $50.0 million. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
(4) Redeemable Common Stock was issued in connection with the Sun Services
Acquisition.
16
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1997,
was $ or $ per share of Common Stock. "Net tangible book value" represents
the amount of the Company's total tangible assets reduced by the amount of its
total liabilities on a pro forma basis and divided by the pro forma number of
shares of Common Stock outstanding. Without taking into account any other
changes in such pro forma net tangible book value after June 30, 1997, other
than to give effect to the receipt by the Company of the net proceeds from the
sale of the shares of Common Stock offered hereby (assuming an initial
public offering price of $ per share) after deducting the underwriting
discounts and estimated offering expenses, the net pro forma tangible book
value of the Company as of June 30, 1997 would have been $ , or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors purchasing Common Stock
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed price to public......................................... $
Pro forma net tangible book value per share before this offer-
ing.......................................................... $
Increase per share attributable to new investors..............
----
Pro forma net tangible book value per share after this
offering.......................................................
----
Dilution per share to new investors............................. $
====
</TABLE>
The following table summarizes, as of June 30, 1997, the number of shares of
Common Stock purchased from the Company, the total consideration paid to the
Company and the average price paid per share by the existing stockholders and
by the investors purchasing shares of Common Stock offered hereby (at an
assumed initial public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).. 6,979,826 % $ % $
New investors(1).......... % $ % $
--------- --- ---------- ---------
Total................... 100% $ 100%
========= === ========== =========
</TABLE>
The foregoing table and computations assume no exercise of any outstanding
stock options or the Underwriters' over-allotment option. As of August ,
1997, there were 642,090 shares of Common Stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $8.86 per
share, none of which are exercisable as of the date of this Prospectus. In
addition, there are 107,910 shares of Common Stock reserved for future
issuance under the Company's 1997 Stock Plan, subject to increase upon
consummation of this offering. In the event that any shares available for
issuance upon exercise of outstanding options are issued, there will be
further dilution to new investors. See "Capitalization," "Management--
Executive Compensation," "--1997 Stock Option and Incentive Plan," "Certain
Transactions" and "Description of Capital Stock."
17
<PAGE>
SELECTED HISTORICAL COMBINED FINANCIAL DATA
Set forth below are selected historical financial data of the Company as of
the dates and for the periods indicated. The selected historical combined
financial data of the Company for the three years in the period ended December
31, 1996 were derived from the historical combined financial statements of the
Company that were audited by Price Waterhouse LLP, whose report appears
elsewhere in this Prospectus. The selected historical combined financial data
of the Company for the two years in the period ended December 31, 1993 and the
six months ended June 30, 1996 and 1997 have not been audited. Results for
interim periods include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for the fair presentation of
the results for such periods; however, they are not necessarily indicative of
results for the full year. The selected combined financial data set forth
below should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited combined financial statements and accompanying
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997(1)
------- ------- ------- ------- ------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Revenue................. $40,030 $44,942 $48,031 $50,710 $64,427 $ 29,025 $ 38,288
Cost of revenue:
Commissions............ 15,182 17,762 19,168 20,471 25,760 11,622 14,639
Laundry route expendi-
tures................. 6,381 7,458 7,889 8,251 10,955 4,600 6,231
Depreciation and amor-
tization.............. 3,921 4,377 4,756 4,899 6,216 2,715 3,776
Cost of equipment
sales................. 1,911 1,700 2,673 2,938 5,189 2,280 3,831
------- ------- ------- ------- ------- -------- --------
Total cost of revenue.. 27,395 31,297 34,486 36,559 48,120 21,217 28,477
Operating expenses:
General and administra-
tion (2).............. 6,270 3,383 3,085 3,901 3,952 1,874 2,076
Sales and marketing.... 2,202 2,445 2,501 2,531 3,803 1,541 2,697
Depreciation........... 369 421 442 455 517 242 382
------- ------- ------- ------- ------- -------- --------
Total operating ex-
penses................ 8,841 6,249 6,028 6,887 8,272 3,657 5,155
------- ------- ------- ------- ------- -------- --------
Income from operations.. 3,794 7,396 7,517 7,264 8,035 4,151 4,656
Interest expense....... (496) (1,437) (1,217) (1,175) (1,956) (751) (1,431)
Other income (expense),
net................... 73 71 70 55 (87) 1 39
------- ------- ------- ------- ------- -------- --------
Income before provision
for income taxes....... 3,371 6,030 6,370 6,144 5,992 3,401 3,264
Provision for income
taxes................. (207) (330) (388) (374) (465) (255) (232)
------- ------- ------- ------- ------- -------- --------
Net income.............. $ 3,164 $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 3,146 $ 3,032
======= ======= ======= ======= ======= ======== ========
Pro Forma as adjusted
net income (3)......... $ 3,596 $ 1,958
======= ========
Pro Forma as adjusted
net income per common
share (4).............. $ $
======= ========
Pro Forma as adjusted
weighted average common
shares outstanding
(4)....................
======= ========
OTHER FINANCIAL DATA:
EBITDA (5)............. $ 8,157 $12,265 $12,785 $12,673 $14,681 $ 7,109 $ 8,853
Depreciation and amor-
tization.............. 4,290 4,798 5,198 5,354 6,733 2,957 4,158
Capital expenditures... 5,119 5,407 5,679 4,421 7,635 2,986 2,998
Cash flows from operat-
ing activities........ 9,924 9,405 10,650 10,417 13,650 5,682 3,546
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(3,160) $(3,437) $(4,181) $(2,237) $(6,069) $ (3,643) $ (2,223)
Total assets........... 29,462 32,713 33,292 36,754 54,108 50,208 68,971
Long-term debt, net of
current portion....... 17,539 15,718 13,544 11,843 23,325 24,109 32,902
Redeemable common stock
(6)................... -- -- -- -- -- -- 7,797
Stockholders' equity... 3,713 6,783 9,439 12,850 14,683 13,507 14,542
</TABLE>
- --------
See footnotes on page 19.
18
<PAGE>
(1) The financial data for the six months ended June 30, 1997 includes the
results of the Sun Services Acquisition subsequent to the acquisition date
of April 17, 1997.
(2) In 1992, the Company recorded a severance charge of $2.8 million as a
result of the retirement of a long-time employee.
(3) Pro forma as adjusted net income has been adjusted to give effect to the
Company's operations as if the Company were subject to federal and state
income taxes on a corporate level (at an estimated income tax of 40%)
during the periods presented.
(4) Pro forma as adjusted net income per common share and pro forma as
adjusted weighted average number of common shares outstanding include all
Common Stock equivalents and are reflective of: (i) the Mac-Gray
Combination and (ii) the shares of Common Stock issued in this
offering. Pro forma as adjusted net income per share was computed using
the treasury stock method and all Common Stock and Common Stock
equivalents issued within twelve months of this offering have been
included in computing Common Stock and Common Stock equivalents.
(5) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA is
presented because the Company believes it is used by security analysts in
the evaluation of companies. However, EBITDA should not be considered as
an alternative to net income as a measure of operating results or to cash
flows as a measure of liquidity in accordance with generally accepted
accounting principles.
(6) Redeemable Common Stock was issued in connection with the Sun Services
Acquisition.
19
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statements of income for the year
ended December 31, 1996 and the six months ended June 30, 1996 and 1997 have
been adjusted to reflect the following:
(i) the Sun Services Acquisition for the year ended December 31, 1996 and
the six months ended June 30, 1996 as if it occurred on January 1, 1996.
For the six months ended June 30, 1997, the historical results of Sun
Services for the period from April 1, 1997 through April 16, 1997 have not
been included and are not material to the Company;
(ii) the Company's change in income tax status from an S corporation for
income tax purposes to a C corporation and the application of an estimated
effective income tax rate of 40%; and
(iii) this offering and the application of the net proceeds therefrom as
described under "Use of Proceeds."
The unaudited pro forma combined statements of income do not reflect the
non-recurring charge of approximately $4.3 million that will be required to be
recorded by the Company on the effective date of this offering to provide for
net deferred tax liabilities resulting from the change in income tax status
from an S corporation to a C corporation, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
The unaudited pro forma combined financial data are provided for
informational purposes only and are not necessarily indicative of the results
of operations of the Company had the transactions assumed therein occurred, as
described above, nor are they necessarily indicative of the results of
operations which may be expected to occur in the future. The unaudited pro
forma combined financial data are based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the combined
financial statements and the accompanying notes thereto included elsewhere in
this Prospectus.
20
<PAGE>
MAC-GRAY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMPANY PRO FORMA
YEAR ENDED OFFERING AND YEAR ENDED
DECEMBER 31, SUN SERVICES PRO FORMA ACQUISITION OTHER DECEMBER 31,
1996 ACQUISITION (1) COMBINED ADJUSTMENTS ADJUSTMENTS 1996
------------ --------------- --------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $64,427 $6,664 $71,091 $ $ $71,091
Cost of revenue:
Commissions............ 25,760 2,718 28,478 28,478
Laundry route expendi-
tures................. 10,955 820 11,775 11,775
Depreciation and amor-
tization.............. 6,216 655 6,871 584 (3) 7,455
Cost of equipment
sales................. 5,189 277 5,466 5,466
------- ------ ------- ----- ------- -------
Total cost of revenue.. 48,120 4,470 52,590 584 53,174
Operating expenses:
General and administra-
tion.................. 3,952 1,220 5,172 (275)(4) 4,897
Sales and marketing.... 3,803 160 3,963 3,963
Depreciation........... 517 25 542 542
------- ------ ------- ----- ------- -------
Total operating ex-
penses................ 8,272 1,405 9,677 (275) 9,402
------- ------ ------- ----- -------
Income from operations.. 8,035 789 8,824 (309) 8,515
Interest expense....... (1,956) (267) (2,223) 1,371 (5) (852)
Other expense, net..... (87) (60) (147) (147)
------- ------ ------- ----- ------- -------
Income before provision
for income taxes....... 5,992 462 6,454 (309) 1,371 7,516
Provision for income
taxes................. (465) -- (465) (2,563)(6) (3,028)
------- ------ ------- ----- ------- -------
Net income.............. $ 5,527 $ 462 $ 5,989 $(309) $(1,192) $ 4,488
======= ====== ======= ===== ======= =======
Pro forma net income per
common share (7)....... $ --
=======
Pro forma weighted
average common shares
outstanding (7)........
=======
</TABLE>
- --------
See footnotes on page 23.
21
<PAGE>
MAC-GRAY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMPANY PRO FORMA
SIX MONTHS SIX MONTHS
ENDED OFFERING AND ENDED
JUNE 30, SUN SERVICES PRO FORMA ACQUISITION OTHER JUNE 30,
1997 ACQUISITION (2) COMBINED ADJUSTMENTS ADJUSTMENTS 1997
---------- --------------- --------- ----------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $38,288 $2,032 $40,320 $ $ $40,320
Cost of revenue:
Commissions............ 14,639 797 15,436 15,436
Laundry route expendi-
tures................. 6,231 183 6,414 6,414
Depreciation and amor-
tization.............. 3,776 209 3,985 146 (3) 4,131
Cost of equipment
sales................. 3,831 164 3,995 3,995
------- ------ ------- ---- ------- -------
Total cost of revenue.. 28,477 1,353 29,830 146 29,976
Operating expenses:
General and administra-
tion.................. 2,076 307 2,383 (137)(4) 2,246
Sales and marketing.... 2,697 47 2,744 2,744
Depreciation........... 382 6 388 388
------- ------ ------- ---- ------- -------
Total operating ex-
penses................ 5,155 360 5,515 (137) 5,378
------- ------ ------- ---- -------
Income from operations.. 4,656 319 4,975 (9) 4,966
Interest expense....... (1,431) (89) (1,520) 1,095 (5) (425)
Other income (expense),
net................... 39 -- 39 39
------- ------ ------- ---- ------- -------
Income before provision
for income taxes....... 3,264 230 3,494 (9) 1,095 4,580
Provision for income
taxes................. (232) -- (232) (1,600)(6) (1,832)
------- ------ ------- ---- ------- -------
Net income.............. $ 3,032 $ 230 $ 3,262 $ (9) $ (505) $ 2,748
======= ====== ======= ==== ======= =======
Pro forma net income per
common share (7)....... $ --
=======
Pro forma weighted aver-
age common shares out-
standing (7)...........
=======
</TABLE>
- --------
See footnotes on page 23.
22
<PAGE>
MAC-GRAY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
COMPANY PRO FORMA
SIX MONTHS SIX MONTHS
ENDED OFFERING AND ENDED
JUNE 30, SUN SERVICES PRO FORMA ACQUISITION OTHER JUNE 30,
1996 ACQUISITION (1) COMBINED ADJUSTMENTS ADJUSTMENTS 1996
---------- --------------- --------- ----------- ------------ ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $29,025 $3,231 $32,256 $ $ $32,256
Cost of revenue:
Commissions............ 11,622 1,415 13,037 13,037
Laundry route expendi-
tures................. 4,600 403 5,003 5,003
Depreciation and amor-
tization.............. 2,715 298 3,013 146 (3) 3,159
Cost of equipment
sales................. 2,280 35 2,315 2,315
------- ------ ------- ----- ------- -------
Total cost of revenue.. 21,217 2,151 23,368 146 23,514
Operating expenses:
General and administra-
tion.................. 1,874 587 2,461 (137)(4) 2,324
Sales and marketing.... 1,541 73 1,614 1,614
Depreciation........... 242 11 253 253
------- ------ ------- ----- ------- -------
Total operating ex-
penses................ 3,657 671 4,328 (137) 4,191
------- ------ ------- ----- ------- -------
Income from operations.. 4,151 409 4,560 (9) 4,551
Interest expense....... (751) (97) (848) 365 (5) (483)
Other income (expense),
net................... 1 (3) (2) (2)
------- ------ ------- ----- ------- -------
Income before provision
for income taxes....... 3,401 309 3,710 (9) 365 4,066
Provision for income
taxes................. (255) -- (255) (1,371)(6) (1,626)
------- ------ ------- ----- ------- -------
Net income.............. $ 3,146 $ 309 $ 3,455 $ (9) $(1,006) $ 2,440
======= ====== ======= ===== ======= =======
Pro forma net income per
common share (7)....... $ --
=======
Pro forma weighted aver-
age common shares out-
standing (7)...........
=======
</TABLE>
- --------
(1) Represents historical results of Sun Services for the year ended December
31, 1996 and the six months ended June 30, 1996, as applicable.
(2) For the six months ended June 30, 1997, the historical results of Sun
Services for the period from April 1, 1997 to April 16, 1997 have not been
included and are not material to the Company.
(3) Reflects increased amortization, due to the Company's application of
purchase accounting in the Sun Services Acquisition, in which the excess of
the purchase price over the fair value of the net assets acquired was
allocated to goodwill and is being amortized over twenty years.
(4) Reflects the decrease in general and administration expenses due to the
reduction of Sun Services executive compensation costs as a result of
certain agreements entered into in connection with the Sun Services
Acquisition.
(5) Reflects the reduction in interest expense due to the use of a portion of
the proceeds of this offering (see "Use of Proceeds") to pay down the
entire outstanding bank debt under the Credit Facility and the outstanding
indebtedness assumed in the Sun Services Acquisition.
(6) Reflects the income tax provision adjustment required to result in a pro
forma income tax provision based upon (i) the Company's termination of its
S corporation status, resulting in corporate income taxes as a C
corporation for all pro forma periods presented and (ii) the direct tax
effects of the pro forma adjustments described herein. All income tax
adjustments were computed using an estimated effective income tax rate of
40%.
(7) Pro forma net income per common share and pro forma weighted average number
of common shares outstanding include all Common Stock equivalents and are
reflective of: (i) the Mac-Gray Combination and (ii) the shares of
Common Stock issued in this offering. Pro forma net income per share was
computed using the treasury stock method. All Common Stock and Common Stock
equivalents issued within twelve months of this offering have been included
in computing Common Stock and Common Stock equivalents.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ significantly from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Prospectus. The historical financial information presented herein
represents (i) consolidated results of the Company, (ii) the combined results
of Mac-Gray Co. and the Limited Partnership and (iii) the combined results of
SSA and RBCO. Dollar amounts are presented in thousands. The following
discussion and analysis should be read in conjunction with the combined
financial statements and related notes thereto presented elsewhere in this
Prospectus.
OVERVIEW
The Company derives its revenue principally through the operation and
maintenance of card and coin-operated laundry rooms in multiple housing
facilities, such as apartment buildings, colleges and universities and public
housing complexes. The Company operates its laundry rooms under long-term
leases with property owners, colleges and universities and governmental
agencies. The leases typically grant the Company the exclusive right to
operate laundry rooms on the lessor's premises for a fixed term, which is
generally seven to ten years, in exchange for a percentage of the revenue
collected. The Company's Laundry Route business consists of approximately
113,000 laundry machines, operated in over 17,000 multiple housing laundry
rooms located in 22 states in the Northeast, Southeast and Midwest regions of
the United States.
The Company also derives revenue as a distributor and servicer of commercial
laundry equipment manufactured by Maytag. The Company has Maytag distributor
agreements for Illinois, Connecticut, Maine, Massachusetts, New Hampshire, New
York (except metropolitan New York City), western Pennsylvania, Rhode Island,
South Carolina, Vermont and portions of Arkansas, Indiana, Iowa, Mississippi
and Missouri. The Company also sells laundry equipment manufactured by
American Dryer, Dexter and Whirlpool to provide several alternatives in
machine type, cost and capacity. Additionally, the Company sells or rents
laundry equipment to restaurants, hotels, health clubs and similar
institutional users that operate their own on-premise laundry facilities.
RESULTS OF OPERATIONS
Six months ended June 30, 1997 compared to six months ended June 30, 1996.
Revenue. Revenue increased by $9,263, or 32%, to $38,288 in 1997 from
$29,025 in 1996. This increase was primarily attributable to growth in
existing Laundry Route Revenue and the impact of two full quarter's operation
of the businesses acquired in 1996. Laundry Route Revenue increased $7,082, of
which $3,382 was attributable to the expansion of existing operations and
$3,700 was attributable to an increase in the number of machines operated as a
result of the seven acquisitions of Laundry Route businesses subsequent to
March 31, 1996. Sales of equipment increased by $2,181, of which $814 was
attributable to growth of revenue from existing distributorships and $1,367
was attributable to revenue from two newly acquired distributorships. The
Company believes that a substantial portion of the growth of revenue from
existing Laundry Routes and from existing distributorships was attributable to
the Company's increased expenditures on sales and marketing efforts, which are
described below.
24
<PAGE>
Commissions. Commissions increased by $3,017, or 26%, to $14,639 in 1997
from $11,622 in 1996. This increase was primarily attributable to an increase
in Laundry Route Revenue.
Laundry Route Expenditures. Laundry Route expenditures, which include costs
associated with installing and servicing machines, as well as the costs of
collecting, counting and depositing the revenue, increased by $1,631, or 35%,
to $6,231 in 1997 from $4,600 in 1996. This increase was due to the general
increase in revenue and increased levels of expenses associated with improving
service in some of the acquired businesses.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization included as a component of cost of revenue, as
well as depreciation which is included as an operating expense. Aggregate
depreciation and amortization increased by $1,201, or 41%, to $4,158 in 1997
from $2,957 in 1996. This increase was primarily attributable to the
acquisition of seven Laundry Route businesses, which resulted in additional
machines to depreciate, as well as an increase in intangible assets to
amortize, and the placement of 8,227 new machines on the Company's existing
Laundry Routes.
Cost of Equipment Sales. Cost of equipment sales increased by $1,551, or
68%, to $3,831 in 1997 from $2,280 in 1996. This increase was attributable to
increased equipment sales.
General and Administration. General and administration expenses increased by
$202, or 11%, to $2,076 in 1997 from $1,874 in 1996. This increase was
attributable to the hiring of additional clerical and administrative staff to
support the increase in the Company's business.
Sales and Marketing. Sales and marketing expense increased by $1,156, or
75%, to $2,697 in 1997 from $1,541 in 1996. This increase was attributable to
the expansion of the marketing department, led by the hiring of an experienced
national marketing executive in the third quarter of 1996, and an increase in
the number of field sales representatives.
Interest Expense. Interest expense increased $680, or 91%, to $1,431 in 1997
from $751 in 1996. This increase was primarily attributable to the increased
borrowings incurred to finance the acquisitions made during 1996 and 1997.
Income Tax Expense. Income tax expense decreased by $23, or 9%, to $232 in
1997 from $255 in 1996. The effective income tax rate for 1996 was 7.5%
compared to 7.1% for 1997. As the historical income tax provision was
established only to provide for income taxes in states that do not recognize
Subchapter S corporations, the statutory income tax rate for 1996 and 1997 was
6%. The effective rate differed from the statutory rate in 1996 and 1997 due
to expenses recorded for book purposes that are not deductible for income tax
purposes.
The statutory income tax rate utilized by the Company during 1995 and 1996
is not indicative of the statutory income tax rate that will be utilized upon
termination of the Company's S corporation status concurrent with the
consummation of this offering. Subsequent to the consummation of this
offering, the Company's statutory income tax rate will be approximately 40%.
Fiscal year ended December 31, 1996 compared to fiscal year ended December
31, 1995
Revenue. Revenue increased by $13,717, or 27%, to $64,427 in 1996 from
$50,710 in 1995. This increase was primarily attributable to the acquisition
of six Laundry Route businesses, two of which also maintained Maytag
distributorships, as well as internal growth of both card and coin Laundry
Route Revenue and revenue from sales of equipment under various distribution
arrangements. Laundry Route Revenue increased $9,506, of which $3,596 was
attributable to the
25
<PAGE>
expansion of existing operations and $5,910 was attributable to an increase in
the number of machines operated as a result of the six acquisitions of Laundry
Route businesses. Sales of equipment increased by $4,211, of which $2,811 was
attributable to growth of revenue from existing distributorships and $1,400
was attributable to revenue from two newly acquired distributorships. The
Company believes that a substantial portion of the growth of revenue from
existing Laundry Routes and from existing distributorships was attributable to
the Company's increased expenditures on sales and marketing efforts, which are
described below.
Commissions. Commissions increased by $5,289, or 26%, to $25,760 in 1996
from $20,471 in 1995. This increase was primarily attributable to an increase
in Laundry Route revenue, as well as slightly higher commission rates
applicable to the new leases that the Company acquired or entered into during
1995 and 1996.
Laundry Route Expenditures. Laundry Route expenditures, which include costs
associated with installing and servicing machines, as well as the costs of
collecting, counting and depositing the revenue, increased by $2,704, or 33%,
to $10,955 in 1996 from $8,251 in 1995. This increase was primarily
attributable to the increase in Laundry Route business.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization which is included as a component of cost of
revenue, as well as depreciation which is included as an operating expense.
Aggregate depreciation and amortization increased by $1,379, or 26%, to $6,733
in 1996 from $5,354 in 1995. The increase was primarily attributable to the
acquisition of six Laundry Route businesses, which resulted in additional
machines to depreciate, as well as an increase in intangible assets to
amortize, and the placement of 5,143 new machines on the Company's existing
Laundry Routes.
Cost of Equipment Sales. Cost of equipment sales increased by $2,251, or
77%, to $5,189 in 1996 from $2,938 in 1995. This increase was attributable to
increased equipment sales.
General and Administration. General and administration expenses increased by
$51, or 1%, to $3,952 in 1996 from $3,901 in 1995. This increase was
attributable to the hiring of additional clerical and administrative staff to
help support the increase in the Laundry Route business, as well as the
increase in the distributorship business. General and administration expenses
for 1995 were unusually high as a result of certain expenses related to the
hiring, relocation and subsequent termination of a senior executive.
Sales and Marketing. Sales and marketing expense increased by $1,272, or
50%, to $3,803 in 1996 from $2,531 in 1995. This increase was attributable to
the hiring of a significant number of additional field sales representatives,
the expansion of the marketing department and the hiring of an experienced
national marketing executive in the third quarter of 1996.
Interest Expense. Interest expense increased $781, or 66%, to $1,956 in 1996
from $1,175 in 1995. This increase was primarily attributable to increased
borrowings incurred to finance the six acquisitions completed during 1996.
Income Tax Expense. Income tax expense increased by $91, or 24%, to $465 in
1996 from $374 in 1995. The effective income tax rate for 1995 was
approximately 6.1% compared to 7.8% for 1996. As the historical income tax
provision was established only to provide for income taxes in states that do
not recognize Subchapter S corporations, the statutory income tax rate for
1995 and 1996 was 6%. The effective income tax rate differed from the
statutory rate in 1995 and 1996 due to expenses recorded for book purposes
that are not deductible for income tax purposes.
26
<PAGE>
The statutory income tax rate utilized by the Company during 1995 and 1996
is not indicative of the statutory income tax rate that will be utilized upon
termination of the Company's S corporation status concurrent with the
consummation of this offering. Subsequent to the consummation of this
offering, the Company's statutory income tax rate will be approximately 40%.
Fiscal year ended December 31, 1995 compared to fiscal year ended December
31, 1994.
Revenue. Revenue increased by $2,679, or 6%, to $50,710 in 1995 from $48,031
in 1994. This increase was primarily attributable to internal growth of both
Laundry Route Revenue and revenue from sales of equipment under various
distribution arrangements. Laundry Route Revenue increased $2,579, which is
primarily attributable to the expansion of existing operations, including an
increase in the number of machines operated by the Company. Sales of equipment
increased by $100 which is attributable to growth of revenue from existing
distributorships.
Commissions. Commissions increased by $1,303, or 7%, to $20,471 in 1995 from
$19,168 in 1994. This increase was primarily attributable to an increase in
Laundry Route Revenue.
Laundry Route Expenditures. Laundry Route expenditures increased by $362, or
5%, to $8,251 in 1995 from $7,889 in 1994. This increase was primarily
attributable to the increased costs of servicing, collecting, counting and
depositing the increased revenue which was generated by the increase in the
Laundry Route business.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization included as a component of cost of revenue as
well as depreciation which is included as an operating expense. Aggregate
depreciation and amortization increased by $156, or 3%, to $5,354 in 1995 from
$5,198 in 1994. The increase was primarily attributable to the placement of
5,280 new machines on the Company's existing Laundry Routes.
Cost of Equipment Sales. Cost of equipment sales increased by $265, or 10%,
to $2,938 in 1995 from $2,673 in 1994. This increase was attributable to
increased equipment sales.
General and Administration. General and administration expenses increased by
$816, or 26%, to $3,901 in 1995 from $3,085 in 1994. This increase was
primarily attributable to the hiring, relocation and subsequent termination of
a senior executive, as well as to a general increase in wages for the
Company's clerical personnel.
Sales and Marketing. Sales and Marketing expense increased by $30, or 1%, to
$2,531 in 1995 from $2,501 in 1994. This increase was attributable to the
Company's increased sales efforts.
Interest Expense. Interest expense decreased $42, or 3%, to $1,175 in 1995
from $1,217 in 1994. This decrease was primarily attributable to lower
interest rates, the benefit of which was somewhat offset by increased
borrowings incurred to finance an acquisition made with cash consideration
during 1995.
Income Tax Expense. Income tax expense decreased by $14, or 4%, to $374 for
1995 from $388 in 1994. The effective income tax rate for 1994 and 1995 was
approximately 6.1%. As the historical income tax provision was established to
provide for taxes in states that do not recognize Subchapter S corporations,
the statutory income tax rate for 1994 and 1995 was 6%. The effective income
tax rate differs from the statutory rate in 1994 and 1995 due to expenses
recorded for book purposes that are not deductible for income tax purposes.
27
<PAGE>
The statutory income tax rate utilized by the Company during 1994 and 1995
is not indicative of the statutory income tax rate that will be utilized upon
termination of the Company's S corporation status concurrent with the
consummation of this offering. Subsequent to the consummation of this
offering, the Company's statutory income tax rate will be approximately 40%.
SEASONALITY
The Company experiences moderate seasonality as a result of its significant
operations in the college and university market. Revenues derived from the
college and university market represent approximately thirty percent (30%) of
the Company's total revenue. These revenues are derived substantially during
the school year which includes the first, second and fourth quarters.
Conversely, the Company increases its operating expenditures during the third
quarter when colleges and universities are not in session as a result of the
Company's increased machine installation activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash have been operating activities and
bank borrowings. The Company's primary uses of cash have been the seven
acquisitions consummated since May 1996 and for capital expenses including the
purchase of new laundry machines.
Cash flow from operations was $13,650, $10,417 and $10,650 for the years
ended December 31, 1996, 1995 and 1994, respectively. Cash flow from
operations consists primarily of Laundry Route Revenue, distributorship and
laundry equipment service revenue, commissions, Laundry Route expenditures,
cost of equipment sales, general and administration expenses and sales and
marketing expenses.
Cash used in investing activities was $22,070, $5,105 and $5,613 for the
years ended December 31, 1996, 1995 and 1994, respectively. The Company
invested $14,487 and $821 for the fiscal years ended December 31, 1996 and
1995 in connection with the seven acquisitions consummated during such
periods. The Company also utilized $125 as a portion of the consideration paid
in connection with the redemption of 2,275 shares of its Common Stock as of
January 1, 1996.
Capital expenditures were $7,635, $4,421 and $5,679 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Net cash flows (uses) from financing activities, consisting primarily of
proceeds from and repayments of bank borrowings and payments of dividends,
were $7,382, $(3,549) and $(6,128) for the years ended December 31, 1996, 1995
and 1994, respectively.
The Company maintains a $50 million revolving line of credit under its
Credit Facility with State Street Bank and Trust Company and CoreStates Bank.
Outstanding indebtedness under the Credit Facility currently bears interest,
at the Company's option, at a rate equal to the prime rate plus 0.5% or LIBOR
plus 2.5%. Borrowings under the Credit Facility totalled $26.3 million as of
June 30, 1997. Upon consummation of this offering, indebtedness under the
Credit Facility will bear interest, at the Company's option, at a rate equal
to the prime rate minus 0.5% or LIBOR plus 2.0%. The Credit Facility requires
the Company to maintain certain financial ratios on an ongoing basis and,
under certain limited circumstances, restricts the payment of dividends and
other distributions as well as certain acquisitions and investments. The
Credit Facility is secured by a blanket lien on the assets of the Company and
each of its subsidiaries, as well as a pledge by the Company of all of the
capital stock of its subsidiaries.
28
<PAGE>
In connection with the Sun Services Acquisition, the Company issued 612,026
shares of Common Stock to the owner of Sun Services. As a privately owned
Company issuing shares of its redeemable Common Stock which, at that point,
were substantially illiquid, the Company provided the Sun Services owner with
rights (the "Put Rights") to require the Company to repurchase the shares of
Common Stock issued by the Company as consideration in the acquisition. The
Company also received certain rights (the "Call Rights") to repurchase such
shares of Common Stock. Upon consummation of this offering, the Call Rights
and certain of the Put Rights terminate. Following consummation of this
offering, the Company remains obligated to repurchase shares of Common Stock
at a price of $12.74 per share in the event the holder or holders of such
shares elect to exercise the Put Rights. Such remaining Put Rights expire on
the third anniversary of the closing of this offering. The Put Rights, if
exercised, would require the Company to purchase up to 612,026 shares of
Common Stock, at a purchase price of $12.74 per share, representing an
aggregate purchase price of up to approximately $7.8 million. In the event
such Put Rights are exercised, the Company would likely fund the purchase
price for such shares of Common Stock by incurring additional indebtedness
under its Credit Facility. See "Certain Transactions."
The net proceeds from this offering will enable the Company to repay $ of
its existing outstanding indebtedness under the Credit Facility. The Company
believes that the proceeds of this offering, together with the amount
available under the Credit Facility and cash flow generated by operations will
be sufficient to fund the Company's normal working capital needs and capital
expenditures for the foreseeable future. Additional financing, under the
Credit Facility or otherwise, may be required after this offering in
connection with an acquisition or acquisitions which the Company may
consummate in the future. See "Risk Factors--Growth Strategy-Recent and Future
Acquisitions."
INFLATION
The Company does not believe that its financial performance has been
materially affected by inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). The adoption of SFAS 123 during the Company's fiscal
year ended December 31, 1996 did not materially impact the financial position
or results of operations of the Company.
The FASB issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128), which is required to be adopted by the
Company in its fiscal 1997 financial statements. SFAS 128 requires the Company
to disclose a basic and a diluted earnings per share calculation. The basic
earnings per share calculation excludes Common Stock equivalents from the
earnings per share calculation, while diluted earnings per share is calculated
consistent with traditional primary earnings per share calculations. To the
extent that the Company has net income and has options or other Common Stock
equivalents outstanding, computing basic earnings per share would result in
higher earnings per share than would have been reported prior to the adoption
of SFAS 128.
The FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130) and Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131) which are required to be adopted by the
Company in its fiscal 1998 financial statements. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. SFAS 131 establishes standards for reporting
information on operating segments in financial statements. The Company is
currently reviewing the impact of SFAS 130 and SFAS 131 on its financial
statements.
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BUSINESS
The Company, founded in 1927, believes that it is among North America's
largest suppliers of card and coin-operated laundry services in multiple
housing facilities such as apartment buildings, colleges and universities and
public housing complexes, and is North America's largest supplier of such
services to the college and university market. The Company owns and operates
approximately 113,000 card and coin-operated washers and dryers in more than
17,000 multiple housing laundry rooms located in 22 states in the Northeast,
Midwest and Southeast regions of the United States. In addition, the Company
believes that it is the largest operator of commercial laundry products
manufactured by Maytag. The Company's revenue, EBITDA and net income, on a pro
forma basis, for the twelve months ended June 30, 1997, were approximately
$79.2 million, $17.9 million and $4.8 million, respectively.
Approximately 90% of the Company's revenue is derived from the operation of
washers and dryers in laundry rooms under long-term leases with property
owners. Under the Company's long-term leases, which have an average remaining
life of more than seven years, the Company typically receives the exclusive
right to operate laundry rooms within a multiple housing property in exchange
for a percentage of the revenue collected. The Company has been able to retain
99% of its existing machine base, while also adding an average of 5.2% to its
machine base, during each of the past four years. The property owner or
manager is usually responsible for maintaining and cleaning the premises and
for payment of the utilities. The Company leases space within a property, in
some instances improves the leased space with new flooring, ceilings and other
improvements, and then installs and services the laundry equipment and
collects the revenue. The Company sets and adjusts the pricing for its
machines based upon local market conditions.
The Company is also a significant distributor for several major equipment
manufacturers, including Maytag. As an equipment distributor, the Company
sells commercial laundry equipment to public laundromats, as well as to the
real estate industry. The Company is also certified by the manufacturers to
service the commercial laundry equipment that it sells. The Company also sells
commercial laundry equipment directly to institutional purchasers, including
hospitals, restaurants and hotels, for use in their own on-premise laundry
facilities.
The Company recently completed the acquisition of Sun Services, an
established laundry services provider, which provides the Company with a
foundation from which it can further penetrate the Florida multiple housing
market, the third largest such market in the country. The Sun Services
Acquisition added a significant number of machines to the Company's existing
base in Florida. In connection with the acquisition, Jeffrey C. Huenink, the
owner of Sun Services and the President of the Multi-Housing Laundry
Association through June 1997, became a significant stockholder in the
Company. See "--Company Strategy."
The Company manages its Laundry Route business and its distribution and
servicing business from its corporate headquarters in Cambridge,
Massachusetts, where it has centralized its administrative, billing,
marketing, purchasing and refurbishing operations. The Company also operates
sales and/or service centers in Connecticut, Florida (three locations),
Georgia, Illinois, Maine, Missouri, New York (two locations), North Carolina
and Pennsylvania.
FINANCIAL CHARACTERISTICS OF THE COMPANY'S BUSINESS
The Company's business has the following financial and operational
characteristics:
RECURRING REVENUE--The Company operates laundry equipment located in
multiple housing facilities under long-term leases with property owners. In
addition, the Company's efforts are designed to maintain customer
relationships over the long-term, thus optimizing customer retention.
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HISTORICALLY NON-CYCLICAL BUSINESS--The Company has not experienced a
reduction of its business as a result of past general economic downturns,
including the recession that occurred in the early 1990s, although there
can be no assurance that this would be the case in the future. The Company
believes that many larger property owners and managers may be even more
inclined to outsource non-core operations, such as laundry services, during
economic downturns as they seek to control capital expenditures while
maximizing resident retention through the availability of quality services
and amenities.
DIVERSIFIED AND STABLE CUSTOMER BASE--The Company provides laundry
services to more than 17,000 laundry rooms located in 22 states in the
Northeast, Midwest and Southeast regions of the United States. Currently,
no lessor represents more than 1% of the Company's machine base. The
Company serves customers in a number of markets including apartment
buildings, colleges and universities and public housing complexes.
INDUSTRY OVERVIEW
The card and coin-operated laundry services industry serves multiple housing
markets such as apartment buildings, colleges and universities and public
housing complexes. The Company estimates, based upon its analysis of 1990 U.S.
Department of Census data on multi-family housing units and colleges and
universities, as well as its analysis of related U.S. Department of Census
research surveys conducted during 1996, that these markets contain more than
3.5 million machines nationally, generating more than $2.0 billion in annual
revenues, and approximately 1.7 million machines in the Company's current
geographic markets. Trends in the real estate market generally, and in the
multiple housing industry specifically, are having a significant impact on the
laundry services industry and have resulted in increasing consolidation.
The consolidation taking place in the real estate ownership and management
industries, including consolidation caused by the growth of REITs and large
national property management companies, has begun to have an impact on the
multiple housing environment, most noticeably through ownership and operation
of apartment complexes by larger organizations and more geographically diverse
property managers. Many of these larger, more geographically diverse property
management and ownership entities are beginning to outsource on-premise
services to enable the property owner or manager to focus on their core
business. By outsourcing services, property owners and managers are able to
respond more quickly and efficiently to the residents' needs, thereby
increasing retention, the critical factor in these larger entities'
profitability. These same property owners and managers are also increasingly
looking for service providers that can service multiple locations with a
broader product mix.
The laundry services industry has historically been serviced by small,
independent owner-operators. Many of these independent business owners
commenced operations during the 1940s and 1950s and are facing generational
transfer issues as they reach retirement age. While many of these
entrepreneurs enjoy excellent reputations, they are confronted with
significant capital expenditures necessary to upgrade existing equipment and
implement newly available payment technologies. Faced with these factors, many
are choosing to sell their businesses.
Recent developments in cashless payment technology have also begun to change
the way in which the laundry services industry conducts business. Cashless
payment technology, the costs of which have historically outweighed the
benefits, has recently become more affordable which, the Company believes,
will lead to more cashless, card based laundry rooms. The benefits of cashless
payment technology include the potential for modest incremental price
increases, variable time pricing, reduced administrative burden, improved cash
controls and enhanced user convenience. Cashless payment technology will also
provide property owners with the ability to integrate laundry room
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services with previously unrelated amenities, such as door and perimeter
access, photocopying, telephone, rent collection, vending machines and other
ancillary services.
The card and coin-operated laundry service industry is also influenced by
societal trends in multi-family housing, whether it be in the retirement,
assisted-living or low income rental markets or in the development of larger
and more full-service apartment and condominium communities. As the retirement
age population grows, retirement and full-service assisted living facilities
are being increasingly utilized by those who desire a communal, secure living
arrangement with access to a full range of on-premise services. The Company
believes that the trend towards multi-family housing will lead to increased
demand for on-premise, modern laundry rooms as well as other amenities.
The Company believes that the factors discussed above have created an
opportunity for those companies with strong financial and management resources
to grow their customer base and increase revenue and cash flow.
COMPANY STRATEGY
The Company's strategic objectives are to (i) grow its revenue and customer
base and increase profitability and cash flow by refining and expanding its
present operations and (ii) capitalize on the consolidation opportunities that
exist in the highly fragmented laundry services industry. In order to achieve
these objectives, the Company intends to:
EXPAND CUSTOMER BASE IN EXISTING MARKETS--The Company intends to use its
sales and marketing resources, which have significantly increased during
the past 16 months, to secure additional customers in its existing markets.
The Company's sales force is organized to focus on specific markets
including larger property owners, such as REITs and public housing
authorities, geographically diversified property managers and colleges and
universities. The Company relies substantially on referrals from existing
customers and intends to continue its historic, proactive attention to
customer service and satisfaction. This focus has resulted in a 99% machine
retention rate over the past four years.
IMPLEMENT NEWLY AVAILABLE TECHNOLOGY--The Company has installed smart
card readers in more than 1,000 laundry machines since April 1, 1997 and
intends to accelerate the use of cost-effective smart card based payment
and access systems. Smart card based payment technology permits the Company
to make modest, periodic price increases, as well as to establish variable
time pricing, which will add incremental revenue. The installation of smart
card readers has increased revenue at existing facilities and has also
attracted additional customers as a result of the Company providing a
broader product offering.
The Company particularly believes that smart card based payment systems
are making its laundry equipment more convenient by eliminating the need to
gather coins to use the equipment. The Company has experienced increased
usage in some of its laundry facilities following the recent installation
of smart card readers. In addition, as card based technologies become more
prevalent, their use may also permit the Company to offer other smart card
based services to its customers, including door and perimeter access,
photocopying, vending machines, telephones, rent collection and other
ancillary services.
PURSUE STRATEGIC ACQUISITION OPPORTUNITIES--The Company intends to
continue to acquire and integrate businesses that both increase penetration
in existing markets and also strategically expand the Company's geographic
presence. The Company believes that in-market acquisitions will allow it to
capitalize on operating efficiencies and increase market penetration. In
addition, the Company intends to acquire laundry room operations in new
markets in order to increase its geographic diversity and broaden its
potential customer base. The Company will continue its disciplined approach
to evaluating expansion opportunities, including an analysis of each
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acquisition candidate's projected cash flow as compared to the Company's
desired internal rate of return.
INCREASE LEADING POSITION IN COLLEGE AND UNIVERSITY MARKET--The Company
intends to strengthen its leading position in the college and university
market and to use it as a foundation for growth in both existing and new
geographic markets. The Company will continue to utilize a sales force
which focuses exclusively on this specialized market, which is often the
first to demand new products and services. In addition, the Company intends
to broaden the services offered to its existing college and university
customers, including services outside the Company's current core business.
INTERNAL GROWTH
The Company's internal growth strategy is based upon its philosophy that to
experience real, sustainable long-term growth it must retain and build upon
its existing customer base. The Company has significantly increased its sales
and marketing resources during the past 16 months in order to take advantage
of opportunities which have arisen as a result of the consolidation in the
real estate industry. Nearly all of the Company's employees are eligible for
incentive bonuses based upon the net growth of the Company's customer base.
The Company's efforts have helped it to retain 99% of its existing machine
base, while also adding an average of 5.2% to its machine base, during each of
the past four years. The Company's internal growth strategy, which is intended
to expand the Company's customer base and to grow revenue, focuses on three
distinct efforts: (i) use cashless payment technology to generate increased
incremental revenue, (ii) convert owner-operated laundry rooms to Company-
operated laundry rooms and (iii) secure new locations that were previously
served by another independent operator.
USE OF EMERGING PAYMENT TECHNOLOGY--The Company intends to use smart card
based cashless payment systems to generate incremental revenue at existing
locations. For example, the Company's smart card based payment systems,
including those available through the Company's arrangements with
Schlumberger, permit the Company or the property owner to implement modest
periodic price increases and to use variable time pricing to increase the
Company's revenue and to maximize machine usage. Prior to the availability
of smart card based cashless payment systems, modest incremental price
increases could not be implemented because of the use of twenty-five cent
coins to operate the laundry machines and the risk of imposing larger price
increases than a particular user-base would accept without experiencing a
reduction in usage. The Company intends to accelerate its use of smart card
based payment technology at existing locations by converting coin-operated
equipment in response to customer demand. The Company further intends to
continue to install smart card readers in machines at new locations as
property owners and managers request this new technology in their efforts
to retain tenants.
CONVERT SELF-OWNERS--The Company actively markets to property owners and
managers who own and operate on-premise laundry rooms ("Self-Owners"). By
outsourcing their laundry service operations to the Company, these Self-
Owners can achieve economic benefits through decreased capital expenditures
and increased cash flow. In addition, this outsourcing permits property
owners and managers to focus on their core business with the knowledge that
a quality service provider is delivering services that help to retain
residents. The Company further believes that its reputation for integrity
in collection, a local sales force and prompt, efficient service, provide
the Company with a competitive advantage in successfully converting Self-
Owners to Company customers. For example, the Company recently acquired The
Laundry Works, a division of Boston Financial Group, L.P., a large property
management company headquartered in Boston, Massachusetts ("BFG"), which
resulted in the conversion of more than 500 machines at 18 locations in
seven states from self-owned and operated laundry rooms to Company-operated
laundry rooms. The Company believes that BFG will realize a reduction in
capital and administrative expenditures related to self-ownership, which
should increase BFG's cash flows.
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SECURE NEW LOCATIONS PREVIOUSLY SERVED BY COMPETITORS--The Company's
sales and marketing efforts focus significantly on properties where leases
with competitors are nearing expiration. The Company's marketing department
maintains an extensive database of prospective customers, including
competitors' customers, which includes detailed information that assists
the Company in its efforts to secure new customers. The Company has also
historically achieved significant growth in this area through referrals
from existing customers.
STRATEGIC ACQUISITIONS
The Company intends to continue to take advantage of the opportunities
created by the changes in the card and coin-operated laundry services industry
through strategic acquisitions of local and regional Laundry Route businesses.
The Company has accelerated its acquisition efforts by adding to its senior
management team, increasing its sales and marketing departments and
substantially increasing the funds available under its Credit Facility. The
Company's recent efforts are intended to accelerate and build upon the
Company's successful acquisition record. Since May 1996, the Company has
acquired seven Laundry Route businesses, representing approximately 35,000
machines, contributing to the growth in its machine base. The following table
summarizes the locations of the Company's acquisitions consummated since May
1996:
<TABLE>
<CAPTION>
DATE LOCATION
---- --------
<S> <C>
May 1996...................................... Syracuse, New York
June 1996..................................... Buffalo, New York
August 1996................................... St. Louis, Missouri
September 1996................................ Georgia and South Carolina
December 1996................................. Madison, Wisconsin
December 1996................................. Boston, Massachusetts
April 1997.................................... Tampa, Florida
</TABLE>
The acquisitions include the Sun Services Acquisition, which added a
significant number of machines to the Company's existing machine base in
Florida, the state with the third largest multiple housing market in the
country. The Company believes that its access to capital and its proven
ability to acquire and integrate smaller independent Laundry Route operators
with its operations provides it with a competitive advantage when pursuing
some of the numerous, private, family-owned businesses that, in many cases,
are experiencing generational ownership changes. Many of these independent
owner-operators have decided to sell their businesses because they either have
elected not to expend the financial resources necessary, or lack access to the
additional capital necessary to upgrade existing equipment and to implement
new technology in order to compete with larger operators, such as the Company.
The Company's acquisition strategy has historically included both in-market
acquisitions, which increase the Company's presence in its existing geographic
markets, as well as add-on acquisitions, which establish the Company in a
geographic market in which it does not have a significant presence. The
Company's acquisition efforts have historically focused on both small, local,
as well as regional, Laundry Route operators. The Company believes this focus
on smaller to mid-sized acquisitions has enabled it to experience significant,
long-term growth because it permits the Company to successfully integrate
these acquired businesses into existing operations without adversely affecting
its overall customer service.
Local Laundry Route Operators. The purchase of small, local Laundry Route
operators and the integration of their assets into the Company's operations
results in a lower overall cost structure for the acquired business. The
Company expects to continue to evaluate additional
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opportunities to acquire Laundry Route businesses from independent owner-
operators to further increase operating leverage within its markets. In
many regions, the Company may be able to acquire Laundry Routes contiguous
with its existing areas of operation without incurring significant
incremental administrative costs.
Regional Laundry Route Operators. A regional Laundry Route acquisition is
typically larger in size and provides the Company with the opportunity to
improve its cash flow by significantly increasing total revenue, by
eliminating duplicative corporate and administrative functions and by
reducing capital expenditures through improved purchasing power. The
acquisition of a regional Laundry Route also provides a geographic
footprint from which the Company's sales staff can operate to increase
market penetration.
CARD AND COIN-OPERATED LAUNDRY ROUTE BUSINESS
The Company currently owns and operates more than 113,000 machines in over
17,000 laundry rooms located in multiple housing facilities, with no lessor
representing more than 1% of the Company's total machine base. The principal
aspects of the Company's Laundry Route operations include sales and marketing,
facility leasing, service, collections and security and equipment
refurbishment.
Sales and Marketing. The Company markets its products and services through a
sales and marketing staff of 43 people. The Company's sales staff is dispersed
geographically throughout the Company's principal markets in order to support
the Company's customer and prospective customer base. As discussed below, the
Company primarily focuses its sales efforts on two markets: real estate
(apartments and public housing complexes) and colleges and universities. The
Company's sales force is charged with two primary functions: maintaining
existing customer relationships and soliciting new relationships. The
Company's marketing staff is located at its corporate headquarters in
Cambridge, Massachusetts. The Company has added 17 sales and marketing
personnel during the past 16 months.
Real Estate. The Company's regional real estate sales team works with
multi-housing accounts, such as apartments and public housing complexes,
and is focused on the needs of existing customers, as well as the needs of
potential customers. Each sales team relies heavily on referrals from
existing accounts, as well as the internal expansion of existing accounts.
In response to the consolidation of the multi-housing industry by the
largest REITs and property management companies, the Company has assigned
primary responsibility for the geographically dispersed property owners and
managers to one of its senior sales managers. This position is focused
principally on developing relationships at the executive level with many
national REITs and property management companies.
Colleges and Universities. The Company's college and university sales
team is focused on enhancing relationships with existing accounts, as well
as soliciting additional colleges and universities. The sales team relies
heavily on national and regional trade show participation in order to reach
the various decision makers of existing accounts and new prospects. The
Company believes that having a sales team focused solely on the college and
university market has helped it to achieve its status as North America's
largest supplier of card and coin-operated laundry services to the college
and university market.
Facility Leasing. The Company typically sets up a complete laundry room
facility in the leased space, including washers, dryers and debit or smart
card readers, tables for organizing and folding laundry and seating areas. In
addition, the Company will frequently refurbish the premises by painting the
room and/or installing ventilation, lighting, plumbing and drainage. These
improvements are
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designed to create a laundry room which is clean and convenient, thus
encouraging maximum usage of the equipment by the residents of the property.
The Company generally enters into long-term leases with property owners which
provide, in most cases, for sharing of machine revenue on a percentage basis.
Under the terms of a standard long-term lease, the Company leases a room or
dedicated area within a multi-housing facility from the property owner, public
housing agency or college or university. The Company's installed machine base
is diversified across the various types of properties that it serves as
follows:
<TABLE>
<S> <C>
Apartments, condominiums and co-operatives........................... 64%
Colleges, universities and schools................................... 25%
Public housing....................................................... 5%
Military bases....................................................... 1%
Elderly housing...................................................... 1%
Other................................................................ 4%
</TABLE>
The Company is the largest operator of card and coin-operated laundry rooms
in the North American college and university market with a customer base of
over 325 public and private institutions. The Company believes that its share
of the college and university market is nearly three times as large as that of
the next largest laundry service provider to this market. The Company's
strategy has been to pursue additional college and university accounts both
through acquisitions and through entering into new geographic markets.
Approximately 90% of the Company's revenue is derived from the operations of
washers and dryers in laundry rooms pursuant to long-term leases with property
owners. The leases, which have an average remaining life of over seven years
and provide the Company with the exclusive right to operate the laundry room
on the premises, typically require the Company to pay a percentage of the
revenue collected to the lessor as a commission (or rent) and, in some cases,
require advance rental payments. The property owner or manager is usually
responsible for maintaining and cleaning the premises and for payment of the
utilities. Because of the Company's significant initial capital investment,
the Company's leases may only be terminated by the customer prior to their
stated expiration date for non-performance by the Company. The Company is
unaware of any laundry room lease that has ever been terminated by a customer
due to non-performance by the Company.
Service. The Company delivers, installs, services and collects revenue from
the laundry equipment used in the Company-operated laundry rooms. The
Company's maintenance program is intended to limit unnecessary capital
expenditures and extend the useful life of the Company's laundry equipment,
thus realizing optimal lifetime revenue per machine. The Company utilizes a
three facet program, coupled with a restoration and redeployment program, to
ensure that down time for its equipment is kept to a minimum, thus maximizing
average revenue per machine.
Install High Quality Equipment. The Company primarily installs equipment
manufactured by Maytag. The Company believes that the installation of high
quality equipment at the outset, coupled with a proper maintenance program,
results in equipment that operates more efficiently, is used more often and
maximizes revenue per machine. The Company believes that its role as a
significant purchaser and user, as well as distributor, of Maytag equipment
affords it a competitive advantage both in terms of pricing and in terms of
its staff of highly qualified service technicians. The Company also
purchases equipment from other leading manufacturers, including Whirlpool
and General Electric, and believes that such manufacturers are willing to
increase their sales to the Company. See "Risk Factors--Dependence on
Certain Suppliers."
Periodic Preventive Maintenance. The Company performs scheduled,
periodic, preventive maintenance on the Company's equipment at its various
leased laundry rooms.
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<PAGE>
On-Call Service. The Company employs approximately 90 service technicians
to both maintain and repair its equipment. These service technicians have
an average of over seven years experience repairing and maintaining laundry
equipment. The Company's Director of Service Training is responsible for
evaluating and training the service force. The Company is the only Maytag
distributor to have ever won the prestigious Maytag Red Carpet Service
Award twice, both times within the past ten years.
Collections and Security. Revenues from the Company's laundry rooms are
collected on a periodic basis (typically one to three times per month) based
upon the historical use at each property. The collection routes are altered
frequently and the Company utilizes a computerized coin counting system and
various preventive and internal control measures, including armored car
services, to reduce the risks associated with its business.
Equipment Refurbishment. The Company refurbishes some of its laundry
equipment at its Cambridge, Massachusetts headquarters. The refurbishment
process involves removing some machines from active service and restoring or
replacing some of the machine parts. The refurbished machines result in cost
savings which, when coupled with the installation of high quality machines and
a proper maintenance and service program, can result in reduced capital
expenditures and increased profitability for the property owner. Refurbished
machines are either used in locations where the lessor has requested them or
to replace older laundry equipment.
TECHNOLOGY
The Company maintains a significant information technology system to
facilitate its lease monitoring, commission paying and product purchasing
activities. The Company has recently implemented and/or expanded its use of
technologies that the Company believes will broaden its existing product and
service offerings, enhance its customer service, improve its financial and
operational monitoring of its lease locations, and facilitate its analysis of
the operations of potential acquisition candidates.
Cashless Transactions. The Company operates both smart card and debit card
based payment systems. Since 1991, the Company has installed more than 11,000
debit card operated laundry machines in response to customer demand in the
college and university market. The installation of these debit card based
machines often provided the Company with access to colleges and universities
that demanded card based payment systems as part of their procurement process.
The Company has installed smart card readers in more than 1,000 laundry
machines since April 1, 1997 and intends to accelerate the use of cost-
effective smart card based payment and access systems. Smart cards are the
same size as credit or debit cards, but contain a small microprocessor chip
and are capable of computational operations, as well as storing data and value
for use in cashless transactions. The stored value feature of smart cards is
used with the Company's laundry equipment to provide laundry users the
convenience and security of cashless transactions. The Company, which has
experienced increased usage at existing facilities which have been equipped
with smart card readers, believes that these smart card based payment
technologies may also be used to increase revenue by facilitating modest price
increases and the implementation of variable time pricing while also enhancing
the ability to expand its existing services and product offerings. The
additional benefits associated with smart card based transactions include
reduced administrative burdens and expenditures, reduced vandalism, improved
security and more efficient revenue collections. The Company believes that the
availability of these technologies will also increase laundry room usage and
decrease the property owner's risk of loss of resident business to off-
premises operators which, the Company believes, will further enhance the
attractiveness of smart card based payment systems to property owners and
managers.
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Newly Available Technology. The introduction of a new, single unit smart
card reader for use with laundry equipment has made it cost-effective and
operationally feasible to convert existing coin-operated machines and to
install new smart card operated machines. Prior to the availability of this
technology, each piece of laundry equipment had to be hard-wired to an on-
line processing system in order to function as a cashless unit. The newly
available single unit smart card reader makes conversions and new
installations more cost-effective.
On April 1, 1997, the Company commenced a roll-out of smart card based
payment systems. The Company has equipped more than 1,000 laundry machines
with smart card readers since the commencement of this roll-out. The
Company is also installing smart card operated machines at many of its new
customer accounts. The Company believes that its seven year experience with
cashless payment systems provides it with a competitive advantage as it
further pursues the roll-out of card-operated laundry equipment.
Pricing Flexibility. By equipping its machines with cashless payment
technology, the Company believes that it can go beyond providing a safer
environment and more efficient laundry facility. The use of smart card
technology will enable the Company to make modest incremental price
adjustments over time rather than in twenty-five cent increments. The
Company believes that such modest price increases will lead to more revenue
per machine without reducing the usage of its machines significantly. In
addition, cashless technology will enable the Company to establish variable
time pricing schedules. For instance, the machines may be programmed to
have one set of prices during peak hours, one set during normal hours, and
another set of prices during "off" hours of operation to encourage maximum
usage, which the Company believes will lead to increased incremental
revenue.
Information Services. The Company is employing an integrated approach to the
underlying technology required to support its sales and administrative
functions. The Company provides its sales personnel with laptop computers for
use in communicating with the Company, accessing Company pricing and related
information and preparing customer presentations and analyses. The Company
also operates a data warehousing software system to assist the Company in its
operational and financial data management. For example, the data warehousing
software system aids the Company's senior management in analyzing geographic
and product line trends, as well as individual property and regional
performance. The Company can also use this data warehousing system to
seamlessly import operational information of a laundry service provider that
the Company may be interested in acquiring.
Machine Technology. In January 1997, Maytag introduced new laundry machine
models which can only be activated by using a smart card. These new machines,
which are comparably priced to existing equipment, along with the Company's
access to the newly developed smart card readers, will permit the Company to
more economically install smart card based equipment.
Additionally, in March 1997, Maytag introduced its new high-efficiency
Maytag Neptune(TM) line of laundry products. The Company believes that this
new line, which is more efficient in its use of water and utilities than
existing Maytag machines, will enhance customer relations.
COMPETITION
The card and coin-operated laundry services industry is highly competitive,
capital intensive and requires reliable and prompt service. Within any given
geographic area, the Company may compete with local independent-operators,
regional operators and multi-regional operators. Although the industry is
highly fragmented, the Company and several other independent-operators have
chosen to grow by acquisitions, as well as through new machine placement. The
Company believes that it is the fourth largest card and coin-operated laundry
services provider in North America. The Company believes that only Coinmach
Laundry Corporation, Web Service Company, Inc., and Macke Laundry Services,
L.P. maintain a larger machine base than the Company.
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<PAGE>
LAUNDRY EQUIPMENT SALES, LEASING AND SERVICE
The Company sells commercial laundry products to the retail coin laundromat
market and has been a Maytag distributor since 1927. The Company has, through
acquisitions of businesses and the cooperation of Maytag, grown its Maytag
distribution and service business to encompass Connecticut, Illinois, Maine,
Massachusetts, New Hampshire, New York (except metropolitan New York City),
western Pennsylvania, Rhode Island, South Carolina, Vermont and portions of
Arkansas, Indiana, Iowa, Mississippi and Missouri. The Company is currently
the sole distributor of Maytag commercial laundry equipment in each of its
areas. As a distributor, the Company sells laundry equipment to laundromat
owners, apartment and condominium owners and institutions such as hospitals,
restaurants and elder care facilities. The Company's retail coin laundromat
sales team is focused on selling replacement equipment to existing coin
laundromat owners, as well as soliciting new customers for its distribution
business. The sales efforts are supported by regional service training
seminars held for the benefit of existing and potential laundromat owners. The
Company also sells equipment manufactured by American Dryer, Dexter and
Whirlpool when such equipment better suits a customer's needs. The Company
believes that its role as a distributor, and not just a buyer, of commercial
laundry equipment provides it with a competitive advantage in that it has
access to numerous Self-Owners who may either choose to buy equipment from the
Company or choose to outsource this function by becoming a lessor to the
Company.
The Company has also established a leasing program for commercial laundry
customers who choose neither to purchase equipment nor to become a Laundry
Route customer. Although this operation currently provides a small amount of
revenue to the Company, the Company anticipates that this market presents the
Company with growth opportunities as additional Self-Owners see these services
as a way to free up available capital for other business needs.
The Company also offers potential owner-operators of independent laundromats
complete design, construction, installation and set-up of turn-key
laundromats. The Company derives its revenue by selling the equipment to the
owner-operator and through ongoing service contracts with the owner-operator.
EMPLOYEES
The Company has approximately 274 employees. None of the Company's employees
is covered by a collective bargaining agreement. The Company believes its
relations with its employees are good.
39
<PAGE>
PROPERTIES
The Company owns its 40,000 square foot corporate headquarters in Cambridge,
Massachusetts which houses the Company's administrative and central services,
including a 20,000 square foot warehouse for equipment and parts. The Company
also leases the following regional facilities:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
Buffalo, New York......................................... 9,500
Charlotte, North Carolina................................. 7,600
Fort Lauderdale, Florida.................................. 6,000
Gainesville, Florida...................................... 750
Gurnee, Illinois.......................................... 12,000
East Hartford, Connecticut................................ 14,900
Pittsburgh, Pennsylvania.................................. 1,100
St. Louis, Missouri....................................... 2,400
Standish, Maine........................................... 7,500
Syracuse, New York........................................ 7,800
Tampa, Florida............................................ 6,200
</TABLE>
The Company believes that its properties are generally well maintained and
in good condition. The Company believes that its properties are adequate for
present needs and that suitable additional or replacement space will be
available as required.
LEGAL PROCEEDINGS
The Company is from time to time a party to litigation arising in the
ordinary course of business. There can be no assurance that the Company's
insurance coverage will be adequate to cover all liabilities occurring out of
such claims. In the opinion of management, any liability that the Company
might incur upon the resolution of this litigation will not, in the aggregate,
have a material adverse effect on the financial condition or results of
operations of the Company.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions with
the Company and their ages as of August 1, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stewart Gray MacDonald, Jr. ......... 47 Chairman, Chief Executive Officer and
Director
Neil F. MacLellan, III............... 38 Executive Vice President, Sales and
Marketing
John S. Olbrych...................... 41 Chief Financial Officer and Treasurer
Patrick A. Flanagan.................. 44 Executive Vice President, Mergers and
Acquisitions, Secretary and Director
Jeffrey C. Huenink................... 41 Director
John P. Leydon....................... 64 Director
Jerry A. Schiller.................... 64 Director
Eugene B. Doggett.................... 61 Director (immediately following
consummation of this offering)
</TABLE>
STEWART GRAY MACDONALD, JR. serves as Chairman of the Board and Chief
Executive Officer and has served as a Director of the Company since 1983. Mr.
MacDonald served the Company in various executive capacities from 1989 until
his election as Chairman of the Board in 1992. Mr. MacDonald, the son of the
Company's co-founder and first President, is the fourth member of the
Company's founding families to lead the organization. Mr. MacDonald, a three
time member of the U.S. Olympic Rowing Team and a former coach with the U.S.
National Rowing Team, received his B.A. from the University of Wisconsin.
NEIL F. MACLELLAN, III has been with the Company since 1984 and has served
as Executive Vice President, Sales and Marketing since December 1995. From
January 1991 through December 1995, Mr. MacLellan served as the Company's
Director of Finance and Administration and from March 1985 through January
1991, Mr. MacLellan served as Controller of the Company. Mr. MacLellan
received his B.S. in Accounting from Bentley College.
JOHN S. OLBRYCH has served as Chief Financial Officer of the Company since
April 1996 and served as a Director of the Company from November 1993 until
May 1997. From 1991 through 1996, Mr. Olbrych was an independent business
consultant. In this role he served as interim Chief Financial Officer of
AirTran Corporation, Airways Corporation, Carus Corporation, Carus Publishing
Company and Daisytek International. From 1986 through 1991, Mr. Olbrych served
as a Vice President of State Street Bank and Trust Company. Mr. Olbrych
received his B.A. from Dartmouth College and his M.B.A. from The Amos Tuck
School at Dartmouth College.
PATRICK A. FLANAGAN has served as a Director of the Company since 1992 and
has served as Executive Vice President, Mergers and Acquisitions of the
Company since April 1996. From January 1993 through April 1996, Mr. Flanagan
was a partner with American Capital Strategies, an investment bank
specializing in mergers and acquisitions. From 1990 to January 1993, Mr.
Flanagan was a partner in Fidelis Group, an investment bank. From 1983 to
1990, Mr. Flanagan was an investment banker in the Corporate Finance
Department at Drexel Burnham Lambert where he was a First Vice President. Mr.
Flanagan holds a B.S. from Purdue University and received his M.B.A. from
Harvard Business School.
41
<PAGE>
JEFFREY C. HUENINK has been a Director of the Company since April 1997. From
1986 until the Sun Services Acquisition in April 1997, the President and owner
of Sun Services. Mr. Huenink was, until June 1997, the President of the Multi-
Housing Laundry Association, an industry trade group, and was a member of the
Florida House of Representatives from 1988 until 1992. Mr. Huenink received
his B.S. in Business Administration from the University of South Florida. The
existing stockholders of the Company have agreed to vote their shares in favor
of Mr. Huenink's election to the Board of Directors, provided that certain
conditions contained in the First Stockholders' Agreement (as defined below)
are met, through April 1999. See "Certain Transactions."
JOHN P. LEYDON has been a Director of the Company since April 1997. Mr.
Leydon has been the Chief Financial Officer of Pacific Packaging Products,
Inc. since January 1997. From 1983 to 1996, Mr. Leydon was a partner at Leydon
& Gallagher, a certified public accounting firm. Mr. Leydon received his B.S.
in Business Administration from Boston College, his M.B.A. from Babson College
and his M.S. in Taxation from Bentley College.
JERRY A. SCHILLER has been a Director of the Company since April 1997. Mr.
Schiller has been a private investor and consultant since 1993. In October
1993, Mr. Schiller retired after 31 years of service with The Maytag
Corporation. From 1985 until his retirement, Mr. Schiller served as the
Executive Vice President and Chief Financial Officer, as well as a Director,
of The Maytag Corporation. From 1962 until 1985, Mr. Schiller held various
executive positions with The Maytag Corporation. Mr. Schiller received his
B.S. in Business Administration and Accounting from Augustana College.
EUGENE B. DOGGETT will become a Director of the Company following the
consummation of this offering. Mr. Doggett is an Executive Vice President and
Director of Iron Mountain Incorporated, a publicly traded records management
company. From 1987 until June 1997, Mr. Doggett was also Chief Financial
Officer of Iron Mountain. Prior to joining Iron Mountain, Mr. Doggett had
extensive experience in commercial and investment banking, as well as
financial and general management experience at senior levels. He holds a B.A.
from Yale University and an M.B.A. from Harvard Business School.
Executive officers are elected annually by the Board of Directors and serve
at its discretion. There are no family relationships among any of the
directors and executive officers of the Company except that Eugene B. Doggett,
who will become a director of the Company upon consummation of this offering,
is the uncle of Cynthia V. Doggett, Stewart Gray MacDonald, Jr.'s wife.
BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board of
Directors. As of the date of this Prospectus, the number of directors of the
Company is currently fixed at five and will expand to six upon consummation of
this offering. The Company's Amended and Restated Certificate of Incorporation
provides that the Board of Directors shall be divided into three classes. The
members of each class of directors serve for staggered three-year terms. The
Board of Directors is composed of two Class I Directors (Messrs. Flanagan and
Leydon), two Class II Directors (Messrs. Huenink and Schiller) and two Class
III Directors (Mr. MacDonald and, upon consummation of this offering, Mr.
Doggett), whose initial terms will expire upon the election and qualification
of directors at the annual meetings of stockholders held following the fiscal
years ending December 31, 1997, 1998 and 1999, respectively. At each annual
meeting of stockholders, directors will be re-elected or elected for a full
term of three years to succeed those directors whose terms are expiring.
The Board of Directors has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends to the Board of Directors the firm to be appointed
as independent accountants to audit financial statements and to perform
services related to the audit, reviews the scope and results of the audit with
the independent accountants, reviews with management and the independent
accountants the Company's
42
<PAGE>
year-end operating results, considers the adequacy of the internal accounting
procedures and considers the effect of such procedures on the accountants'
independence. The Audit Committee consists of Messrs. Leydon and Schiller. The
Compensation Committee, which consists of Messrs. MacDonald, Leydon and
Schiller, reviews and recommends to the Board of Directors the compensation
arrangements for all directors and officers other than Mr. MacDonald, whose
compensation arrangements are reviewed and recommended by Messrs. Leydon and
Schiller, approves such arrangements for other senior level employees and
administers and takes such other action as may be required in connection with
certain compensation and incentive plans of the Company. The Compensation
Committee also determines the number of options to be granted or shares of
common stock to be issued to eligible persons under the Company's 1997 Stock
Plan and prescribes the terms and provisions of each grant made under the 1997
Stock Plan other than with respect to the eligibility of Mr. MacDonald, as to
whom the full Board of Directors makes such determinations. In addition, the
Compensation Committee construes and interprets the 1997 Stock Plan and
issuances thereunder, and establishes, amends and revokes rules and
regulations for administration of the 1997 Stock Plan.
Members of the Board of Directors who are also employees of the Company do
not receive compensation for their services on the Board of Directors or any
committee thereof. Each director who is not an employee of the Company (an
"Independent Director") receives an annual fee of $12,000 and an additional
fee of $500 per meeting of the Board of Directors. In addition, upon
consummation of this offering, each current Independent Director will be
granted an option to purchase 1,000 shares of Common Stock at an exercise
price equal to the initial public offering price per share of Common Stock.
Under the 1997 Stock Plan, each new Independent Director is also entitled to
receive an initial grant of an option to purchase 1,000 shares of Common Stock
upon his or her election to the Board of Directors, and each Independent
Director who is serving as a director of the Company on the fifth business day
after each annual meeting of stockholders, beginning with the 1998 annual
meeting, will automatically be granted an option to purchase 1,000 shares of
Common Stock. All options granted to Independent Directors under the 1997
Stock Plan shall be exercisable immediately and shall terminate upon the tenth
anniversary of the date of grant. See "--1997 Stock Option and Incentive
Plan--Stock Options Granted to Independent Directors."
All members of the Board of Directors are reimbursed for travel expenses
incurred in attending meetings of the Board of Directors and its committees.
43
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation. The following summary compensation table sets forth
information concerning compensation for services rendered in all capacities
awarded to, earned by or paid to the Company's Chief Executive Officer and the
other named executive officers during the fiscal year ended December 31, 1996.
No other executive officer of the Company who held office as of December 31,
1996 met the definition of "highly compensated" within the meaning of the
Securities and Exchange Commission's executive compensation disclosure rules
for this period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- --------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Stewart Gray MacDonald, $131,976 $ 98,380 148,700 $2,245
Jr.....................
Chairman and Chief Ex-
ecutive Officer
Neil F. MacLellan, III.. 85,000 115,188 81,800 8,624
Executive Vice
President, Sales and
Marketing
John S. Olbrych......... 88,411(3) 70,000 81,800 --
Chief Financial Officer
and Treasurer
Patrick A. Flanagan..... 97,500(4) 89,133 74,350 --
Executive Vice Presi-
dent, Mergers and Ac-
quisitions and Secre-
tary
</TABLE>
- --------
(1) The Company's executive officers are eligible for annual cash bonuses.
Such bonuses are based upon achievement of individual or corporate
performance objectives determined by the Board of Directors.
(2) Includes contributions made on the executive's behalf to the Company's
profit sharing plan and, in the case of Mr. MacLellan, premiums paid by
the Company for life insurance benefitting such executive's spouse.
(3) Mr. Olbrych was appointed the Company's Chief Financial Officer in April
1996.
(4) Mr. Flanagan was appointed Executive Vice President, Mergers and
Acquisitions in April 1996.
44
<PAGE>
Option Grants. The following table sets forth certain information concerning
the individual grant of options to purchase Common Stock of the Company to the
Chief Executive Officer and the other named executive officers of the Company
who received such a grant during the fiscal year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF PERCENT ANNUAL RATES OF
SECURITIES OF TOTAL STOCK PRICE
UNDERLYING OPTIONS EXERCISE APPRECIATION FOR
OPTIONS GRANTED TO OR BASE OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------
(1) FISCAL YEAR ($/SH)(2) DATE 5%($) 10%($)
---------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stewart Gray MacDonald,
Jr. ................... 148,700 26.7% $ 8.80 12/30/06 $822,946 $2,085,508
Neil F. MacLellan, III.. 81,800 14.7 8.80 12/30/06 452,704 1,147,239
John S. Olbrych......... 81,800 14.7 8.80 12/30/06 452,704 1,147,239
Patrick A. Flanagan..... 74,350 13.4 8.80 12/30/06 411,473 1,042,754
</TABLE>
- --------
(1) On December 30, 1996, the Company granted to Messrs. MacDonald, MacLellan,
Olbrych and Flanagan, as well as certain other employees of the Company,
options to purchase 148,700, 81,800, 81,800 and 74,350 shares,
respectively, of Common Stock (the "1996 Options"). The 1996 Options,
which have an exercise price of $8.80 per share, are not currently
exercisable, but will become 100% vested at the end of the sixth
anniversary of the grant date. Upon consummation of this offering, the
vesting schedule of the 1996 Options will be accelerated in accordance
with the vesting schedule contained in each agreement evidencing such
option such that twenty percent (20%) of such options will become
exercisable on each of December 30, 1997, 1998, 1999, 2000 and 2001. The
exercise price of $8.80 per share was determined by the Board of Directors
to be the fair market value of the shares underlying such options on the
date of grant. See "--1997 Stock Option and Incentive Plan."
(2) All options were granted at fair market value as determined by the Board
of Directors on the date of grant. See "--1997 Stock Option and Incentive
Plan--Stock Options."
(3) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5%
and 10% over the full 10-year term of the options. The gains shown are net
of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise. The 5% and 10% assumed rates
of appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period and the date
on which the options are exercised.
45
<PAGE>
Option Exercises and Holdings. The following table sets forth information
concerning the number and value of unexercised options to purchase shares of
Common Stock of the Company held by the Chief Executive Officer and the other
named executive officers of the Company who held such options at December 31,
1996. None of the Chief Executive Officer or the other named executive
officers of the Company exercised any stock options during fiscal 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996(1)
--------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Stewart Gray MacDonald,
Jr..................... $ 0 148,700 $ 0 $
Neil F. MacLellan, III.. 0 81,800 0
John S. Olbrych......... 0 81,800 0
Patrick A. Flanagan..... 0 74,350 0
</TABLE>
- --------
(1) There was no public trading market for the Common Stock as of August 14,
1997. Accordingly, these values have been calculated on the basis of the
initial public offering price less the applicable exercise price.
1997 STOCK OPTION AND INCENTIVE PLAN
In December 1996, the Board of Directors of Mac-Gray Co. adopted, and the
stockholders approved, the Mac-Gray Co., Inc. 1996 Stock Option and Incentive
Plan (the "Predecessor Plan"). On April 7, 1997, the Board of Directors
adopted and the Company's stockholders approved the 1997 Stock Option and
Incentive Plan for the Company (the "1997 Stock Plan"). The 1997 Stock Plan is
designed and intended as a performance incentive for officers, employees,
consultants and Independent Directors to promote the financial success and
progress of the Company. The Company anticipates that providing such persons
with a direct stake in the Company's welfare will assure a closer
identification of their interests with those of the Company, thereby
stimulating their efforts on the Company's behalf and strengthening their
desire to remain with the Company. All officers, employees and Independent
Directors are eligible to participate in the 1997 Stock Plan.
The 1997 Stock Plan provides for the issuance of up to the greater of (i)
750,000 shares of Common Stock or (ii) ten percent of the then outstanding
shares of Common Stock. The Company currently has reserved 750,000 shares of
Common Stock for issuance under the 1997 Stock Plan, of which 642,090 shares
are subject to outstanding options and 107,910 remain available for issuance,
subject to increase upon consummation of this offering. Upon consummation of
this offering, the number of shares reserved for issuance under the 1997 Stock
Plan will be 750,000. On and after the date the 1997 Stock Plan becomes
subject to Section 162(m) of the Code, options with respect to no more than
150,000 shares of Common Stock may be granted to any one individual in any
calendar year.
On December 30, 1996, Mac-Gray Co. granted to Messrs. MacDonald, MacLellan,
Olbrych and Flanagan, as well as certain other employees of the Company,
options to purchase 148,700, 81,800, 81,800 and 74,350 shares, respectively,
of its Common Stock (the "1996 Options") pursuant to the Predecessor Plan. The
1996 Options were subsequently assumed by the Company under the 1997 Stock
Plan, and the Predecessor Plan was terminated. On August 14, 1997, the Company
granted to Messrs. MacDonald, MacLellan, Olbrych and Flanagan, as well as
certain other employees of the Company, options to purchase 14,870, 8,180,
8,180 and 7,435 shares, respectively, of its Common Stock (the "August
Options") pursuant to the 1997 Stock Plan. The 1996 Options and the August
46
<PAGE>
Options, which have an exercise price of $8.80 and $9.25 per share,
respectively, are not currently exercisable, but will become 100% vested at
the end of the sixth anniversary of the grant date. Upon consummation of this
offering, the vesting schedule of the 1996 Options and the August Options will
be accelerated such that twenty percent (20%) of such options will become
exercisable on each of the first through fifth anniversaries of the date of
grant of such options. The exercise prices of $8.80 and $9.25 per share were
determined by the Board of Directors to be the fair market value of the shares
underlying such options on the respective dates of grant.
The following summary description does not purport to be complete and is
qualified in its entirety by the 1997 Stock Plan, a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part.
Plan Administration; Eligibility. The 1997 Stock Plan is administered by the
Board of Directors or the Compensation Committee thereof (the "Committee").
All members of the Committee must be "disinterested persons" as that term is
defined under the rules promulgated by the Securities and Exchange Commission
and "outside directors" as defined in Section 162(m) of the Internal Revenue
Code (the "Code") and the regulations promulgated thereunder.
The Committee has full power to select, from among the employees and other
persons eligible for awards, the individuals to whom awards will be granted,
to make any combination of awards to participants, and to determine the
specific terms and conditions of each award, subject to the provisions of the
1997 Stock Plan. The Committee may permit Common Stock, and other amounts
payable pursuant to an award, to be deferred. In such instances, the Committee
may permit dividend or deemed dividends to be credited to the amount of
deferrals.
Persons eligible to participate in the 1997 Stock Plan will be those
officers, employees and other key persons, such as consultants, of the Company
and its subsidiaries who are responsible for or contribute to the management,
growth or profitability of the Company and its subsidiaries, as selected from
time to time by the Committee. Independent Directors will also be eligible for
certain awards under the 1997 Stock Plan.
Stock Options. The 1997 Stock Plan permits the granting of (i) options to
purchase Common Stock intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Options") and (ii) options that do not so
qualify ("Non-Qualified Options"). Only employees of the Company and its
subsidiaries may be granted Incentive Options. The option exercise price of
each option will be determined by the Committee but may not be less than 100%
of the fair market value of the Common Stock on the date of grant in the case
of Incentive Options, and may not be less than 85% of the fair market value of
the Common Stock on the date of grant in the case of Non-Qualified Options.
Employees participating in the 1997 Stock Plan may, however, elect, with the
consent of the Committee, to receive discounted Non-Qualified Options in lieu
of cash bonuses. In the case of such grants, the option exercise price must be
at least 50% of the fair market value of the Common Stock on the date of
grant.
The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised
and, subject to the provisions of the 1997 Stock Plan, the period of time, if
any, after retirement, death, disability or termination of employment during
which options may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Committee.
Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of shares of Common
Stock already owned by the optionee. The exercise price may also be delivered
to the Company by a broker pursuant to irrevocable instructions to the broker
from the optionee.
47
<PAGE>
At the discretion of the Committee, stock options granted under the 1997
Stock Plan may include a "re-load" feature pursuant to which an optionee
exercising an option by the delivery of shares of Common Stock would
automatically be granted an additional stock option (with an exercise price
equal to the fair market value of the Common Stock on the date the additional
stock option is granted) to purchase that number of shares of Common Stock
equal to the number delivered to exercise the original stock option. One of
the purposes of this feature is to enable participants to maintain an equity
interest in the Company without dilution.
To qualify as Incentive Options, options must meet additional Federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
Stock Options Granted to Independent Directors. The 1997 Stock Plan provides
for the automatic grant to each Independent Director of a Non-Qualified Option
to purchase 1,000 shares of Common Stock in connection with the consummation
of this offering. The 1997 Stock Plan also provides for the automatic grant to
each Independent Director of a Non-Qualified Option to purchase 1,000 shares
of Common Stock upon his or her initial election to the Board of Directors. In
addition, each Independent Director who is serving as a director of the
Company on the fifth business day after each annual meeting of stockholders,
beginning with the 1998 annual meeting, will automatically be granted on such
day a Non-Qualified Option to acquire 1,000 shares of Common Stock. The
exercise price of each such Non-Qualified Option is the fair market value of
the Common Stock on the date of grant. All of such Non-Qualified Options
granted to Independent Directors shall be exercisable immediately and shall
terminate on the tenth anniversary of the date of grant.
Stock Appreciation Right. The Committee may award a stock appreciation right
("SAR") either as a freestanding award or in tandem with a stock option. Upon
exercise of the SAR, the holder will be entitled to receive an amount equal to
the excess of the fair market value on the date of exercise of one share of
Common Stock over the exercise price per share specified in the related stock
option (or, in the case of freestanding SAR, the price per share specified in
such right, which price may not be less than 85% of the fair market value of
the Common Stock on the date of grant) times the number of shares of Common
Stock with respect to which the SAR is exercised. This amount may be paid in
cash, Common Stock, or a combination thereof, as determined by the Committee.
If the SAR is granted in tandem with a stock option, exercise of the SAR
cancels the related option to the extent of such exercise.
Restricted Stock. The Committee may also award shares of Common Stock to
officers, other employees and key persons of the Company subject to such
conditions and restrictions as the Committee may determine ("Restricted
Stock"). These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through
a specified restricted period. The purchase price of shares of Restricted
Stock will be determined by the Committee. If the performance goals and other
restrictions are not attained, the employees will forfeit their awards of
Restricted Stock.
Unrestricted Stock. The Committee may also grant shares (at no cost or for a
purchase price determined by the Committee) which are free from any
restrictions under the 1997 Stock Plan ("Unrestricted Stock"). Unrestricted
Stock may be issued to employees and key persons in recognition of past
services or other valid consideration, and may be issued in lieu of cash
bonuses to be paid to such employees and key persons.
Subject to the consent of the Committee, an employee or key person of the
Company may make an irrevocable election to receive a portion of his
compensation in Unrestricted Stock (valued at fair market value on the date
the cash compensation would otherwise be paid).
48
<PAGE>
An Independent Director may, pursuant to an irrevocable written election at
least six months before directors' fees would otherwise be paid, receive all
or a portion of such fees in Unrestricted Stock, valued at fair market value
on the date the directors' fees would otherwise be paid. In certain instances,
an Independent Director may also elect to defer a portion of his director fees
payable in the form of Unrestricted Stock, in accordance with such rules and
procedures as may from time to time be established by the Company. During the
period of deferral, the deferred Unrestricted Stock would receive dividend
equivalent rights.
Performance Share Awards. The Committee may also grant performance share
awards to employees or other key persons of the Company entitling the
recipient to receive shares of Common Stock upon the achievement of individual
or Company performance goals and such other conditions as the Committee shall
determine ("Performance Share Award").
Dividend Equivalent Rights. The Committee may grant dividend equivalent
rights, which give the recipient the right to receive credits for dividends
that would be paid if the grantee had held specified shares of Common Stock.
Dividend equivalent rights may be granted as a component of another award or
as a freestanding award. Dividend equivalents credited under the 1997 Stock
Plan may be paid currently or be deemed to be reinvested in additional shares
of Common Stock, which may thereafter accrue additional dividend equivalents
at fair market value at the time of deemed reinvestment or on the terms then
governing the reinvestment of dividends under the Company's dividend
reinvestment plan, if any. Dividend equivalent rights may be settled in cash,
shares, or a combination thereof, in a single installment or installments, as
specified in the award. Awards payable in cash on a deferred basis may provide
for crediting and payment of interest equivalents.
Adjustments for Stock Dividends, Mergers, Etc. The Committee will make
appropriate adjustments in outstanding awards to reflect stock dividends,
stock splits and similar events. In the event of a merger, liquidation, sale
of the Company or similar event, the Committee, in its discretion, may provide
for substitution or adjustments of outstanding options and SARs, or may
terminate all unexercised options and SARs with or without payment of cash
consideration.
Amendments and Termination. The Board of Directors may at any time amend or
discontinue the 1997 Stock Plan and the Committee may at any time amend or
cancel outstanding awards for the purpose of satisfying changes in the law or
for any other lawful purpose. No such action may be taken, however, which
adversely affects any rights under outstanding awards without the holder's
consent. Further, amendments to the 1997 Stock Plan shall be subject to
approval by the Company's stockholders if and to the extent required by the
Securities Exchange Act of 1934, as amended (the "1934 Act"), to ensure that
awards granted under the 1997 Stock Plan are exempt under Rule 16b-3
promulgated under the 1934 Act, or required by the Code to preserve the
qualified status of Incentive Options.
Change in Control Provisions. The 1997 Stock Plan provides that in the event
of a sale of all or substantially all of the assets or Common Stock of the
Company, a merger or consolidation which results in a change in control of the
Company or the liquidation or dissolution of the Company (a "Change in
Control"), all stock options and stock appreciation rights shall automatically
become fully exercisable. In addition, at any time prior to or after a Change
in Control, the Committee may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate.
STOCK APPRECIATION RIGHTS
Prior to this offering, the Company terminated the Mac-Gray Co., Inc. 1992
Stock Appreciation Rights Plan (the "1992 SAR Plan"). There are no outstanding
stock appreciation rights under the 1992 SAR Plan.
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<PAGE>
EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS
The Company is not a party to any employment agreements with any of its
executive officers.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All executive officer compensation decisions will be made by the Committee.
The Committee will review and make recommendations regarding the compensation
for management and key employees of the Company, including salaries and
bonuses. The members of the Committee upon consummation of this offering will
be Messrs. MacDonald, Leydon and Schiller. Prior to May 2, 1997, and prior to
the creation of the Committee, each of Messrs. MacDonald, Olbrych and Flanagan
participated in deliberations of the Company's Board of Directors concerning
executive compensation.
50
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CERTAIN TRANSACTIONS
In April 1997, the Company consummated the Sun Services Acquisition whereby
it acquired Sun Services via mergers in which it issued an aggregate
consideration of $1,945,000 cash and 612,026 shares of Common Stock to Jeffrey
C. Huenink, who is currently a member of the Board of Directors and a
stockholder of the Company. In connection with the Sun Services Acquisition,
the Company entered into a Noncompetition Agreement (the "Noncompetition
Agreement") and a Consulting Agreement (the "Consulting Agreement") with Mr.
Huenink, the former owner of Sun Services. The Noncompetition Agreement
prohibits Mr. Huenink from conducting business in the Company's principal
industry for a period of three years from the later of the date of termination
of the Consulting Agreement and the date that Mr. Huenink ceases to be a
director of the Company. Pursuant to the terms of the Consulting Agreement,
Mr. Huenink is to advise the Company through April 16, 2002 with respect to
its acquisition strategy and assist the Company in seeking out acquisition
candidates that complement this strategy. The Company has provided Mr. Huenink
with incentives to identify acquisition candidates that may be successfully
integrated into the Company including a combined fixed rate/bonus compensation
package. The bonus aspect of this compensation is based upon the financial
results of certain acquired businesses.
In connection with the Sun Services Acquisition, the Company entered into a
Stockholders' Agreement (the "First Stockholders' Agreement") with Mr. Huenink
and the other stockholders of the Company pursuant to which (i) Mr. Huenink
received demand and "piggy-back" registration rights, (ii) each stockholder
agreed to vote their respective shares in favor of Mr. Huenink's election to
the Board of Directors until the earlier to occur of (a) April 17, 1999, and
(b) such time as Mr. Huenink ceases to hold five percent of the outstanding
shares of Common Stock, (iii) Mr. Huenink received the right to require the
Company to repurchase up to 612,026 shares of Common Stock issued in
connection with the Sun Services Acquisition at a purchase price of $12.74 per
share (the "Put Right"), and (iv) the Company received certain call rights
with respect to such shares. The Put Right expires on the third anniversary of
the consummation of the offering. Upon the consummation of this offering, the
call rights and certain of the put rights terminate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--
Liquidity and Capital Resources."
In connection with the Mac-Gray Combination, the Company (i) acquired all of
the shares of common stock, $.01 par value per share, of Mac-Gray Co. from
each of Mr. Stewart Gray MacDonald, Jr. ("Mr. S. MacDonald, Jr."), Ms. Sandra
E. MacDonald ("Ms. S. MacDonald"), Mr. Daniel W. MacDonald ("Mr. D.
MacDonald," and collectively, the "MacDonalds") and certain trusts under which
such individuals are beneficiaries in exchange for an aggregate of 5,000,000
shares of Common Stock and (ii) acquired all of the limited partner interests
in the Limited Partnership from each of the MacDonalds in exchange for an
aggregate of 1,367,800 shares of Common Stock. Immediately after the Mac-Gray
Combination, the Company effected the merger of the Limited Partnership with
and into Mac-Gray Co., the Limited Partnership's sole general partner. The
Company and Mac-Gray Co. have assumed the existing liabilities and
indebtedness of the Limited Partnership. Mr. S. MacDonald, Jr. is Chief
Executive Officer and Chairman of the Board of Directors, and each of Mr. S.
MacDonald, Jr., Ms. S. MacDonald and Mr. D. MacDonald own of record and
beneficially greater than five percent of the outstanding shares of Common
Stock.
Pursuant to a Stockholders' Agreement by and among the Company and certain
of its stockholders (the "Second Stockholders' Agreement," and together with
the First Stockholders' Agreement, the "Stockholders' Agreements"), (i) each
of Mr. S. MacDonald, Jr., Ms. S. MacDonald and Mr. D. MacDonald (and any
assignees or trusts created by them or under which they are beneficiaries)
received "piggy-back" and demand registration rights, (ii) each of the
MacDonalds granted to and received from the others rights of first offer to
participate on a pro-rata basis in certain sales by them of shares of Common
Stock and (iii) the MacDonalds granted to the Company rights of second offer
to participate in certain sales by them of shares of Common Stock.
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Immediately prior to the consummation of this offering, the Company will
distribute approximately $12.75 million to its existing stockholders. This
distribution represents a substantial portion of the Company's and certain of
its predecessor's historical, undistributed earnings through June 30, 1997
which have been previously taxed for federal and state income tax purposes
directly to the existing stockholders of the Company. See "Termination of
Subchapter S Status" and "Use of Proceeds."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 1, 1997, and
as adjusted to reflect the sale of the shares of Common Stock offered hereby,
by (i) each person known by the Company to own beneficially five percent or
more of the outstanding shares of the Common Stock, (ii) each director, the
Chief Executive Officer and each of the named executive officers of the
Company, and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information furnished by
such owners, have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ------------------------------
NAME OF BENEFICIAL OWNERS(1) OWNED(2)(3) BEFORE OFFERING AFTER OFFERING
---------------------------- ------------ --------------- --------------
<S> <C> <C> <C>
Evelyn C. MacDonald(3)(4)......... 1,700,000 24.4% %
Stewart Gray MacDonald,
Jr.(3)(4)(5)..................... 1,922,600 27.5% %
Sandra E. MacDonald(3)(4)(6)...... 3,209,250 46.0% %
Daniel W. MacDonald(3)(4)(7)...... 2,122,600 30.4% %
Patrick A. Flanagan(3)(4)(8)...... 1,700,000 24.4% %
Peter C. Bennett(3)(4)(9)......... 1,700,000 24.4% %
R. Robert Woodburn,
Jr.(3)(4)(10).................... 1,700,000 24.4% %
Cynthia V. Doggett(11)............ 1,435,000 20.6% %
Richard G. MacDonald(12).......... 459,750 6.6% %
Gilbert M. Roddy, Jr.(13)......... 580,000 8.3% %
Jeffrey C. Huenink................ 612,026 8.8% %
Jerry A. Schiller................. -- -- *
John P. Leydon.................... -- -- *
All executive officers and
directors as a group (7
persons)......................... 3,667,959 52.6% %
</TABLE>
- --------
* less than 1%
(1) Unless otherwise indicated, the mailing address for each stockholder and
director is c/o Mac-Gray Corporation, 22 Water Street, Cambridge, MA
02141.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares of
Common Stock beneficially owned by a person, shares of Common Stock
subject to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of this Prospectus are deemed
outstanding. As of August 1, 1997, a total of 6,979,826 shares of Common
Stock were issued and outstanding.
(3) The Company and the stockholders of the Company, including The Evelyn C.
MacDonald Family Trust for the benefit of Stewart G. MacDonald, Jr., The
Evelyn C. MacDonald Family Trust for the benefit of Sandra E. MacDonald,
The Evelyn C. MacDonald Family Trust for the benefit of Daniel W.
MacDonald (each of these sub-trusts under The Evelyn C. MacDonald Family
Trusts is referred to herein as a "Sub-Trust" and collectively as "Sub-
Trusts"), Mr. S. MacDonald, Jr., Ms. S. MacDonald, Mr. D. MacDonald, The
Stewart G. MacDonald, Jr. 1984 Trust (the "SGM Trust"), The Daniel W.
MacDonald Trust 1988 (the "DWM Trust"), the New Century Trust, The
Whitney E. MacDonald GST Trust-1997, The Jonathan S. MacDonald GST Trust-
1997, The Robert C. MacDonald Gift Trust-1997, The Whitney E. MacDonald
Gift Trust, The Jonathan S. MacDonald GST Trust, The Robert C. MacDonald
Gift Trust and Jeffrey C. Huenink are parties to the Stockholders'
Agreement. The First Stockholders' Agreement provides, among other
things, that the parties thereto must vote their respective shares,
subject to certain conditions contained therein, in favor of Mr.
Huenink's election as a director of the Company. See "Certain
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<PAGE>
Transactions." In addition, the First Stockholders' Agreement provides Mr.
Huenink with certain rights to put his shares of Common Stock to the
Company. As a result of the First Stockholders' Agreement, each
stockholder may be deemed to beneficially own all of the issued and
outstanding shares of Common Stock, although such is not reflected in the
table of shares beneficially owned. The Company and each of the Sub
Trusts, Mr. S. MacDonald, Jr., Ms. S. MacDonald, Mr. D. MacDonald, the SGM
Trust, the DWM Trust, the New Century Trust, The Whitney E. MacDonald GST
Trust-1997, The Jonathan S. MacDonald GST Trust-1997, The Robert C.
MacDonald GST Trust-1997, The Whitney E. MacDonald Gift Trust, The
Jonathan S. MacDonald Gift Trust, and The Robert C. MacDonald Gift Trust,
are parties to a Stockholders' Agreement dated as of June 26, 1997 (the
"Second Stockholders' Agreement"). The Second Stockholders' Agreement
gives the parties thereto rights of first offer to purchase shares offered
for sale by another stockholder, as well as providing the Company with
rights of second offer to purchase such shares. As a result of the Second
Stockholders' Agreement, each of the parties thereto may be deemed to
beneficially own all of the issued and outstanding shares of Common Stock
owned by the other parties thereto, although such is not reflected in the
table of shares beneficially owned.
(4) Includes 1,700,000 shares of Common Stock held in trust pursuant to The
Evelyn C. MacDonald Family Trusts (the "ECM Trust"), the grantor of which
is Ms. Evelyn C. MacDonald ("Ms. E. MacDonald"). The independent trustees
(the "Independent Trustees") of the ECM Trust are Peter C. Bennett ("Mr.
Bennett"), R. Robert Woodburn, Jr. ("Mr. Woodburn") and Patrick A.
Flanagan ("Mr. Flanagan"). In addition, each of Mr. S. MacDonald, Jr.,
Ms. S. MacDonald and Mr. D. MacDonald are trustees of the individual Sub-
Trust under the ECM Trust of which such individual is a beneficiary.
566,667 shares of Common Stock held by the ECM Trust are held in a Sub-
Trust for the benefit of Mr. S. MacDonald, 566,667 shares of Common Stock
held by the ECM Trust are held in a Sub-Trust for the benefit of Ms. S.
MacDonald, and 566,667 shares of Common Stock held by the ECM Trust are
held in a Sub-Trust for the benefit of Mr. D. MacDonald. The Independent
Trustees have voting power over the shares held by the ECM Trust and the
Sub-Trusts, and may be deemed to have beneficial ownership of such shares
of Common Stock. Under the ECM Trust, Ms. E. MacDonald has the right to
replace the property held by the ECM Trust, including the shares of
Common Stock, at any time by contributing property of equivalent value to
the ECM Trust. As a result, Ms. E. MacDonald may be deemed to have
beneficial ownership of the shares of Common Stock held by the ECM Trust.
The four trustees of each Sub-Trust (including each of Mr. S. MacDonald,
Jr., Ms. S. MacDonald and Mr. D. MacDonald as to their own respective
Sub-Trust) generally have the shared power to dispose of the shares of
Common Stock attributed to such Sub-Trust and, therefore, may be deemed
to have beneficial ownership of the shares of Common Stock held by such
Sub-Trust.
(5) Includes (i) 655,000 shares of Common Stock held by the SGM Trust, of
which Mr. S. MacDonald, Jr. serves as co-trustee and is sole beneficiary,
(ii) 580,000 shares of Common Stock held by the New Century Trust, of
which Mr. S. MacDonald, Jr. is the grantor, and (iii) 566,667 shares of
Common Stock held by the ECM Trust for the benefit of Mr. S. MacDonald,
Jr., of which Mr. S. MacDonald, Jr. serves as co-trustee and is the
beneficiary. Mr. S. MacDonald, Jr., may replace the shares of Common
Stock held by the New Century Trust at any time with property of
equivalent value. Mr. S. MacDonald, Jr. disclaims beneficial ownership of
such shares of Common Stock. The Company has granted Mr. S. MacDonald,
Jr. options to purchase up to 148,700 shares of Common Stock, none of
which are exercisable within 60 days and none of which are included in
shares beneficially owned.
(6) Includes (i) 148,800 shares of Common Stock held by The Whitney E.
MacDonald GST Trust-1997, (ii) 148,800 shares of Common Stock held by The
Jonathan S. MacDonald GST Trust-1997, (iii) 148,800 shares of Common
Stock held by The Robert C. MacDonald GST Trust-1997, (iv) 566,667 shares
held by the ECM Trust for the benefit of Ms. S. MacDonald, of which Ms.
S. MacDonald serves as co-trustee and is the beneficiary, and (v)
1,100,000 shares of Common Stock held by the DWM Trust, of which Ms. S.
MacDonald serves as co-trustee. Richard G.
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<PAGE>
MacDonald ("Mr. R. MacDonald") is the sole trustee of each of the
aforementioned trusts (other than the ECM Trust and DWM Trust) and may be
deemed to beneficially own all of such shares of Common Stock. The shares
held by each of The Whitney E. MacDonald GST Trust-1997, The Jonathan S.
MacDonald GST Trust-1997 and The Robert C. MacDonald GST Trust-1997
(collectively, the "GST Trusts") may be replaced at any time by Ms. S.
MacDonald, the grantor of such trusts, with property of equivalent value.
Ms. S. MacDonald may be deemed to beneficially own all such shares of
Common Stock. Ms. S. MacDonald disclaims beneficial ownership of the
shares of Common Stock held by the GST Trusts and the 1,100,000 shares of
Common Stock held by the DWM Trust.
(7) Includes (i) 1,100,000 shares of Common Stock held by the DWM Trust, of
which Mr. D. MacDonald is co-trustee and sole beneficiary, and (ii)
566,667 shares of Common Stock held by the ECM Trust for the benefit of
Daniel W. MacDonald, of which Mr. D. MacDonald serves as co-trustee and
is the beneficiary.
(8) Includes 1,700,000 shares of Common Stock in the aggregate held by the
ECM Trust for which Mr. Flanagan serves as co-trustee and shares voting
and dispositive power over the shares of Common Stock. Mr. Flanagan
disclaims beneficial ownership of the shares of Common Stock held by the
ECM Trust. The Company has granted Mr. Flanagan options to purchase up to
74,350 shares of Common Stock, none of which are exercisable within 60
days and none of which are included in shares of Common Stock
beneficially owned.
(9) Includes 1,700,000 shares of Common Stock held by the ECM Trust for which
Mr. Bennett serves as co-trustee and shares voting and dispositive power
over the shares of Common Stock. Mr. Bennett disclaims beneficial
ownership of the shares of Common Stock held by the ECM Trust. Mr.
Bennett's mailing address is c/o State Street Research & Management
Company, One Financial Center, 31st Floor, Boston, MA 02110.
(10) Includes 1,700,000 shares of Common Stock held by the ECM Trust for which
Mr. Woodburn serves as co-trustee and shares voting and dispositive power
over the shares of Common Stock. Mr. Woodburn disclaims beneficial
ownership of the shares of Common Stock held by the ECM Trust. Mr.
Woodburn's mailing address is c/o Palmer & Dodge, One Beacon Street,
Boston, Massachusetts 02108.
(11) Includes (i) 655,000 shares of Common Stock held by the SGM Trust, of
which Ms. Doggett serves as co-trustee, and (ii) 580,000 shares of Common
Stock held by the New Century Trust, of which Ms. Doggett serves as co-
trustee. The shares of Common Stock held in the New Century Trust may be
replaced at any time by the grantor, Mr. S. MacDonald, Jr., with property
of equivalent value. The SGM Trust is revocable by the grantor, Mr. S.
MacDonald, Jr. Ms. Doggett disclaims beneficial ownership of all of
shares of Common Stock held by such trusts.
(12) Includes (i) 148,800 shares of Common Stock held by The Whitney E.
MacDonald GST Trust-1997, (ii) 148,800 shares of Common Stock held by The
Jonathan S. MacDonald GST Trust-1997, (iii) 148,800 of Common Stock
shares held by The Robert C. MacDonald GST Trust-1997, (iv) 4,450 shares
of Common Stock held by The Whitney E. MacDonald Gift Trust, (v) 4,450
shares of Common Stock held by The Jonathan S. MacDonald Gift Trust, and
(vi) 4,450 shares of Common Stock held by The Robert C. MacDonald Gift
Trust. Mr. R. MacDonald is the sole trustee of each of the aforementioned
trusts and may be deemed to beneficially own all such shares of Common
Stock. The 459,700 shares of Common Stock held by the GST Trusts may be
replaced at any time by Ms. S. MacDonald, the grantor, with property of
equivalent value, all 459,700 shares of Common Stock of which Mr. R.
MacDonald disclaims beneficial ownership.
(13) Includes 580,000 shares of Common Stock held by the New Century Trust, of
which Mr. Roddy serves as co-trustee. The shares of Common Stock held by
the New Century Trust may be replaced at any time by Mr. S. MacDonald,
Jr., the grantor, with property of equivalent value, of which all 580,000
shares of Common Stock Mr. Roddy disclaims beneficial ownership. Mr.
Roddy's mailing address is c/o Loring, Wolcott & Coolidge, 230 Congress
Street, Boston, Massachusetts 02110.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of undesignated
preferred stock issuable in series by the Board of Directors ("Preferred
Stock"). As of August 1, 1997, there were 6,979,826 shares of Common Stock
(including 612,026 shares of redeemable Common Stock) outstanding that were
held of record by 12 stockholders. There will be shares of Common Stock
outstanding after giving effect to the shares of Common Stock offered to
the public hereby (assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options). The following summary
description of the capital stock of the Company does not purport to be
complete and is qualified in its entirety by reference to the Company's
Amended and Restated Certificate of Incorporation (the "Certificate") and By-
laws (the "By-laws"), copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part. The Certificate and
By-laws have been adopted by the stockholders of the Company and the Board of
Directors.
Common Stock. The holders of Common Stock are entitled to one vote per share
on all matters to be voted on by stockholders and are entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor. See "Dividend Policy." The
possible issuance of Preferred Stock with a preference over Common Stock as to
dividends could impact the dividend rights of holders of Common Stock. Holders
of Common Stock are not entitled to cumulative voting rights. Therefore, the
holders of a majority of the shares voted in the election of directors can
elect all of the directors then standing for election, subject to the rights
of the holders of any then outstanding Preferred Stock, if and when issued.
The holders of Common Stock have no preemptive or other subscription rights,
and there are no conversion rights or redemption or sinking fund provisions
with respect to the Common Stock. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, the net assets of the
Company shall be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests, subject to the rights
and interests of the holders of Preferred Stock, if and when issued. All
outstanding shares of Common Stock, including the shares offered hereby, are,
or will be upon consummation of this offering, fully paid and non-assessable.
The Certificate and By-laws provide, subject to the rights of the holders of
any Preferred Stock then outstanding, that the number of directors shall be
fixed by the Board of Directors. The directors, other than those who may be
elected by the holders of any Preferred Stock, are divided into three classes,
as nearly equal in number as possible, with each class serving for a three-
year term. Subject to any rights of the holders of Preferred Stock to elect
directors and to remove any director whom the holders of any such stock had
the right to elect, any director of the Company may be removed from office
only with cause and by the affirmative vote of at least two-thirds of the
total votes which would be eligible to be cast by stockholders in the election
of such director.
Undesignated Preferred Stock. The Board of Directors is authorized, without
further action of the stockholders of the Company, to issue up to 5,000,000
shares of Preferred Stock in classes or series and to fix the designations,
powers, preferences and the relative, participating, optional or other special
rights of the shares of each series and any qualifications, limitations and
restrictions thereon as set forth in the Certificate. Any such Preferred Stock
issued by the Company may rank prior to the Common Stock as to dividend
rights, liquidation preference or both, may have full or limited voting rights
and may be convertible into shares of Common Stock.
The purpose of authorizing the Board of Directors to issue Preferred Stock
is, in part, to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of Preferred Stock
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<PAGE>
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring or seeking to
acquire, a significant portion of the outstanding Common Stock.
CERTAIN PROVISIONS OF CERTIFICATE AND BY-LAWS
General. A number of provisions of the Company's Certificate and By-laws
concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Board of Directors
to issue shares of Preferred Stock and to set the voting rights, preferences
and other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors,
including takeovers which certain stockholders may deem to be in their best
interests. To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Company's Common Stock, which may
result from actual or rumored takeover attempts, may be inhibited. These
provisions, together with the classified Board of Directors and the ability of
the Board of Directors to issue Preferred Stock without further stockholder
action, also could delay or frustrate the removal of incumbent directors or
the assumption of control by stockholders, even if such removal or assumption
would be beneficial to stockholders of the Company. These provisions also
could discourage or make more difficult a merger, tender offer or proxy
contest, even if a transaction or contest could be favorable to the interests
of stockholders, and could potentially depress the market price of the Common
Stock. The Board of Directors believes that these provisions are appropriate
to protect the interests of the Company and all of its stockholders. The Board
of Directors has no present plans to adopt any other measures or devices which
may be deemed to have an "anti-takeover effect."
Meetings of Stockholders. The Company's By-laws provide that a special
meeting of stockholders may be called only by the Board of Directors unless
otherwise required by law. The Company's By-laws provide that only those
matters set forth in the notice of the special meeting may be considered or
acted upon at that special meeting, unless otherwise provided by law. In
addition, the Company's By-laws set forth certain other requirements, such as
advance notice and informational requirements and time limitations on any
director nomination or any new business which a stockholder wishes to propose
for consideration at an annual meeting of stockholders.
No Stockholder Action by Written Consent. The Certificate provides that for
so long as the Company has a class of stock registered pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, any action
required or permitted to be taken by the stockholders of the Company at an
annual or special meeting of stockholders must be effected at a duly called
meeting and may not be taken or effected by a written consent of stockholders
in lieu thereof.
Indemnification and Limitation of Liability. The By-laws provide that
directors and officers of the Company shall be, and in the discretion of the
Board of Directors non-officer employees may be, indemnified by the Company to
the fullest extent authorized by Delaware law, as it now exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with service for or on behalf of the Company, and further permits
the advancing of expenses incurred in defense of claims. The By-laws also
provide that the right of directors and officers to indemnification shall be a
contractual right and shall not be exclusive of any other right now possessed
or hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Certificate contains a provision permitted by Delaware law that
generally eliminates the personal liability of directors for monetary damages
for breaches of their fiduciary duty, including breaches involving negligence
or gross negligence in business combinations, unless the director has breached
his or her duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or a knowing violation of law, paid a dividend or
approved a stock repurchase in violation of the Delaware General Corporation
Law or obtained an improper personal benefit. This provision does not alter a
director's liability under the
57
<PAGE>
federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
Amendment of the Certificate. The Certificate provides that an amendment
thereof must first be approved by a majority of the Board of Directors and
(with certain exceptions) thereafter approved by the holders of a majority of
the outstanding shares entitled to vote on such amendment, and the affirmative
vote of a majority of the outstanding shares of each class entitled to vote
thereon as a class; provided, however, that the affirmative vote of not less
than 80% of the outstanding shares entitled to vote on such amendment, and the
affirmative vote of not less than 80% of the outstanding shares of each class
entitled to vote thereon as a class, is required to amend provisions of the
Certificate relating to the prohibition of stockholder action by written
consent, the establishment, composition and powers of the Board of Directors,
the limitation of director liability and amendments to the Certificate.
Amendment of By-laws. The Certificate provides that the By-laws may be
amended or repealed by the Board of Directors or by the stockholders. Such
action by the Board of Directors requires the affirmative vote of a majority
of the directors then in office. Such action by the stockholders requires the
affirmative vote of the holders of at least three-fourths of the total votes
present and eligible to be cast by holders of voting stock voting as a single
class with respect to such amendment or repeal at an annual meeting of
stockholders or a special meeting called for such purpose, unless the Board of
Directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal shall only require the
affirmative vote of a majority of the total votes present and eligible to be
cast by holders of voting stock voting as a single class with respect to such
amendment or repeal.
Ability to Adopt Stockholder Rights Plan. The Board of Directors may in the
future resolve to issue shares of Preferred Stock or rights to acquire such
shares, to implement a stockholder rights plan which creates voting or other
impediments or under which shares are distributed to a third-party investor, a
group of investors or stockholders or issued to an employee stock ownership
plan to discourage persons seeking to gain control of the Company by means of
a merger, tender offer, proxy contest or otherwise, if such change in control
is not in the best interests of the Company and its stockholders. The Board of
Directors has no present intention of adopting a stockholder rights plan and
is not aware of any attempt to obtain control of the Company.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations
with a person, or an affiliate or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting
in a person becoming an interested stockholder, or the business combination,
is approved by the board of directors of the corporation before the person
becomes an interested stockholder; (ii) the interested stockholder acquired
85% or more of the outstanding voting stock of the corporation in the same
transaction that makes it an interested stockholder (excluding shares owned by
persons who are both officers and directors of the corporation, and shares
held by certain employee stock ownership plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined (with certain limited
exceptions) as any person that is (i) the owner of 15% or more of the
outstanding voting stock of the corporation or (ii) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
58
<PAGE>
prior to the date on which it is sought to be determined whether such person
is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action
of its stockholders to exempt itself from coverage; provided, however, that
such by-law or charter amendment shall not become effective until 12 months
after the date the stockholders adopt such exclusion. Neither the Certificate
nor the By-laws contains any such exclusion.
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company is the transfer agent and registrar for
the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have shares of Common
Stock outstanding (assuming the Underwriters' over-allotment option is not
exercised), excluding (i) 642,090 shares issuable upon exercise of options to
purchase shares of Common Stock outstanding at August 1, 1997 under the 1997
Stock Plan, and (ii) 107,910 shares of Common Stock reserved for issuance upon
grant or exercise of future awards under the 1997 Stock Plan, subject to
increase upon consummation of this offering. Of the total shares outstanding,
shares (including the shares sold in this offering) will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by affiliates of the Company, which will
be subject to the limitations of Rule 144 under the Securities Act ("Rule
144"). All of the remaining shares outstanding (the "Restricted Shares")
may be sold only pursuant to an effective Registration Statement filed by the
Company or an applicable exemption, including sales meeting the applicable
requirements of Rule 144 under the Securities Act.
None of the 6,979,826 shares of Common Stock owned by current stockholders
of the Company will be eligible for sale in accordance with Rule 144 prior to
April 17, 1998, at which such time all 6,979,826 shares of Common Stock will
be eligible for sale in the public market.
In general, Rule 144 as currently in effect provides that any person (or
persons whose shares are aggregated), including a person who may be deemed an
"affiliate" of the Company (as defined under the Securities Act), whose
Restricted Shares have been fully paid for and held for at least one year from
the later of the date of issuance by the Company or acquisition from an
affiliate of the Company, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of (i) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding
the date on which notice of such sale is filed on Form 144 with the Securities
and Exchange Commission (the "Commission") and (ii) 1% of the shares of Common
Stock then outstanding (approximately shares upon consummation of this
offering). In addition, sales under Rule 144 are subject to certain other
restrictions regarding the manner of sale, required notice and availability of
public information concerning the Company. Persons who are not affiliates at
the time of sale and who have not been affiliates of the Company for at least
90 days prior to a sale, and who have beneficially owned the shares proposed
to be sold for at least two years (including the holding period of any prior
owner other than an affiliate), are entitled to sell such shares under Rule
144(k) without the limitations referenced above. Affiliates, including members
of the Board of Directors and senior management, continue to be subject to the
limitations under Rule 144, including volume of sale limitations for all
shares held by them, regardless of the time period held. Shares of Common
Stock sold by the Company to, among others, its employees, officers and
directors upon exercise of options granted pursuant to written compensation
plans or contracts (including certain options granted under the 1997 Stock
Plan), and in reliance on Rule 701 under the Securities Act, may be resold,
beginning 90 days
59
<PAGE>
after the effective date of this Prospectus, in reliance on Rule 144 by such
persons who are not affiliates subject only to the provisions of Rule 144
regarding manner of sale, and by such persons who are affiliates subject to
all provisions of Rule 144 except its one-year minimum holding period
requirement.
Under the 1997 Stock Plan, the Company is authorized to issue options for up
to the greater of 750,000 shares of Common Stock or ten percent of the then
outstanding shares of Common Stock, of which the 642,090 shares were issuable
upon the exercise of outstanding stock options. Upon consummation of this
offering, shares of Common Stock will be reserved for issuance under the
1997 Stock Plan. See "Management--1997 Stock Option and Incentive Plan" and
"--Option Grants in Fiscal Year." The Company intends to file a Registration
Statement under the Securities Act to register the shares of Common Stock
reserved for issuance under the 1997 Stock Plan. Such Registration Statement
is expected to be filed as soon as practicable after the date of this
Prospectus and will become automatically effective upon filing. Shares of
Common Stock issued upon the exercise of options under the 1997 Stock Plan
after the effective date of such Registration Statement generally will be
available for sale in the open market, subject to Rule 144 limitations with
respect to affiliates, and subject to the lock-up agreements described below.
LOCK-UP AGREEMENTS
All stockholders of the Company, including the directors and officers,
holding in the aggregate of the shares of Common Stock (after giving
effect to this offering), have agreed that they will not, without the prior
written consent of the Representatives of the Underwriters, agree to sell,
contract to sell or otherwise dispose of any shares of Common Stock of the
Company for a period of 180 days after the date of this Prospectus. In
addition, the Company has agreed that, without the prior written consent of
Salomon Brothers Inc, the Company will not, directly or indirectly, sell,
offer, contract to sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus, except that the
Company may grant stock options under the 1997 Stock Plan or issue shares upon
the exercise of options granted under the 1997 Stock Plan.
REGISTRATION RIGHTS
The holders of 6,979,826 shares of Common Stock, representing all of the
shares of Common Stock outstanding prior to this offering, have the right, in
certain circumstances, to require the Company to register their shares under
the Securities Act for resale to the public and to include their shares in a
registration statement filed by the Company, all under the terms of the
Stockholders' Agreements. See "Certain Transactions."
EFFECT OF FUTURE SALES
Prior to this offering, there has been no trading market for shares of
Common Stock, and the effect, if any, that future market sales of shares or
the availability of shares for sale will have on the prevailing market prices
for the Common Stock cannot be predicted. Nevertheless, sales of a substantial
number of shares in the public market, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock
and could impair the Company's future ability to raise capital through an
offering of its equity securities. See "Risk Factors--Shares Eligible for
Future Sale."
60
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
by and among the Company and the Underwriters, the Company has agreed to sell
to each of the entities named below (the "Underwriters") and each of the
Underwriters, for whom Salomon Brothers Inc and Smith Barney Inc. are acting
as representatives (the "Representatives"), has severally agreed to purchase
from the Company the number of shares of Common Stock set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Salomon Brothers Inc...............................................
Smith Barney Inc. ................................................
----
Total............................................................
====
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares
of Common Stock offered hereby (other than those covered by the Underwriters'
over-allotment option described below) if any shares of Common Stock are
purchased. In the event of a default by any Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
non-defaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
The Company has been advised by the Representatives that the several
Underwriters propose initially 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 $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to other dealers. After
the initial offering, the public offering price and such concessions may be
changed.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase up to additional
shares of Common Stock, at the same price per share as the initial shares of
Common Stock to be purchased by the Underwriters. The Underwriters may
exercise the option only to cover over-allotments, if any, in the sale of the
shares of Common Stock that the Underwriters have agreed to purchase. To the
extent that the Underwriters exercise such option, each Underwriter will have
a firm commitment, subject to certain conditions, to purchase a number of
option shares proportionate to such Underwriter's initial commitment.
The Company, its officers and directors, and certain beneficial owners of
the Common Stock have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any security convertible into or
exchangeable for Common Stock for a period of 180 days from the date of this
Prospectus, without the prior written consent of Salomon Brothers Inc;
provided, however, that the Company may issue and sell Common Stock pursuant
to any employee stock option or stock option or purchase plan in effect at the
date of this Prospectus and the Company may issue Common Stock issuable upon
the conversion of securities outstanding on the date of this Prospectus.
Salomon Brothers Inc, in its sole discretion, may release any of the shares
subject to the foregoing agreement at any time without notice.
The Underwriting Agreement provides that the Company and its three operating
subsidiaries will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and
61
<PAGE>
purchase shares of Common Stock. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the Common Stock. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.
In addition, if the Representatives over-allot (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this
Prospectus), and thereby create a short position in the Common Stock in
connection with this offering, the Representatives may reduce that short
position by purchasing Common Stock in the open market. The Representatives
also may elect to reduce any short position by exercising all or part of the
over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
this offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
Prior to this offering there has been no public market for the Common Stock.
The price to the public for the shares of Common Stock will be determined
through negotiations between the Company and the Representatives and will be
based on, among other things, the Company's financial and operating history
and condition, the prospects of the Company and its industry in general, the
management of the Company and the market prices of securities of companies
engaged in businesses similar to those of the Company. There can, however, be
no assurance that the prices at which the shares of Common Stock will sell in
the public market after this offering will not be lower than the price at
which it is sold by the Underwriters.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts. Certain legal
matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The combined financial statements of the Company as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996,
the combined financial statements of the Company for the two-month period
ended February 28, 1997 and the combined financial
62
<PAGE>
statements of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry,
Inc. as of and for the year ended December 31, 1996 included in this
Prospectus have been so included in reliance of the report of Price
Watherhouse LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1 (together with all
amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Common Stock being
offered by this Prospectus. This Prospectus, does not contain all of the
information set forth in the Registration Statement certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information about the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement. Statements
contained in this Prospectus about the contents of any contract or any other
documents are not necessarily complete, and in each instance reference is made
to the copy of the contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement may be inspected by
anyone without charge and may be obtained at prescribed rates at the
Commission at the Public Reference Section of the Commission, maintained by
the Commission at its principal office located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, the New York Regional Office located at Seven World
Trade Center, New York, New York 10048, and the Chicago Regional Office
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and are also publicly available through the Commission's web
site (http://www.sec.gov).
Upon completion of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. The Company intends to furnish its
stockholders with annual reports containing audited financial statements
certified by its independent auditors and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MAC-GRAY CO., INC. AND MAC-GRAY L.P.
Report of Independent Accountants........................................ F-2
Combined Balance Sheet as of December 31, 1995 and 1996 and June 30, 1997
(unaudited)............................................................. F-3
Combined Statement of Income for the Years Ended December 31, 1994, 1995
and 1996 and the Six Months Ended June 30, 1996 and 1997 (unaudited).... F-4
Combined Statement of Stockholders' Equity for the Years Ended December
31, 1994, 1995 and 1996 and for the Six Months Ended June 30, 1997
(unaudited)............................................................. F-5
Combined Statement of Cash Flows for the Years Ended December 31, 1994,
1995 and 1996 and for the Six Months Ended June 30, 1996 and 1997
(unaudited)............................................................. F-6
Notes to Combined Financial Statements................................... F-7
Report of Independent Accountants........................................ F-19
Combined Statement of Income for the Two Months Ended February 28, 1997.. F-20
Notes to Combined Financial Statements................................... F-21
SUN SERVICES OF AMERICA, INC. AND R. BODDEN COIN-OP-LAUNDRY, INC.
Report of Independent Accountants........................................ F-27
Combined Balance Sheet as of December 31, 1996 and March 31, 1997
(unaudited)............................................................. F-28
Combined Statement of Income for the Year Ended December 31, 1996 and for
the Three Months Ended March 31, 1996 and 1997 (unaudited).............. F-29
Combined Statement of Stockholder's Equity for the Year Ended December
31, 1996 and the Three Months Ended March 31, 1997 (unaudited).......... F-30
Combined Statement of Cash Flows for the Year Ended December 31, 1996 and
for the Three Months Ended March 31, 1996 and 1997 (unaudited).......... F-31
Notes to Combined Financial Statements................................... F-32
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Mac-Gray Co., Inc.
and the Partners of Mac-Gray, L.P.
In our opinion, the accompanying combined balance sheet and the related
combined statements of income, of changes in stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Mac-
Gray Co., Inc. and Mac-Gray, L.P. (the "Companies"), at December 31, 1996 and
1995, and the combined results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Companies' management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 28, 1997
F-2
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
DECEMBER 31, JUNE 30,
---------------- JUNE 30, 1997
1995 1996 1997 (NOTE 15)
------- ------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 3,882 $ 2,844 $ 2,660 $ 2,660
Trade receivables, net of allowance
for doubtful accounts................ 1,063 1,640 1,741 1,741
Available-for-sale security........... 377 343 343 343
Inventory............................. 1,187 1,509 1,649 1,649
Prepaid expenses and other current
assets............................... 1,287 1,699 2,256 2,256
------- ------- ------- -------
Total current assets................ 7,796 8,035 8,649 8,649
Property, plant and equipment, net.... 25,804 31,912 34,036 34,036
Intangible assets, net................ 904 11,491 22,297 22,297
Prepaid commissions and other assets.. 2,250 2,670 3,989 3,989
------- ------- ------- -------
Total assets........................ $36,754 $54,108 $68,971 $68,971
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long term debt..... $ 3,027 $ 4,042 $ 2,370 $ 2,370
Current portion of capital lease
obligations.......................... 238 251 344 344
Accounts payable...................... 1,893 3,876 2,048 2,048
Accrued commissions................... 3,994 4,940 4,656 4,656
Accrued expenses...................... 881 995 1,454 1,454
------- ------- ------- -------
Total current liabilities........... 10,033 14,104 10,872 10,872
Long-term debt.......................... 11,843 23,325 32,902 45,652
Long-term capital lease obligations..... 179 193 414 414
Deferred income tax liabilities......... 589 647 740 5,040
Deferred retirement obligation.......... 1,260 1,156 1,104 1,104
Other liabilities....................... -- -- 600 600
Commitments and contingencies (Note
11).................................... -- -- -- --
Redeemable common stock, 612,026
shares................................. -- -- 7,797 7,797
Stockholders' equity (deficit):
Common stock of Mac-Gray Co., Inc. ($1
par value; 200,000 shares authorized,
154,275 shares issued and 102,000,
100,000 and 100,000 outstanding,
respectively)........................ 154 154 -- --
Partners' capital..................... 1,009 2,413 -- --
Common stock of Mac-Gray Corporation
($.01 par value; 30,000,000 shares
authorized, 6,367,800 shares issued
and outstanding)..................... -- -- 64 64
Retained earnings (accumulated
deficit)............................. 19,781 20,788 14,220 (2,830)
Net unrealized gain on available-for-
sale security, net of tax............ 290 258 258 258
------- ------- ------- -------
Less: 52,000, 54,275 and 54,275 shares
held in treasury, respectively, at
cost................................. (8,384) (8,930) -- --
------- ------- ------- -------
Total stockholders' equity
(deficit).......................... 12,850 14,683 14,542 (2,508)
------- ------- ------- -------
Total liabilities and stockholders'
equity (deficit)....................... $36,754 $54,108 $68,971 $68,971
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY L.P.
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue....................... $48,031 $50,710 $64,427 $ 29,025 $ 38,288
Cost of revenue:
Commissions................. 19,168 20,471 25,760 11,622 14,639
Laundry route expenditures.. 7,889 8,251 10,955 4,600 6,231
Depreciation and amortiza-
tion....................... 4,756 4,899 6,216 2,715 3,776
Cost of equipment sales..... 2,673 2,938 5,189 2,280 3,831
------- ------- ------- -------- --------
Total cost of revenue..... 34,486 36,559 48,120 21,217 28,477
------- ------- ------- -------- --------
Operating expenses:
General and administration.. 3,085 3,901 3,952 1,874 2,076
Sales and marketing......... 2,501 2,531 3,803 1,541 2,697
Depreciation................ 442 455 517 242 382
------- ------- ------- -------- --------
Total operating expenses.. 6,028 6,887 8,272 3,657 5,155
------- ------- ------- -------- --------
Income from operations........ 7,517 7,264 8,035 4,151 4,656
Interest expense............ (1,217) (1,175) (1,956) (751) (1,431)
Other income (expense),
net........................ 70 55 (87) 1 39
------- ------- ------- -------- --------
Income before provision for
income taxes............... 6,370 6,144 5,992 3,401 3,264
Provision for income taxes.. (388) (374) (465) (255) (232)
------- ------- ------- -------- --------
Net income.................... $ 5,982 $ 5,770 $ 5,527 $ 3,146 $ 3,032
======= ======= ======= ======== ========
UNAUDITED PRO FORMA AS ADJUSTED DATA
(NOTE 15):
Income before provision for
income taxes............... $ 6,370 $ 6,144 $ 5,992 $ 3,401 $ 3,264
Provision for income taxes.. (2,548) (2,458) (2,397) (1,360) (1,306)
------- ------- ------- -------- --------
Pro forma as adjusted net
income..................... $ 3,822 $ 3,686 $ 3,595 $ 2,041 $ 1,958
======= ======= ======= ======== ========
Pro forma as adjusted net
income per
common share............... $ -- $ --
======= ========
Pro forma as adjusted
weighted average
common shares outstanding.. -- --
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED TREASURY STOCK
---------------- GAINS (LOSSES) -----------------
NUMBER OF PARTNERS' RETAINED ON SECURITY, NUMBER OF
SHARES VALUE CAPITAL EARNINGS NET OF TAX SHARES VALUE TOTAL
--------- ----- --------- -------- -------------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... 154,275 $ 154 $ -- $14,629 $ 383 52,000 $(8,384) $6,782
Net income............. -- -- -- 5,982 -- -- -- 5,982
Net change in
unrealized gains
(losses) on available-
for-sale security, net
of tax................ -- -- -- -- (121) -- -- (121)
Dividends.............. -- -- -- (3,205) -- -- -- (3,205)
--------- ----- ------- ------- ----- ------- ------- -------
Balance, December 31,
1994................... 154,275 154 -- 17,406 262 52,000 (8,384) 9,438
Net income............. -- -- -- 5,770 -- -- -- 5,770
Net change in
unrealized gains
(losses) on available-
for-sale security, net
of tax................ -- -- -- -- 28 -- -- 28
Dividends.............. -- -- -- (3,395) -- -- -- (3,395)
Contribution of
capital............... -- -- 1,009 -- -- -- -- 1,009
--------- ----- ------- ------- ----- ------- ------- -------
Balance, December 31,
1995................... 154,275 154 1,009 19,781 290 52,000 (8,384) 12,850
Net income............. -- -- -- 5,527 -- -- -- 5,527
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (32) -- -- (32)
Dividends.............. -- -- -- (4,520) -- -- -- (4,520)
Common stock
redemption............ -- -- -- -- -- 2,275 (546) (546)
Contribution of
capital............... -- -- 1,404 -- -- -- -- 1,404
--------- ----- ------- ------- ----- ------- ------- -------
Balance, December 31,
1996................... 154,275 154 2,413 20,788 258 54,275 (8,930) 14,683
Net income
(unaudited)........... -- -- -- 3,032 -- -- -- 3,032
Elimination of capital
structure (Note 13)
(unaudited)........... (154,275) (154) (2,413) (6,363) -- (54,275) 8,930 --
Reorganization of the
Company (Note 13)
(unaudited)........... 6,367,800 64 -- (64) -- -- -- --
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax
(unaudited)........... -- -- -- -- -- -- -- --
Dividends (unaudited).. -- -- -- (3,173) -- -- -- (3,173)
--------- ----- ------- ------- ----- ------- ------- -------
Balance, June 30, 1997
(unaudited)............ 6,367,800 $ 64 $ -- $14,220 $258 -- $ -- $14,542
========= ===== ======= ======= ===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING AC-
TIVITIES:
Net income................... $ 5,982 $ 5,770 $ 5,527 $ 3,146 $ 3,032
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization.............. 5,198 5,354 6,733 2,957 4,158
(Gain) loss on sale of
assets.................... 14 (11) 43 42 --
Deferred income taxes...... 72 71 60 -- 93
(Increase) decrease in
accounts receivable......... (545) 69 (577) (185) (57)
(Increase) decrease in
inventory................... (125) (137) 224 385 170
Increase in prepaid expenses
and other assets............ (650) (1,386) (1,299) (880) (1,291)
Increase (decrease) in
accounts payable, accrued
commissions and accrued
expenses.................... 704 687 2,939 217 (2,559)
------- ------- -------- -------- --------
Net cash flows provided
by operating
activities.............. 10,650 10,417 13,650 5,682 3,546
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures......... (5,679) (4,421) (7,635) (2,986) (2,998)
Acquisition of businesses
(Note 2).................... -- (821) (14,487) (12,869) (4,958)
Proceeds from sales of
property and equipment...... 66 137 52 52 --
------- ------- -------- -------- --------
Net cash flows used in
investing activities.... (5,613) (5,105) (22,070) (15,803) (7,956)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term debt and capital lease
obligations................. (2,207) (2,490) (2,171) (4,891) (1,185)
Principal payments on
deferred retirement
obligations................. -- -- -- -- (44)
Retirement of line of credit
and term loan............... -- -- (5,378) -- (18,646)
Advances on line-of-credit,
net......................... -- 1,327 18,247 15,730 27,274
Contribution of capital...... -- 1,009 1,404 294 --
Cash dividends paid.......... (3,921) (3,395) (4,520) (2,237) (3,173)
Cash paid to repurchase
shares of common stock...... -- -- (125) (125) --
Cash paid for refinancing of
long term debt.............. -- -- (75) (75) --
------- ------- -------- -------- --------
Net cash flows provided
by (used in) financing
activities.............. (6,128) (3,549) 7,382 8,696 4,226
------- ------- -------- -------- --------
Increase (decrease) in cash and
cash equivalents.............. (1,091) 1,763 (1,038) (1,425) (184)
Cash and cash equivalents,
beginning of year............. 3,210 2,119 3,882 3,882 2,844
------- ------- -------- -------- --------
Cash and cash equivalents, end
of year....................... $ 2,119 $ 3,882 $ 2,844 $ 2,457 $ 2,660
======= ======= ======== ======== ========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid................ $ 1,125 $ 1,161 $ 1,944 $ 603 $ 1,251
Income taxes paid............ 170 242 384 268 153
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS
Basis of Presentation--The combined financial statements include the
accounts of Mac-Gray Co., Inc. and Mac-Gray, L.P., (collectively, the
Company). Mac-Gray Co., Inc. is the sole general partner of Mac-Gray, L.P.
which was formed in August of 1995. Mac-Gray Co., Inc. and Mac-Gray, L.P. are
both 100% owned by the same shareholders and are under common management.
Unaudited Interim Financial Statements--The accompanying financial
information as of June 30, 1997 and for the six month periods ended June 30,
1996 and 1997 is unaudited. The unaudited interim financial information as of
and for the six month period ended June 30, 1997 is reflective of the
reorganization of the Company (Note 13) and the acquisition of Sun Services of
America, Inc. and R. Bodden Coin-Op-Laundry, Inc. (Note 13), both of which
occurred on April 17, 1997. Accordingly, the unaudited interim financial
information as of and for the six month period ended June 30, 1997 has been
presented on a consolidated basis. The unaudited interim financial information
as of and for the six month period ended June 30, 1996 has been prepared on
the same basis as the accompanying annual financial statements. In the opinion
of management, such interim financial information reflects adjustments
consisting of normal and recurring adjustments necessary for a fair
presentation of such financial information. The unaudited results of
operations for the interim periods ended June 30, 1996 and 1997 are not
necessarily indicative of the results of operations to be expected for any
other interim period or for the full year.
Principles of Combined Financial Statements--The combined financial
statements include the accounts of the Company, including the 1995 and 1996
Acquisitions (Note 2) from the respective acquisition dates. All significant
intercompany transactions and balances have been eliminated in combination.
Description of the Business--The Company generates the majority of its
revenue from card and coin route laundry rooms located in the Northeastern,
Midwestern and Southeastern United States. The Company's principal customer
base is the multi-housing market, which consists of apartments, condominium
units, colleges and universities. The Company also sells, services and leases
commercial laundry equipment to commercial laundromats and institutions. The
majority of the Company's purchases of coin route laundry equipment is from
one supplier.
2. ACQUISITIONS
Acquisitions--On August 31, 1995, the Company acquired certain assets of
Commercial Appliance, Inc. (the 1995 Acquisition). During 1996, the Company
acquired certain assets of six coin-operated laundry businesses or divisions
(the 1996 Acquisitions). The 1995 and 1996 Acquisitions were paid in cash,
with one exception, which also included a note payable of $1,074. The 1995 and
1996 Acquisitions were accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired was the fair
market values on the respective acquisitions dates. Purchase price in excess
of the fair value of assets acquired was allocated to goodwill. The Company's
combined financial statements include the results of the 1995 and 1996
Acquisitions from their respective acquisition dates. The purchase price
allocations for the 1995 and 1996 Acquisitions are summarized as follows:
F-7
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
ACQUISITION ACQUISITIONS
----------- ------------
<S> <C> <C>
Acquisition price, including non-compete and
consulting agreement payments: $821 $15,561
==== =======
Fair market value of assets acquired:
Inventory.......................................... $ 90 $ 547
Prepaid expenses and other current assets.......... -- 167
Coin-route equipment............................... 167 3,413
Intangible assets:
Non-compete agreements............................ -- 1,250
Goodwill.......................................... 564 10,184
---- -------
Total............................................ $821 $15,561
==== =======
</TABLE>
In connection with the financing of the 1996 Acquisitions, the Company
entered into a Credit Agreement on April 1, 1996 (Note 8).
Pro forma 1995 and 1996 revenue and net income information has not been
provided due to lack of historical financial data of the acquired entities.
3. SIGNIFICANT ACCOUNTING POLICIES
Cash, Cash Equivalents and Available-For-Sale Security--The Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
The Company accounts for their investment in a marketable equity security in
accordance with Statement of Financial Accounting Standard No. 115, "Accounting
for Certain Debt and Equity Securities" (SFAS 115). SFAS 115 requires
marketable equity securities classified as available-for-sale to be reported at
fair value, with the unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity, net of tax.
F-8
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Revenue Recognition--The Company recognizes coin route laundry revenue on the
accrual basis. Sales revenue from the Company's commercial sale of equipment
and parts is recognized upon shipment of the orders.
Allowance for Doubtful Accounts--The Company maintains an allowance for
doubtful accounts of $330 at December 31, 1995 and 1996 and of $358 at June 30,
1997.
Concentration of Credit Risk--Financial instruments which potentially expose
the Company to concentration of credit risk include trade receivables,
generated by the Company as a result of the selling and leasing of laundry
machines. To minimize this risk, ongoing credit evaluations of customers'
financial condition are performed and reserves are maintained. The Company
typically does not require collateral.
Fair Value of Financial Instruments--For purposes of financial reporting, the
Company has determined that the fair value of financial instruments
approximates book value at December 31, 1995 and 1996, based upon terms
currently available to the Company in financial markets.
Inventories--Inventories consist of laundry machines and parts purchased for
commercial sale. Inventories are stated at the lower of cost (as determined
using the first-in, first-out method) or market.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost and depreciated using the straight-line method over the estimated useful
lives of the respective assets. Expenditures for maintenance and repairs are
charged to operations as incurred; acquisitions, major renewals, and
betterments are capitalized.
Coin route equipment--not yet placed in service--These assets represent
laundry machines that management estimates will be installed in coin route
laundry rooms and have not been purchased for commercial sale.
Intangible Assets--Intangible assets primarily consist of various non-compete
agreements and goodwill recorded in connection with the 1995 and 1996
Acquisitions (Note 2). The non-compete agreements are amortized using the
straight-line method over the life of the agreements, which ranges from two to
five years. Goodwill is amortized over fifteen years from the acquired
companies respective dates of acquisitions.
Income Taxes--Mac-Gray Co., Inc., which has elected "S Corporation" status,
and Mac-Gray, L.P. are "pass through" entities for income tax purposes, except
for taxes assessed by those states that do not recognize Mac-Gray Co., Inc.'s
"S Corporation" status. Accordingly, earnings and losses are included on the
income tax returns of the respective equity owners.
The Company accounts for income taxes utilizing the asset and liability
method as prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under the provisions of SFAS 109, the
current or deferred tax consequences of a transaction are measured by applying
the provisions of enacted tax laws to determine the amount of taxes payable
currently or in future years. The classification of net current and non-current
deferred tax assets or liabilities depend upon the nature of the related asset
or liability. Deferred income taxes are provided for temporary differences
between the income tax basis of assets and liabilities and their carrying
amounts for financial reporting purposes.
F-9
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share--Given the capital structure of the Company, historical
earnings per share information is not considered meaningful or relevant and has
not been presented in the accompanying financial statements (Note 15).
New Accounting Pronouncements--The Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), is
effective for transactions entered into in fiscal years that begin after
December 15, 1995 (fiscal 1996 for the Company). SFAS 123 encourages entities
to account for employee stock options or similar equity instruments using a
fair value approach for all such plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Those entities which elect to remain with the accounting in APB 25
are required to include pro forma disclosures of net income and earnings per
share as if the fair value-based method of accounting had been applied, to the
extent that pro forma net income and earnings per share differ materially from
reported amounts. The Company elected to continue to account for such plans
under the provisions of APB 25. Therefore, there was no effect on the Company's
financial position or results of operations as a result of this pronouncement.
In addition, as the Company's only outstanding stock options were issued on
December 30, 1996, the difference between net income as reported for 1996 and
pro forma net income calculated under the guidance provided by FAS 123 was not
material (Note 12).
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ---------------
(YEARS) 1995 1996
----------- ------- -------
<S> <C> <C> <C>
Coin route equipment............................... 10 $49,965 $58,610
Buildings and improvements......................... 15-32 5,368 6,531
Furniture and fixtures............................. 5-7 3,423 4,062
Trucks and autos................................... 3-5 1,429 1,776
Land and improvements.............................. -- 334 309
------- -------
60,519 71,288
Less: accumulated depreciation..................... 35,430 40,428
------- -------
25,089 30,860
Coin route equipment, not yet placed in service.... 715 1,052
------- -------
Property, plant and equipment, net................. $25,804 $31,912
======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment totaled
$4,218, $4,477 and $5,176 for the years ended December 31, 1994, 1995 and 1996,
respectively.
F-10
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
During 1994, 1995 and 1996, the Company acquired vehicles under capital
leases with a cost of $175, $356 and $328, respectively.
At December 31, 1995 and 1996, trucks and autos includes $1,156 and $1,449,
respectively, of capital leased equipment with an accumulated amortization
balance of $738 and $1,052, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
------ -------
<S> <C> <C>
Goodwill........................................................ $ 664 $10,348
Covenants-not-to-compete........................................ 799 2,549
Other........................................................... 159 153
------ -------
1,622 13,050
Less: accumulated amortization.................................. 718 1,559
------ -------
Intangible assets, net.......................................... $ 904 $11,491
====== =======
</TABLE>
6. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1996
------ ------
<S> <C> <C>
Accrued profit sharing........................................... $ 275 $ 307
Accrued interest................................................. 122 134
Accrued salaries................................................. 176 78
Current portion of deferred compensation......................... 104 104
Other............................................................ 204 372
------ ------
Accrued expenses................................................. $ 881 $ 995
====== ======
</TABLE>
7. DEFERRED RETIREMENT OBLIGATION
The deferred retirement obligation at December 31, 1995 and 1996 relates to
payments due to a shareholder of the Company in connection with a retirement
agreement which provides for annual payments of $104 until the death of the
shareholder. The liability at December 31, 1995 and 1996 has been estimated
based upon the life expectancy of the shareholder utilizing actuarial tables.
F-11
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Line of credit, prime rate, due April 1, 1998...... $ 1,327 $ -- $ --
Bank note, prime rate plus .5% to 1.5%, quarterly
installments, due April 1, 1998................... 4,050 -- --
Revolving credit facility.......................... -- 1,607 --
Credit agreement:
Revolving line of credit......................... -- 11,776 --
Acquisition line of credit....................... -- 3,635 --
Working capital line of credit................... -- 650 --
Senior secured credit facility:
Revolving credit and term loan facility, prime
plus .5% (9.25% at June 30, 1997), due April 14,
1999 (Note 13).................................. -- -- 26,282
Unsecured notes payable to former shareholders:
Variable rate note, lesser of prime rate plus 2%
or 9%, quarterly principal payments beginning
January 1, 1996 (8.25% at December 31, 1996).... 4,160 3,360 2,960
Fixed rate notes, 8.4% interest rate, due Septem-
ber 1, 1997 and June 1, 2000.................... 2,046 2,046 1,746
Discount note, 6% imputed interest rate
(estimated fair market rate), quarterly
installments, due December 31, 2003............. 2,962 2,613 2,427
Fixed note, 8.75% interest rate, due January 1,
2001............................................ -- 421 407
Note payable, 8% fixed interest rate, semi-annual
principal payments, due September 1, 1999....... -- -- 281
Note payable, 11.5% fixed interest rate, monthly
principal payments, due September 1, 1999....... 325 249 208
Acquisition note payable, 8% imputed interest
rate (estimated fair market rate), monthly
payments, due May 31, 2006...................... -- 1,010 961
------- ------- -------
Total long-term debt........................... 14,870 27,367 35,272
Less: current portion.............................. 3,027 4,042 2,370
------- ------- -------
$11,843 $23,325 $32,902
======= ======= =======
</TABLE>
CREDIT AGREEMENT AND REVOLVING CREDIT FACILITY
In connection with the financing of the 1996 Acquisitions (Note 2), the
Company entered into a Credit Agreement with a bank which provides for
borrowings under a Revolving Line of Credit, Working Capital Line of Credit and
Acquisition Line of Credit of up to $14,000, $1,500 and $4,000, respectively.
Borrowings under the Credit Agreement are restricted to providing working
capital requirements of the Company and funding future acquisitions. The
amounts available to be borrowed under the Revolving Line of Credit are
automatically reduced by $910 semi-annually. As of December 31, 1996, $18,600
was available to be borrowed under the aggregate Credit Agreement. The Credit
Agreement expires on April 1, 2001 (Note 13).
F-12
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
During June 1996, the Company entered into an agreement with a bank which
provides a Revolving Credit Facility with aggregate borrowings of up to $4,500.
As of December 31, 1996, $2,893 was available to be borrowed under the
Revolving Credit Facility. The Revolving credit facility expires on May 1, 2001
(Note 13).
A portion of the proceeds from the Credit Agreement and the Revolving Credit
Facility were used to pay the balance of the Bank Note and Line of Credit
outstanding prior to the refinancing of the Company.
Letters of Credit--The Credit Agreement and the Revolving Credit Facility
provide for the issuance of standby letters of credit up to $2,200 in the
aggregate. At December 31, 1996, outstanding letters of credit amounted to
$1,526.
Interest--Borrowings under the Credit Agreement and the Revolving Credit
Facility bear interest, at the Company's option, at either (1) the banks' prime
interest rate (the "Prime Rate") or (2) 2.5% plus the rate at which certain
Eurodollar deposits are offered in the interbank Eurodollar market (the "LIBOR
Rate") or (3) 2.5% plus the rate at which funds are offered in the secondary
markets (the "Cost of Funds Rate") (8.25% rate, the Prime Rate, at December 31,
1996).
FUTURE PAYMENTS
As of December 31, 1996, the scheduled future principal payments of long-term
debt are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 4,042
1998............................................................. 1,870
1999............................................................. 1,871
2000............................................................. 2,241
2001............................................................. 1,049
Thereafter....................................................... 16,294
-------
$27,367
=======
</TABLE>
SENIOR SECURED CREDIT FACILITY (UNAUDITED)
On April 17, 1997, outstanding debt under the Credit Agreement and Revolving
Credit Facility was refinanced under terms of an amended and restated agreement
(Note 13).
At June 30, 1997, $23,718 was available to be borrowed under the Senior
Secured Credit Facility. The Senior Secured Credit Facility provides for the
issuance of standby letters of credit of up to $15,000 in the aggregate. At
June 30, 1997, outstanding letters of credit amounted to $10,363.
9. STATE INCOME TAXES
Provision for state income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current state income tax..................................... $324 $305 $405
Deferred state income tax.................................... 64 69 60
---- ---- ----
Total state income taxes..................................... $388 $374 $465
==== ==== ====
</TABLE>
F-13
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The Company's 1994, 1995 and 1996 effective tax rates differ from the
applicable statutory tax rates due to meals and entertainment expenses and
goodwill amortization recorded for book that are not deductible for income tax
purposes. In addition to the aforementioned items, the Company's 1996 effective
tax rate differs from the statutory tax rate due to taxable losses generated by
Mac-Gray, L.P. for which only a 10% tax benefit (equivalent to Mac-Gray Co.,
Inc.'s general partnership interest in Mac-Gray, L.P.) was recognized by the
Company.
The net deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred compensation........................................... $229 $202
Other........................................................... 60 73
---- ----
Net deferred tax asset............................................ 289 275
---- ----
Deferred tax liabilities:
Accelerated depreciation........................................ 875 915
Other........................................................... 3 7
---- ----
Net deferred tax liabilities...................................... 878 922
---- ----
Total........................................................... $589 $647
==== ====
</TABLE>
10. COMMON STOCK REDEMPTION
On January 1, 1996, the Company redeemed 2,275 shares of its common stock at
$240 per share from minority shareholders. The aggregate redemption price was
$546, consisting of cash in the amount of $125 and the issuance of five-year
promissory notes in the amount of $421, bearing interest at 8.75% per year.
11. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases certain equipment and facilities under non-
cancelable operating leases. The Company also leases certain vehicles under
capital leases.
Future minimum lease payments under non-cancelable operating and capital
leases consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1997................................................... $301 $ 309
1998................................................... 179 290
1999................................................... 51 261
2000................................................... -- 161
2001................................................... -- 64
---- ------
Future lease payments.................................... 531 $1,085
======
Less: amount representing interest (8.5% at December 31,
1996)................................................... 87
----
444
Present value future minimum lease payments less amounts
due within one year..................................... 251
----
Amounts due after one year............................... $193
====
</TABLE>
F-14
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Rent expense incurred by the Company under non-cancelable operating leases
totaled $98, $123 and $256 for the years ended December 31, 1994, 1995 and
1996, respectively.
Guaranteed Commission Payments--The Company operates coin laundry routes
under various lease agreements in which the Company is required to make minimum
guaranteed commission payments to the respective property owners. The following
is a schedule by years of future minimum guaranteed commission payments
required under these lease agreements that have initial or remaining non-
cancelable contract terms in excess of one year as of December 31, 1996:
<TABLE>
<S> <C>
1997............................................................. $ 2,746
1998............................................................. 2,321
1999............................................................. 1,879
2000............................................................. 1,530
2001............................................................. 1,002
Thereafter....................................................... 2,833
-------
$12,311
=======
</TABLE>
Guarantee of Indebtedness--At December 31, 1996, Mac-Gray Co., Inc. is a
guarantor on a line-of-credit for a customer in the amount of $689. The
customer has incurred substantial losses in its last three fiscal years ended
December 31, 1996. While the guarantee is secured by a pledge of the borrowing
company's assets, it is uncertain if those assets and profits from continuing
operations will be adequate to retire the line-of-credit. The Company has
recorded a reserve of $250 at December 31, 1996 for estimated losses on this
guarantee. In management's opinion, the range of the estimated loss to be
incurred in connection with the Company's guarantee of the customer's line-of-
credit in excess of the amount recorded at December 31, 1996 will not have a
material adverse impact on the results of operations or the financial position
of the Company.
Litigation--The Company is involved in various litigation proceedings arising
in the normal course of business. In the opinion of management, the Company's
ultimate liability, if any, under pending litigation would not materially
affect its financial condition or the results of its operations.
12. EMPLOYEE BENEFIT AND STOCK PLANS
Retirement Plans--The Company maintains a qualified profit-sharing/401(k)
plan (the Plan) covering substantially all employees. The Company's
contributions to the Plan are at the discretion of the Board of Directors.
Costs under the Plan amounted to $534, $535 and $532 for the years ended
December 31, 1994, 1995 and 1996, respectively.
1996 Stock Option Plan
Mac-Gray Co., Inc. adopted its 1996 Stock Option and Incentive Plan (the 1996
Plan) effective December 30, 1996. The 1996 Plan provides several types of Mac-
Gray Co., Inc. equity-based compensation awards. Under the provisions of the
1996 Plan, the maximum number of shares of common stock that may be awarded is
15,000 shares, of which 3,873 are available for grant at December 31, 1996.
Officers, employees, directors, consultants or other key persons of Mac-Gray
Co., Inc. and Mac-Gray, L.P. who are responsible for or contribute to
management, growth or profitability of
F-15
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
the Company are eligible to participate in the 1996 Plan. Awards, when made,
may be in the form of stock options, restricted stock, unrestricted stock
options, and dividend equivalent rights.
On December 30, 1996, 11,127 stock options were issued with an exercise price
of $499.50 per share (fair market value on the date of grant). These options do
not vest or become exercisable until the sixth anniversary of the date of grant
unless shares of the Company's common stock are registered under the Securities
Act of 1933 (see Note 14), in which case options automatically vest in an
amount of 20% per year on each of the first through fifth anniversaries of the
date of grant. No options were exercised or canceled during 1996. Other than
the stock option grants, there were no other grants of equity-based
compensation awards during 1996. At December 31, 1996, the weighted average
remaining life of options granted was approximately 10 years.
13. SUBSEQUENT EVENTS (UNAUDITED)
Reorganization of the Company
On April 17, 1997, Mac-Gray Co., Inc. and Mac-Gray, L.P. were reorganized to
create Mac-Gray Corporation (the Parent). The Parent acquired all of the
outstanding common stock of Mac-Gray Co., Inc. and all of the outstanding
limited partnership interest of Mac-Gray, L.P. in exchange for 6,367,800 shares
of the Parent's common stock (Note 15). Concurrently, Mac-Gray, L.P. was merged
with and into Mac-Gray Co., Inc., which will continue to operate as a wholly
owned subsidiary of the Parent. The authorized capital stock of the Parent
consists of 30,000,000 shares of common stock, $.01 par value per share, and
5,000,000 shares of undesignated preferred stock issuable in series by the
Board of Directors of the Parent.
The unaudited June 30, 1997 financial statements are reflective of the
reorganization of the Company.
Acquisition of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry,
Inc.
On April 17, 1997, the Parent acquired in exchange for 612,026 shares of its
common stock, (approximate value of $7,797), approximately $2,170 in cash, $850
of a deferred obligation, and assumption of approximately $2,787 in debt, each
of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry, Inc.
(collectively, Sun Services). The shares of the Parent's common stock are
redeemable by the shareholder under certain circumstances, which include the
timing of the planned initial public offering (Note 14). The redeemable common
stock has been valued at a contractual put price of $12.74 per common share.
Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry are 100% owned by
the same shareholder. The Parent acquired all of the outstanding capital stock
of Sun Services, which was accounted for pursuant to the purchase method of
accounting. Based upon preliminary purchase accounting, goodwill of
approximately $11,600 arose from this transaction, which will be amortized over
20 years.
The results of Sun Services' operations are reflected in the unaudited June
30, 1997 financial statements subsequent to the date of acquisition.
F-16
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Amended and Restated Credit Agreement and Revolving Credit Facility
On April 17, 1997, the Parent entered into a credit agreement (the Credit
Facility) with a bank which provides for borrowings under (i) a revolving line
of credit and term loan facility and (ii) a revolving working capital line of
credit facility of up to $45,000 and $5,000, respectively. Outstanding
indebtedness under the Credit Facility bears interest, at the Parent's option,
at a rate equal to the prime rate plus up to .5% or LIBOR plus 2.5% with the
margin over the prime rate and LIBOR decreasing after the consummation of the
pending offering of the Parent's common stock (Note 14). The Credit Facility
restricts payments of dividends and other distributions, restricts the Parent
from making certain acquisitions, incurring indebtedness and requires it to
maintain certain financial ratios. The Credit Facility is secured by pledges
of assets of the Parent and its subsidiaries. Bank indebtedness of the Company
outstanding prior to the effective date of the Credit Facility was
subsequently assumed under the Credit Facility.
The unaudited June 30, 1997 financial statements are reflective of the
amended and restated credit agreement and revolving credit facility.
1997 Stock Option Plan
On April 7, 1997, the Parent adopted the 1997 Stock Option and Incentive
Plan (the 1997 Plan). The terms of the 1997 Plan are substantially the same as
the terms of the 1996 Plan (Note 12) that was adopted by Mac-Gray Co., Inc. in
December 1996. Concurrent with the reorganization of the Company, the options
issued pursuant to the 1996 Plan were assumed by the Parent under the 1997
Plan and the 1996 Plan was terminated. The options assumed by the Parent under
the 1997 Plan were reflective of the exchange of common stock between the
Parent and Mac-Gray Co., Inc. Accordingly, 556,350 options with an exercise
price of $9.99 per share issued pursuant to the 1996 Plan were assumed by the
Parent under the 1997 Plan.
In August 1997, the Parent adjusted the exercise price of the 552,600
remaining options outstanding under the 1997 Plan from $9.99 per share to
$8.80 per share. The adjustment was made to restore the economic position of
the option holders as a result of the planned dividend of $12,750 (Note 15)
prior to the consummation of the Parent's initial public offering (Note 14).
14. PENDING INITIAL PUBLIC OFFERING OF COMMON STOCK
Mac-Gray Corporation intends to file a Registration Statement on Form S-1
for purposes of selling shares of previously unissued common stock. The net
proceeds from the sale of the common stock are intended to be used primarily
to repay existing indebtedness outstanding under the Credit Facility.
15. UNAUDITED PRO FORMA AS ADJUSTED INFORMATION
Balance Sheet
The unaudited pro forma as adjusted balance sheet as of June 1997 has been
adjusted to reflect the retroactive effect of the Company's change in income
tax status from an S corporation to a C corporation whereby approximately
$4,300 of net deferred tax liabilities are required to be recorded by the
Company, in accordance with SFAS 109, upon consummation of the initial public
offering of the Parent's common stock (Note 14).
F-17
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The unaudited pro forma as adjusted balance sheet has also been adjusted to
give effect to a dividend that is planned to be declared and paid by the Parent
immediately prior to the consummation of the Parent's initial public offering
(Note 14). The $12,750 dividend, which was estimated for purposes of presenting
the pro forma as adjusted balance sheet, will be paid pro-rata to the
shareholders of the Parent, which include the former shareholders of Mac-Gray,
Co., Inc., the former partners of Mac-Gray, L.P. and the former shareholder of
Sun Services.
Statement of Income
Unaudited pro forma as adjusted data reflects adjustments to the combined
statement of income for each of the three years in the period ended December
31, 1996 and for the six months ended June 30, 1996 and 1997. Such adjustments
consider the effect on the Company's operations as if the Company was subject
to federal and state income taxes on a corporate level. Accordingly, the pro
forma as adjusted income tax provision and pro forma as adjusted net income
have been calculated, using an estimated income tax rate of 40%, as if the
Company was subject to income taxation as a C corporation during all periods
presented.
Earnings Per Share
Unaudited pro forma as adjusted net income per share will be calculated for
the respective periods by dividing the respective unaudited pro forma as
adjusted net income amounts by the weighted average number of shares of common
and common equivalent shares outstanding, giving effect to the exchange of
shares between the Parent and the Company (Note 13), using the treasury stock
method. Common share equivalents consist of common stock which may be issuable
upon exercise of outstanding stock options. Pursuant to Securities and Exchange
Commission rules for calculating net income per share in an initial public
offering (Note 14), all shares issued within twelve months of the offering,
including common stock equivalents, are considered in computing common and
common share equivalents.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Mac-Gray Co., Inc.
and the Partners of Mac-Gray, L.P.
In our opinion, the accompanying combined statement of income presents
fairly, in all material respects, the combined results of operations of Mac-
Gray Co., Inc. and Mac-Gray, L.P. (the "Companies") for the two month period
ended February 28, 1997 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Companies'
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 4, 1997
F-19
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWO MONTHS
ENDED
FEBRUARY 28,
1997
------------
<S> <C>
Revenue............................................................ $11,911
-------
Cost of revenue:
Commissions...................................................... 4,865
Laundry route expenditures....................................... 2,192
Depreciation and amortization.................................... 1,146
Cost of equipment sales.......................................... 951
-------
Total cost of revenue.......................................... 9,154
-------
Operating expenses:
General and administration....................................... 711
Sales and marketing.............................................. 813
Depreciation..................................................... 98
-------
Total operating expenses....................................... 1,622
-------
Income from operations............................................. 1,135
Interest expense................................................. (372)
Other income..................................................... 8
-------
Income before provision for income taxes......................... 771
Provision for income taxes....................................... 71
-------
Net income......................................................... $ 700
=======
UNAUDITED PRO FORMA DATA (NOTE 6)
Income before provision for income taxes......................... $ 771
Provision for income taxes....................................... (308)
-------
Pro forma net income............................................... $ 463
=======
Pro forma net income per common share.............................. $ --
=======
Pro forma weighted average common shares outstanding............... --
=======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-20
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY L.P.
NOTES TO COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS
Basis of Presentation--The combined statement of income for the two month
period ended February 28, 1997 includes the accounts of Mac-Gray Co., Inc. and
Mac-Gray, L.P., (collectively, the Company). Mac-Gray Co., Inc. is the general
partner of Mac-Gray, L.P. which was formed in August of 1995. Mac-Gray Co.,
Inc. and Mac-Gray, L.P. are 100% owned by the same shareholders and are under
common management. The February 28, 1997 combined statement of income is
presented in order to comply with the Securities and Exchange Commission's
requirement that at least nine months of audited financial information are
presented for certain acquisitions.
Principles of Combined Financial Statements--The combined statement of income
has been prepared by combining the results of operations of Mac-Gray Co., Inc.
and Mac-Gray, L.P. for the two month period ended February 28, 1997. All
significant intercompany transactions and balances have been eliminated in
combination.
Description of the Business--The Company generates the majority of its
revenue from card and coin route laundry rooms in the Northeastern, Midwestern
and Southeastern United States. The Company's principal customer base is the
multi-housing market, which consists of apartments, condominium units, colleges
and universities. The Company also sells, services and leases commercial
laundry equipment to commercial laundromats and institutions. The majority of
the Company's purchases of coin route laundry equipment is from one supplier.
2. SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition--The Company recognizes coin route laundry revenue on the
accrual basis. Sales revenue from the Company's commercial sale of equipment
and parts is recognized upon shipment of the orders.
Depreciation of Property, Plant and Equipment--Property, plant and equipment
are depreciated using the straight-line method over the estimated useful lives
of the respective assets. Expenditures for maintenance and repairs are charged
to operations as incurred; acquisitions, major renewals, and betterments are
capitalized. The estimated useful lives of the Company's property, plant and
equipment are as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
CATEGORY (YEARS)
-------- ------------
<S> <C>
Coin route equipment....................................... 10
Buildings and improvements................................. 15-32
Furniture and fixtures..................................... 5-7
Trucks and autos........................................... 3-5
</TABLE>
Depreciation expense of property, plant and equipment totaled $1,032 for the
two months ended February 28, 1997.
Amortization of Intangibles--Intangible assets primarily consist of various
non-compete agreements as well as goodwill recorded in connection with various
acquisitions made by the Company during fiscal 1995 and 1996. The non-compete
agreements are amortized using the straight-line method over the life of the
agreements, which range in term from two to five years. Goodwill is amortized
over fifteen years from the acquired companies respective dates of acquisition.
Amortization expense totaled $229 for the two months ended February 28, 1997.
F-21
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Income Taxes--Mac-Gray Co., Inc., which has elected "S corporation" status,
and Mac-Gray, L.P. are "pass through" entities for income tax purposes, except
for taxes assessed by those states that do not recognize Mac-Gray Co., Inc.'s
"S corporation" status. Accordingly, earnings and losses are included on the
income tax returns of the respective equity owners.
The Company accounts for income taxes utilizing the asset and liability
method as prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under the provisions of SFAS 109, the
current or deferred tax consequences of a transaction are measured by applying
the provisions of enacted tax laws to determine the amount of taxes payable
currently or in future years. Deferred income taxes are provided for temporary
differences between the income tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes.
Earnings Per Share--Given the capital structure of the Company, historical
earnings per share information is not considered meaningful or relevant and has
not been presented in the accompanying financial statement.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements--The Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), is
effective for transactions entered into in fiscal years that begin after
December 15, 1995 (fiscal 1996 for the Company). SFAS 123 encourages entities
to account for employee stock options or similar equity instruments using a
fair value approach for all such plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Those entities which elect to remain with the accounting in APB 25
are required to include pro forma disclosures of net income and earnings per
share as if the fair value-based method of accounting had been applied, to the
extent that pro forma net income and earnings per share differ materially from
reported amounts. The Company elected to continue to account for such plans
under the provisions of APB 25. Therefore, there was no effect on the Company's
financial position or results of operations as a result of this pronouncement.
In addition, the difference between net income as reported for the two months
ended February 28, 1996 and pro forma net income calculated under guidance
provided by FAS 123 was not material (Note 5).
F-22
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. INCOME TAXES
State income taxes consist of a current income tax provision of $71 for the
two months ended February 28, 1997.
The Company's effective tax rate for the two months ended February 28, 1997
differs from the applicable statutory tax rates due to meals and entertainment
expenses and goodwill amortization recorded for book that are not deductible
for income tax purposes. In addition to the aforementioned items, the Company's
effective tax rate for the two months ended February 28, 1997 differs from the
statutory tax rate due to taxable losses generated by Mac-Gray, L.P. for which
only a 10% tax benefit (equivalent to Mac-Gray Co., Inc.'s general partnership
interest in Mac-Gray, L.P.) was recognized by the Company.
4. COMMITMENTS AND CONTINGENCIES
Guaranteed Commission Payments--The Company operates coin laundry routes
under various lease agreements in which the Company is required to make minimum
guaranteed commission payments to the respective property owners. The following
is a schedule by years of future minimum guaranteed commission payments
required under these lease agreements that have initial or remaining non-
cancelable contract terms in excess of one year:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997........................................................ $ 2,746
1998........................................................ 2,321
1999........................................................ 1,879
2000........................................................ 1,530
2001........................................................ 1,002
Thereafter.................................................. 2,833
-------
$12,311
=======
</TABLE>
Guarantee of Indebtedness--At February 28, 1997, Mac-Gray Co., Inc. is a
guarantor on a line-of-credit for a customer in the amount of $689. The
customer has incurred substantial losses in its last three fiscal years ended
December 31, 1996. While the guarantee is secured by a pledge of the borrowing
company's assets, it is uncertain if those assets and profits from continuing
operations will be adequate to retire the line-of-credit. The Company has
recorded a reserve of $250 at February 28, 1997 for estimated losses on this
guarantee. In management's opinion, the range of the estimated loss to be
incurred in connection with the Company's guarantee of the customer's line-of-
credit in excess of the amount recorded at February 28, 1997 will not have a
material adverse impact on the results of operations or the financial position
of the Company.
Leases--The Company leases certain equipment and facilities under non-
cancelable operating leases. Rent expense incurred by the Company under non-
cancelable operating leases totaled $49 for the two month period ended February
28, 1997.
F-23
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Future minimum lease payments under non-cancelable operating leases consist
of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1997............................................................ $ 309
1998............................................................ 290
1999............................................................ 261
2000............................................................ 161
2001............................................................ 64
------
$1,085
======
</TABLE>
Litigation--The Company is involved in various litigation proceedings arising
in the normal course of business. In the opinion of management, the Company's
ultimate liability, if any, under pending litigation would not materially
affect its financial condition or the results of its operations.
5. EMPLOYEE BENEFIT AND STOCK PLANS
Retirement Plans--The Company maintains a qualified profit-sharing/401(k)
plan (the Plan) covering substantially all employees. The Company's
contributions to the Plan are at the discretion of the Board of Directors.
Costs under the Plan amounted to $534, $535 and $532 for the years ended
December 31, 1994, 1995 and 1996, respectively.
1996 Stock Option Plan
Mac-Gray Co., Inc. adopted its 1996 Stock Option and Incentive Plan (the 1996
Plan) effective December 30, 1996. The 1996 Plan provides several types of Mac-
Gray Co., Inc. equity-based compensation awards. Under the provisions of the
1996 Plan, the maximum number of shares of common stock that may be awarded is
15,000 shares, of which 3,873 are available for grant at December 31, 1996.
Officers, employees, directors, consultants or other key persons of Mac-Gray
Co., Inc. and Mac-Gray, L.P. who are responsible for or contribute to
management, growth or profitability of the Company are eligible to participate
in the 1996 Plan. Awards, when made, may be in the form of stock options,
restricted stock, unrestricted stock options, and dividend equivalent rights.
On December 30, 1996, 11,127 stock options, with an exercise price of $499.50
per share (fair market value on the date of grant), were issued and remained
outstanding as of February 28, 1997. These options do not vest or become
exercisable until the sixth anniversary of the date of grant unless shares of
the Company's common stock are registered under the Securities Act of 1933
(Note 8), in which case options automatically vest in an amount of 20% per year
on each of the first through fifth anniversaries of the date of grant. No
options, or other equity-based compensation awards, were issued, exercised or
canceled during the two months ended February 28, 1997. At February 28, 1997,
the weighted average remaining life of options granted was approximately 10
years.
6. UNAUDITED PRO FORMA DATA
Statement of Income
The unaudited pro forma data reflects adjustments to the combined statement
of income for the period ended February 28, 1997. Such adjustments consider the
effect on the Company's operations as if the Company was subject to federal and
state income taxes on a corporate level. Accordingly,
F-24
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
the pro forma income tax provision and the pro forma net income have been
calculated, using an estimated income tax rate of 40%, as if the Company was
subject to income taxation as a C corporation during the period presented.
Earnings Per Share
Unaudited pro forma net income per share will be calculated for the period by
dividing the unaudited pro forma net income amount by the weighted average
number of shares of common and common equivalent shares outstanding, giving
effect to the exchange of shares between the Parent and the Company (Note 7),
using the treasury stock method. Common share equivalents consist of common
stock which may be issuable upon exercise of outstanding stock options.
Pursuant to Securities and Exchange Commission rules for calculating net income
per share in an initial public offering (Note 8), all shares issued within
twelve months of the offering, including common stock equivalents, are
considered in computing common and common share equivalents.
7. SUBSEQUENT EVENTS (UNAUDITED)
Reorganization of the Company
On April 17, 1997, Mac-Gray Co., Inc. and Mac-Gray, L.P. were reorganized to
create Mac-Gray Corporation (the Parent). The Parent acquired all of the
outstanding common stock of Mac-Gray Co., Inc. and all of the outstanding
limited partnership interests of Mac-Gray, L.P. in exchange for 6,367,800
shares of the Parent's common stock. Concurrently, Mac-Gray, L.P. was merged
with and into Mac-Gray Co., Inc., which will continue to operate as a wholly
owned subsidiary of the Parent.
The authorized capital stock of the Parent consists of 30,000,000 shares of
common stock, $.01 par value per share, and 5,000,000 shares of undesignated
preferred stock issuable in series by the Board of Directors of the Parent.
Acquisition of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry,
Inc.
On April 17, 1997, the Parent acquired in exchange for 612,026 shares of its
common stock, (approximate value of $7,797), approximately $2,170 in cash, $850
of a deferred payment obligation and the assumption of approximately $2,787 of
debt, each of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry, Inc.
(collectively, Sun Services). The shares of the Parent's common stock are
redeemable by the shareholder under certain circumstances, which include the
timing of the planned initial public offering (Note 8). The approximate value
of the Parent's common stock issued in connection with the Sun Services
acquisition was determined based upon a contractual put price of $12.74 per
common share.
Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry, Inc. are 100%
owned by the same shareholder. The Parent acquired all of the outstanding
capital stock of Sun Services, which will be accounted for pursuant to the
purchase method of accounting. Based upon preliminary purchase accounting,
goodwill of approximately $11,600 arose from this transaction, which will be
amortized over 20 years.
Amended and Restated Credit Agreement and Revolving Credit Facility
On April 17, 1997, the Parent, entered into a credit agreement (the Credit
Facility) with a bank which provides for borrowings under (i) a revolving line
of credit and term loan facility and (ii) a
F-25
<PAGE>
MAC-GRAY CO., INC. AND MAC-GRAY, L.P.
NOTES TO COMBINED STATEMENT OF INCOME--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
revolving working capital line of credit facility of up to $45,000 and $5,000,
respectively. Outstanding indebtedness under the Credit Facility bears
interest, at the Parent's option, at a rate equal to the prime rate plus .5%
or LIBOR plus 2.5%, with the margin over the prime rate and LIBOR decreasing
after the consummation of the pending initial public offering of the Parent's
common stock (Note 8). The Credit Facility restricts payments of dividends and
other distributions, restricts the Parent from making certain acquisitions,
incurring indebtedness and requires it to maintain certain financial ratios.
The Credit Facility is secured by pledges of assets of the Parent and its
subsidiaries. Bank indebtedness of the Company outstanding prior to the
effective date of the Credit Facility was subsequently assumed under the
Credit Facility.
1997 Stock Option Plan
On April 7, 1997, the Parent adopted the 1997 Stock Option and Incentive
Plan (the 1997 Plan). The terms of the 1997 Plan are substantially the same as
the terms of the 1996 Plan (Note 5) that was adopted by Mac-Gray Co., Inc. in
December 1996. Concurrent with the reorganization of the Company, the options
issued pursuant to the 1996 Plan were assumed by the Parent under the 1997
Plan and the 1996 Plan was terminated. The options assumed by the Parent under
the 1997 Plan were reflective of the exchange of common stock between the
Parent and Mac-Gray Co., Inc. Accordingly, 556,350 options with an exercise
price of $9.99 per share issued pursuant to the 1996 Plan were assumed by the
Parent under the 1997 Plan.
In August 1997, the Parent adjusted the exercise price of the 552,600
remaining outstanding options under the 1997 Plan from $9.99 per share to
$8.80 per share. The adjustment was made to restore the economic position of
the option holders as a result of a planned dividend of approximately $12,750
prior to the consummation of the Parent's initial public offering (Note 8).
8. PENDING INITIAL PUBLIC OFFERING OF COMMON STOCK
Mac-Gray Corporation intends to file a Registration Statement on Form S-1
for purposes of selling shares of previously unissued common stock. The net
proceeds from the sale of the common stock are intended to be used principally
to repay existing indebtedness outstanding under the Company's Credit
Facility.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Sun Services
of America, Inc. and R. Bodden
Coin-Op-Laundry, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statement of income, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of Sun
Services of America, Inc. and R. Bodden Coin-Op-Laundry, Inc. (the
"Companies") at December 31, 1996, and the results of the Companies'
operations and cash flows for the year ended December 31, 1996 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Companies' management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 2, 1997
F-27
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful
accounts of $16.................................... $ 33 $ 22
Due from shareholder................................ 173 173
Inventory........................................... 164 151
Prepaid expenses and other current assets........... 230 242
------ ------
Total current assets.............................. 600 588
Property and equipment, net........................... 1,693 1,687
Intangible assets, net................................ 1,540 1,651
Prepaid commissions and other assets.................. 787 734
------ ------
Total assets...................................... $4,620 $4,660
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................... $ 765 $ 765
Accounts payable.................................... 329 169
Accrued expenses.................................... 383 462
------ ------
Total current liabilities......................... 1,477 1,396
------ ------
Long-term debt........................................ 2,209 2,268
------ ------
Commitments and contingencies (Note 10)............... -- --
Stockholder's equity:
Common stock--Sun Services of America, Inc., $1 par
value; 1,000 shares authorized; 30 shares issued
and outstanding.................................... -- --
Common stock--R. Bodden Coin-Op-Laundry Inc. $1 par
value; 7,000 shares authorized; 1,000 shares issued
and outstanding.................................... 1 1
Additional paid-in capital.......................... 90 90
Retained earnings................................... 843 905
------ ------
Total stockholder's equity........................ 934 996
------ ------
Total liabilities and stockholder's equity........ $4,620 $4,660
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
SUN SERVICES OF AMERICA, INC. AND R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1996 1996 1997
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenue............................................ $6,664 $1,628 $2,032
------ ------ ------
Cost of revenue:
Commissions...................................... 2,718 723 797
Laundry route expenditures....................... 820 193 183
Depreciation and amortization.................... 655 129 209
Cost of equipment sales.......................... 277 19 164
------ ------ ------
Total cost of revenue.......................... 4,470 1,064 1,353
------ ------ ------
Operating expenses:
General and administration....................... 1,220 292 307
Sales and marketing.............................. 160 30 47
Depreciation..................................... 25 5 6
------ ------ ------
Total operating expenses....................... 1,405 327 360
------ ------ ------
Income from operations............................. 789 237 319
Interest expense................................. (267) (42) (89)
Other expense, net............................... (60) (3) --
------ ------ ------
Net income......................................... $ 462 $ 192 $ 230
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-29
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK--SHARES COMMON STOCK--VALUE
--------------------------- ---------------------------
SUN SERVICES R. BODDEN SUN SERVICES R. BODDEN ADDITIONAL
OF COIN-OP- OF COIN-OP- PAID-IN RETAINED
AMERICA, INC. LAUNDRY, INC. AMERICA, INC. LAUNDRY, INC. CAPITAL EARNINGS TOTAL
------------- ------------- ------------- ------------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 30 1,000 $-- $ 1 $90 $ 772 $ 863
Net income............. -- -- -- -- -- 462 462
Dividends.............. -- -- -- -- -- (391) (391)
--- ----- ---- ---- --- ----- -----
Balance, December 31,
1996................... 30 1,000 -- 1 90 843 934
Net income (unau-
dited)................ -- -- -- -- -- 230 230
Dividends (unaudited).. -- -- -- -- -- (168) (168)
--- ----- ---- ---- --- ----- -----
Balance, March 31, 1997
(unaudited)............ 30 1,000 $-- $ 1 $90 $ 905 $ 996
=== ===== ==== ==== === ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1996 1996 1997
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 462 $ 192 $ 230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 680 134 215
Changes in assets and liabilities:
(Increase) decrease in trade receivables,
net........................................ (26) (2) 11
(Increase) in shareholder receivable........ (10) -- --
(Increase) decrease in inventory............ (46) (1) 13
(Increase) decrease in prepaid expenses and
other current assets....................... (329) (185) 1
Increase (decrease) in accounts payable and
accrued expenses........................... 172 (197) (81)
------- ------ ------
Net cash provided by (used in) operating
activities................................. 903 (59) 389
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (444) (105) (15)
Acquisition of businesses (Note 3).............. (1,720) (300) (265)
------- ------ ------
Net cash used in investing activities......... (2,164) (405) (280)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances under line of credit agreement, net.... 116 163 143
Principal payments on long-term debt............ (953) (627) (194)
Proceeds from issuance of long-term debt........ 2,507 984 110
Dividends paid.................................. (391) (56) (168)
Cash paid for refinancing of debt............... (18) -- --
------- ------ ------
Net cash provided by (used in) financing
activities................................... 1,261 464 (109)
------- ------ ------
Net change in cash and cash equivalents........... $ -- $ -- $ --
======= ====== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.......................... $ 241 $ 25 $ 64
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND THE BUSINESS
Basis of Presentation--The accompanying combined financial statements
include the accounts of Sun Services of America, Inc. (Sun Services) and R.
Bodden Coin-Op-Laundry, Inc. (Bodden) (collectively, the Companies). The
Companies are 100% owned by the same shareholder and are under common
management.
Nature of Business--The Companies are engaged in the coin operated laundry
business throughout Florida. The majority of the Companies' customers are
apartment complexes and laundromats. The Companies lease coin operated laundry
equipment to their customers for percentages of the monies collected. The
majority of the Companies purchases of coin route laundry equipment are from
one supplier.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Combined Interim Financial Statements--The accompanying combined
financial information as of March 31, 1997 and for the three month periods
ended March 31, 1996 and 1997 is unaudited. The interim financial statements
have been prepared on the same basis as the accompanying annual financial
statements. In the opinion of management, such interim financial information
reflects adjustments consisting of normal and recurring adjustments necessary
for a fair presentation of such financial information. The unaudited results
of operations for the interim periods ended March 31, 1996 and 1997 are not
necessarily indicative of the results of operations to be expected for any
other interim period or for the full year.
Principles of Combined Financial Statements--The combined financial
statements include the accounts of Sun Services and Bodden, including the 1996
Acquisitions (Note 3) from their respective acquisition dates. All significant
intercompany transactions and balances have been eliminated in combination.
Cash and Cash Equivalents--The Companies consider all highly liquid
investments with original maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk--Financial instruments which potentially expose
the Companies to concentrations of credit risk consist principally of trade
receivables generated by the Companies as a result of the selling and leasing
of laundry machines. To minimize this risk, ongoing credit evaluations of
customer's financial condition are performed and reserves are maintained. The
Companies typically do not require collateral.
Inventory--Inventory is stated at the lower of cost or market with cost
determined using the first-in, first-out method.
Property and Equipment--Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense as incurred;
expenditures for renewals and betterments are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
Intangible Assets--Intangible assets primarily consist of various non-
compete agreements and goodwill recorded in connection with the 1996
Acquisitions (Note 3). The non-compete agreements are amortized using the
straight-line method over the life of the agreements, which range from five to
F-32
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
seven years. Goodwill is amortized over fifteen years from the acquired
companies respective dates of acquisition.
Income Taxes--Sun Services and Bodden have elected to be taxed as "S
corporations" as defined in the Internal Revenue Code. This results in the
pass-through of any taxable income directly to the shareholder. Accordingly,
no taxes are provided on the earnings attributable to the Companies.
Earnings Per Share--Given the capital structure of the Companies, historical
earnings per share information is not considered meaningful or relevant and
has not been presented in the accompanying financial statements.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS
During 1996, the Companies acquired certain assets of a number of coin-
operated laundry businesses (the 1996 Acquisitions). The 1996 Acquisitions
were paid in cash, with the exception of the Coin Laundry Leasing acquisition,
which also included a deferred note payable of $350. The 1996 Acquisitions
were accounted for using the purchase method of accounting. Accordingly, the
purchase price assigned to the assets and liabilities assumed was their fair
market values on the respective acquisition dates. Purchase price in excess of
the fair value of net assets acquired was allocated to goodwill. The
Companies' combined financial statements includes the results of the 1996
Acquisitions from their respective acquisition dates. The 1996 Acquisitions
purchase price allocation is summarized as follows:
<TABLE>
<CAPTION>
1996
ACQUISITIONS
------------
<S> <C>
Acquisition price, including non-compete payments and other
direct acquisition costs.................................. $2,070
======
Fair market value of assets acquired:
Inventory................................................ 110
Coin-route equipment..................................... 485
Other fixed assets....................................... 28
Intangible assets:
Non-compete............................................ 15
Goodwill............................................... 1,432
------
Total................................................ $2,070
======
</TABLE>
In connection with financing the 1996 Acquisitions, the Companies entered
into a Credit Agreement on January 26, 1996 (Note 8).
The pro forma effect of the 1996 Acquisitions was not material to the
results of the Companies' historical operations or the Companies' historical
financial position.
F-33
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. PREPAID COMMISSIONS OTHER CURRENT ASSETS
Prepaid commissions other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Prepaid commissions......................................... $140
Other receivables........................................... 40
Prepaid insurance........................................... 29
Other....................................................... 21
----
$230
====
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
LIFE DECEMBER 31,
(YEARS) 1996
--------- ------------
<S> <C> <C>
Coin-route equipment................................ 8 $2,708
Furniture and fixtures.............................. 7 140
Vehicles............................................ 5 189
Computer equipment.................................. 4 49
Leasehold improvements.............................. 2-3 15
------
3,101
Less: accumulated depreciation...................... 1,408
------
Property and equipment, net......................... $1,693
======
</TABLE>
Depreciation expense for the year ended December 31, 1996 was approximately
$360.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Goodwill.................................................... $1,746
Non-compete agreements...................................... 290
Other....................................................... 18
------
2,054
Less: accumulated amortization.............................. 514
------
Intangible assets, net...................................... $1,540
======
</TABLE>
F-34
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accrued commissions........................................... $218
Accrued payroll............................................... 28
Accrued interest and loan fees................................ 63
Other......................................................... 74
----
$383
====
</TABLE>
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Note payable, 8% fixed interest rate, semi-annual principal
payments, due September 1, 1999........................... $ 300
Credit Agreement
Line of credit........................................... 432
Acquisition note......................................... 773
Term loan A facility..................................... 917
Term loan B facility..................................... 523
Other.................................................... 29
------
Total long-term debt................................... 2,974
Less: current portion...................................... 765
======
Total.................................................. $2,209
======
</TABLE>
CREDIT AGREEMENT
In connection with the Companies 1996 Acquisitions (Note 3), the Companies
entered into a new Credit Agreement in January of 1996. The Credit Agreement
consists of a $700 Line of Credit; a $850 Acquisition Note; a $1,100 Term A
Facility, payable in thirty-five equal monthly installments beginning March
1996; and a $584 Term Loan B Facility, payable in thirty-seven monthly
installments of $6 beginning March 1996, with a balloon payment due April
1999. Borrowings under the Credit Agreement are restricted to only provide for
working capital requirements of the Companies and fund future permitted
acquisitions and capital expenditures. As of December 31, 1996, $346 was
available to be borrowed under the Credit Agreement. The Credit Agreement
expires in April of 1999.
A portion of the proceeds from the Credit Agreement were used to pay down
the Companies' outstanding debt under the previous credit facilities.
Interest--Borrowings under the Credit Agreement bear interest at 1% above
the banks prime interest rate (the "Prime Rate") (9.25% rate as of December
31, 1996). In addition, the Companies shall pay 3% of annual gross revenues
generated by all permitted acquisitions financed by proceeds from the
Acquisition Note.
F-35
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Termination--The Credit Agreement may be terminated at any time after the
first two years without a penalty or premium. If borrowings under the Credit
Agreement are pre-paid within the first two years, the Companies must pay a
prepayment penalty of up to 2% of the total amounts available under the Credit
Agreement. In addition, the Companies are required to pay the bank 3% of the
average monthly gross revenues of the permitted acquisition multiplied by the
number of months remaining in the term of the Credit Agreement.
Amendment--In January of 1997, the Credit Agreement was amended to increase
the borrowings available under the line of credit to $850.
As of December 31, 1996, the scheduled future principal payments of long-
term debt are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 765
1998.............................................................. 747
1999.............................................................. 1,462
------
$2,974
======
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Companies maintain a qualified profit sharing/401(k) plan (the "Plan")
covering substantially all employees. The Companies' contributions to the Plan
are at the discretion of the Board of Directors. Costs under the Plan amounted
to $4 for the year ended December 31, 1996.
10. COMMITMENT AND CONTINGENCIES
Operating Leases--The Companies lease facilities under three non-cancelable
operating leases. Total lease expense incurred for the year ended December 31,
1996 was approximately $74. These leases expire during fiscal 1998. The future
minimum payments under these leases are $77 and $55 in 1997 and 1998,
respectively.
Guaranteed Commissions--The Companies operate coin laundry routes under
various lease agreements in which the Companies are required to make minimum
guaranteed commission payments to the respective property owners. During 1996,
the Companies made guaranteed commission payments of approximately $150 as
required under certain lease agreements.
Litigation--The Companies are involved in various litigation proceedings
arising in the normal course of business. In the opinion of management, the
Companies ultimate liability, if any, under pending litigation would not
materially affect their financial condition or the results of their
operations.
10. RELATED PARTY
Periodically, the Companies make loans to their sole shareholder. The
balance of these shareholder loans is included on the accompanying balance
sheet as due from shareholder. The due from shareholder balance at December
31, 1996 included approximately $36 of interest imputed at 6%.
F-36
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. SUBSEQUENT EVENT (UNAUDITED)
On April 17, 1997, Mac-Gray Corporation acquired all of the outstanding
common stock of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry,
Inc., in exchange for 612,026 shares of its common stock ($7,797 approximate
value), approximately $2,170 in cash, $850 of a deferred obligation and the
assumption of outstanding indebtedness of the Companies of approximately
$2,787.
F-37
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIV-
ERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUM-
STANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPEC-
TUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
The Company.............................................................. 14
Termination of S Corporation Status...................................... 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Historical Combined Financial Data.............................. 18
Unaudited Pro Forma Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 30
Management............................................................... 41
Certain Transactions..................................................... 51
Principal Stockholders................................................... 53
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 62
Experts.................................................................. 62
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
-----------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF ITS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON SHARES OFFERED, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIV-
ERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
SHARES
MAC-GRAYCORPORATION
COMMON STOCK
($.01 PAR VALUE)
[LOGO]
SALOMON BROTHERS INC
SMITH BARNEY INC.
PROSPECTUS
DATED , 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee, the NASD filing
fee and the New York Stock Exchange listing fee:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ----------
<S> <C>
Securities and Exchange registration fee...................... $15,151.52
NASD filing fee............................................... 5,500.00
NYSE listing fee.............................................. *
Legal fees and expenses....................................... *
Accounting fees and expenses.................................. *
Blue Sky fees and expenses (including legal fees)............. *
Printing expenses............................................. *
Transfer agent fee............................................ *
Miscellaneous................................................. *
----------
Total....................................................... $ *
==========
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Certificate, provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
in respect of certain unlawful dividend payments or stock redemptions or
repurchases, or (iv) for any transaction from which the director derived an
improper personal benefit. In addition, the Certificate provides that if the
Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of
a director of the Company shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article V of the Company's By-laws provides for indemnification by the
Company of its directors and officers and certain non-officer employees under
certain circumstances against expenses (including attorneys fees, judgments,
penalties, fines and amounts paid in settlement) reasonably incurred in
connection with the defense or settlement of any threatened, pending or
completed legal proceeding in which any such person is involved by reason of
the fact that such person is or was an officer or employee of the Company
unless it is determined that such person did not act in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to criminal actions or
proceedings, such person had no reasonable cause to believe his or her conduct
was unlawful.
The Company has entered into indemnification agreements with each of its
directors reflecting the foregoing provisions of the By-laws and requiring the
advancement of expenses in proceedings involving directors in most
circumstances and also intends to purchase directors' and officers' insurance
to provide additional protections to the directors and officers of the Company
in certain circumstances.
II-1
<PAGE>
Under the Underwriting Agreement filed as Exhibit 1.1 hereto, the
Underwriters have agreed to indemnify, under certain conditions, the Company,
its directors and certain officers and persons who control the Company within
the meaning of the Securities Act of 1933, as amended (the "Act"), against
certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from registration requirements of the Act, by reason of
Section 4(2) thereof.
(1) In April 1997, pursuant to a Limited Partner Assignment and Exchange
Agreement, the Company issued an aggregate 1,367,800 shares of Common Stock to
Stewart Gray MacDonald, Jr., Chairman and Chief Executive Officer of the
Company, Sandra E. MacDonald and Daniel W. MacDonald in partial consideration
for the assignment and transfer of their respective interest in Mac-Gray, L.P.
(2) In April 1997, pursuant to a Stock Exchange Agreement, the Company
issued an aggregate 5,000,000 shares of Common Stock to The Evelyn C.
MacDonald Family Trust f/b/o Stewart G. MacDonald, Jr., The Evelyn C.
MacDonald Family Trust f/b/o Sandra E. MacDonald, The Evelyn C. MacDonald
Family Trust f/b/o Daniel W. MacDonald, Stewart G. MacDonald, Jr. 1984 Trust,
Daniel W. MacDonald Trust 1988 and Sandra E. MacDonald in consideration of the
transfer of such parties' respective interest in Mac-Gray Co., Inc.
(3) In April 1997, pursuant to an Agreement and Plan of Merger, the Company
issued an aggregate 612,026 shares of Common Stock to Jeffrey C. Huenink, a
Director of the Company, in partial consideration of the sale of his laundry
businesses.
(4) In April 1997, pursuant to Addendums to certain Stock Option Agreements,
the Company assumed Mac-Gray Co.'s obligations with respect to options to
purchase an aggregate 552,600 shares of Common Stock to certain officers and
employees of the Company, including Stewart Gray MacDonald, Jr., Chairman and
Chief Executive Officer of the Company, Patrick A. Flanagan, Executive Vice
President, Mergers and Acquisitions and a Director of the Company, Neil F.
MacLellan, III, Executive Vice President, Sales and Marketing of the Company,
and John S. Olbrych, Chief Financial Officer and Treasurer of the Company.
(5) In August 1997, pursuant to certain Stock Option Agreements, the Company
granted options to purchase an aggregate of 89,490 shares of Common Stock to
certain officers and employees of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a complete list of exhibits filed or
incorporated by reference as part of this Registration Statement.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 By-laws.
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the
Registrant.*
5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.*
10.1 Stockholders' Agreement dated as of April 17, 1997 by and among the
Registrant and the Stockholders (as defined) of the Registrant.
10.2 Stockholders' Agreement dated as of June 26, 1997 by and among the
Registrant and certain Stockholders (as defined) of the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and among the
Registrant and the other parties named therein (excluding schedules,
which the Registrant agrees to furnish supplementally to the
Commission).
10.4 Credit Agreement dated April 17, 1997, by and among the Registrant, the
other Borrowers (as defined), the lenders named therein and State Street
Bank and Trust Company, as agent.
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined) and the Banks (as defined).
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by the
Registrant in favor of the Banks (as defined).
10.7 Pledge Agreement dated as of April 17, 1997 by and among the Registrant
and the Banks (as defined).
10.8 Confidentiality and Noncompetition Agreement dated as of September 4,
1990, as amended on March 25, 1993, by and between the Registrant and
Caldwell and Gregory, Inc.
10.9 Consulting Agreement dated as of April 17, 1997 by and among the
Registrant and Jeffrey C. Huenink.
10.10 Noncompetition Agreement dated as of April 17, 1997 by and among
Registrant and Jeffrey C. Huenink.
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers.
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service."
10.13 Form of Maytag Distributorship Agreements.
10.14 Promissory Note dated December 31, 1992 issued by the Registrant in
favor of Donald M. Shaw.
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by and
between Donald M. Shaw and the Registrant.
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with form of
option agreements attached as exhibits).
10.17 Form of Director Indemnification Agreement between the Registrant and
each of its Directors.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).*
23.2 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (included on the signature page of their registration
statement).
27.1 Financial Data Schedule.
99.1 Consent of Future Director.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedule filed as part of this Registration Statement
is as follows:
Information required by the requested schedules is not applicable or the
required information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Cambridge, Commonwealth
of Massachusetts, on August 14, 1997.
Mac-Gray Corporation
By: /s/ Stewart Gray MacDonald, Jr.
___________________________________
Stewart Gray MacDonald, Jr.,
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints each of Stewart Gray MacDonald, Jr. and John S.
Olbrych such person's true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement and any subsequent Registration Statement for the same offering
which may be filed under Rule 462(b), and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the premises, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that any said attorney-in fact and agent, or any substitute or
substitutes of any of them, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Stewart Gray MacDonald, Jr. Chairman, Chief August 14, 1997
- ------------------------------------- Executive Officer
Stewart Gray MacDonald, Jr. and Director
(Principal
Executive Officer)
/s/ Patrick A. Flanagan Executive Vice August 14, 1997
- ------------------------------------- President, Mergers
Patrick A. Flanagan and Acquisitions,
Secretary and
Director
/s/ John S. Olbrych Chief Financial August 14, 1997
- ------------------------------------- Officer and
John S. Olbrych Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Jeffrey C. Huenink Director August 14, 1997
- -------------------------------------
Jeffrey C. Huenink
/s/ Jerry A. Schiller Director August 14, 1997
- -------------------------------------
Jerry A. Schiller
/s/ John P. Leydon Director August 14, 1997
- -------------------------------------
John P. Leydon
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2 By-laws.
4.1 Specimen certificate for shares of Common Stock, $.01 par
value, of the Registrant.*
5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of
the securities being offered.*
10.1 Stockholders' Agreement dated as of April 17, 1997 by and among
the Registrant and the Stockholders (as defined) of the
Registrant.
10.2 Stockholders' Agreement dated as of June 26, 1997 by and among
the Registrant and certain Stockholders (as defined) of the
Registrant.
10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and
among the Registrant and the other parties named therein
(excluding schedules, which the Registrant agrees to furnish
supplementally to the Commission).
10.4 Credit Agreement dated April 17, 1997, by and among the
Registrant, the other Borrowers (as defined), the lenders named
therein and State Street Bank and Trust Company, as agent.
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined) and the Banks (as
defined).
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by
the Registrant in favor of the Banks (as defined).
10.7 Pledge Agreement dated as of April 17, 1997 by and among the
Registrant and the Banks (as defined).
10.8 Confidentiality and Noncompetition Agreement dated as of
September 4, 1990, as amended on March 25, 1993, by and between
the Registrant and Caldwell and Gregory, Inc.
10.9 Consulting Agreement dated as of April 17, 1997 by and among
the Registrant and Jeffrey C. Huenink.
10.10 Noncompetition Agreement dated as of April 17, 1997 by and
among Registrant and Jeffrey C. Huenink.
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers.
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service."
10.13 Form of Maytag Distributorship Agreements.
10.14 Promissory Note dated December 31, 1992 issued by the
Registrant in favor of Donald M. Shaw.
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by
and between Donald M. Shaw and the Registrant.
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with
form of option agreements attached as exhibits).
10.17 Form of Director Indemnification Agreement between the
Registrant and each of its Directors.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).*
23.2 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (included on the signature page of this
registration statement).
27.1 Financial Data Schedule.
99.1 Consent of Future Director.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
MAC-GRAY CORPORATION
0,000,000 SHARES*
COMMON STOCK
($.01 PAR VALUE)
UNDERWRITING AGREEMENT
----------------------
New York, New York
__________, 1997
SALOMON BROTHERS INC
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o SALOMON BROTHERS INC
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Mac-Gray Corporation, a Delaware corporation (the "Company"), proposes to
sell to the underwriters named in Schedule I hereto (the "Underwriters"), for
whom you (the "Representatives") are acting as representatives, 0,000,000 shares
of Common Stock, $.01 par value ("Common Stock") of the Company (the
"Underwritten Securities"). The Company also proposes to grant to the
Underwriters an option to purchase up to 000,000 additional shares of Common
Stock (the "Option Securities"; the Option Securities, together with the
Underwritten Securities, being hereinafter called the "Securities"). For good
and valuable consideration and intending to be legally bound hereby, each of the
Company's direct, wholly-owned operating subsidiaries, Sun Services of America,
Inc., Mac-Gray Services, Inc. and R. Bodden Coin-Op-Laundry, Inc. (each an
"Operating Subsidiary" and collectively the "Operating Subsidiaries"), have
become parties to this Agreement.
1. Representations and Warranties. The Company and the Operating
------------------------------
Subsidiaries, jointly and severally, represent and warrant to, and agree with,
each Underwriter as set forth below in this Section 1. Certain terms used in
this Section 1 are defined in paragraph (c) hereof. The following
representations, warranties and agreements shall be deemed to apply to each
Subsidiary (as defined in Section 14) of the Company, unless the context does
not permit.
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement (File Number 333- ) on Form S-1,
including a
__________________
*Plus an option to purchase from Mac-Gray Corporation up to 000,000 additional
shares to cover over-allotments.
<PAGE>
-2-
related preliminary prospectus, for the registration under the
Securities Act of 1933, as amended (the "Act"), of the offering and sale of the
Securities. The Company may have filed one or more amendments thereto,
including the related preliminary prospectus, each of which has previously been
furnished to you. The Company will next file with the Commission either (A)
prior to effectiveness of such registration statement, a further amendment to
such registration statement (including the form of final prospectus) or (B)
after effectiveness of such registration statement, a final prospectus in
accordance with Rules 430A and 424(b)(1) or (4). In the case of clause (B), the
Company has included in such registration statement, as amended at the Effective
Date, all information (other than Rule 430A Information) required by the Act and
the rules thereunder to be included in the Prospectus with respect to the
Securities and the offering thereof. As filed, such amendment and form of final
prospectus, or such final prospectus, shall contain all Rule 430A Information,
together with all other such required information, with respect to the
Securities and the offering thereof and, except to the extent the
Representatives shall agree in writing to a modification, shall be in all
substantive respects in the form furnished to you prior to the Execution Time
or, to the extent not completed at the Execution Time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company has advised you, prior to the
Execution Time, will be included or made therein. Upon your request, but not
without your agreement, the Company also will file a Rule 462(b) Registration
Statement in accordance with Rule 462(b). To the extent applicable, the copies
of the Registration Statement and each amendment thereto (including all exhibits
filed therewith), any Preliminary Prospectus or Prospectus (in each case, as
amended or supplemented) furnished to the Underwriters have been and will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to the Commission's Electronic Data Gathering, Analysis and
Retrieval System, except to the extent permitted by Regulation S-T.
(b) On the Effective Date, the Registration Statement did or will, and
when the Prospectus is first filed (if required) in accordance with Rule 424(b)
and on the Closing Date and on any date on which shares sold in respect of the
Underwriters' over-allotment option are purchased, if such date is not the
Closing Date (the Closing Date and each such other date being referred to herein
as a "Settlement Date"), the Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act and
the rules thereunder; on the Effective Date, the Registration Statement did not
or will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the Prospectus,
if not filed pursuant to Rule 424(b), did not or will not, and on the date of
any filing pursuant to Rule 424(b) and on each Settlement Date, the Prospectus
(together with any supplement thereto) will not, include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representations or warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through the Representatives
specifically for inclusion in the Registration Statement or the Prospectus (or
any supplement thereto).
<PAGE>
-3-
(c) The terms which follow, when used in this Agreement, shall have
the meanings indicated. The term "the Effective Date" shall mean each date that
the Registration Statement, any post-effective amendment or amendments thereto
and any Rule 462(b) Registration Statement became or become effective.
"Execution Time" shall mean the date and time that this Agreement is executed
and delivered by the parties hereto. "Preliminary Prospectus" shall mean any
preliminary prospectus referred to in paragraph (a) above and any preliminary
prospectus included in the Registration Statement at the Effective Date that
omits Rule 430A Information. "Prospectus" shall mean the prospectus relating to
the Securities that is first filed pursuant to Rule 424(b) after the Execution
Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form
of final prospectus relating to the Securities included in the Registration
Statement at the Effective Date. "Registration Statement" shall mean the
registration statement referred to in paragraph (a) above, including exhibits
and financial statements, as amended at the Execution Time (or, if not effective
at the Execution Time, in the form in which it shall become effective) and, in
the event any post-effective amendment thereto or any Rule 462(b) Registration
Statement becomes effective prior to the Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended or such Rule 462(b)
Registration Statement, as the case may be. Such term shall include any Rule
430A Information deemed to be included therein at the Effective Date as provided
by Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules under
the Act. "Rule 430A Information" means information with respect to the
Securities and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A. "Rule
462(b) Registration Statement" shall mean a registration statement and any
amendments thereto filed pursuant to Rule 462(b) relating to the offering
covered by the initial registration statement (File Number 333- ). For
purposes of this Agreement, all references to the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement to any of
the foregoing, shall be deemed to include the respective copies thereof filed
with the Commission pursuant to EDGAR.
(d) The accounting firm(s) whose report(s) appear in the Prospectus
are independent certified public accountants as required by the Act and the
rules thereunder. The financial statements and schedules (including the related
notes) included in the Registration Statement, any Preliminary Prospectus or the
Prospectus present fairly, in all material respects, the financial condition,
results of operations and cash flows of the entities purported to be shown
thereby at the dates and for the periods indicated and have been prepared in
accordance with generally accepted accounting principles.
(e) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, and is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the business conducted by it or the location of the properties
owned or leased by it makes such qualification necessary except where the
failure to so qualify or be in good standing would not have a material adverse
effect on the Company and its Subsidiaries taken as a whole; and, except as
described in the Prospectus, the Company holds all material licenses,
certificates and permits from
<PAGE>
-4-
governmental authorities necessary for the conduct of its business as described
in the Prospectus.
(f) All of the outstanding shares of Common Stock have been, and the
Securities, upon issuance and delivery and payment therefor in the manner herein
described, will be, duly authorized, validly issued, fully paid and
nonassessable. Other than as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's corporate charter, by-laws or other governing documents or any
agreement or other instrument to which the Company is a party or by which it may
be bound. Neither the filing of the Registration Statement nor the offering or
sale of the Securities as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied and other than as
described in the Prospectus, for or relating to the registration of any shares
of Common Stock or other securities of the Company. The capitalization of the
Company as of __________ is as set forth in the Prospectus and the Common Stock
conforms to the description thereof contained in the Prospectus. All of the
outstanding shares of capital stock of each Subsidiary (as defined in Section
14) of the Company have been duly authorized and validly issued, are fully paid
and nonassessable and are owned directly or indirectly by the Company, free and
clear of any claim, lien, encumbrance, security interest, restriction upon
voting or transfer or any other claim of any third party.
(g) Except as described in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in, or any
adverse development which materially affects, the condition (financial or
other), results of operations, business or prospects of the Company on a
consolidated basis from the date as of which information is given in the
Prospectus.
(h) The Company is not, and would not be with the giving of notice or lapse
of time or both, in violation of or in default under, nor will the execution or
delivery hereof or consummation of the transactions contemplated hereby result
in a violation of, or constitute a default under, the corporate charter, by-laws
or other governing documents of the Company, or any material agreement,
indenture or other instrument to which the Company is a party or by which it is
bound, or to which any of its properties is subject, nor will the performance by
the Company of its obligations hereunder violate any existing law, rule,
administrative regulation or decree of any court or any governmental agency or
body having jurisdiction over the Company or any of its properties, or result in
the creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company, which would be material to the Company and its
Subsidiaries taken as a whole. Except for permits and similar authorizations
required under the Act and the securities or "Blue Sky" laws of certain
jurisdictions and for such permits and authorizations as have been obtained, no
consent, approval, authorization or order of any U.S. court, governmental agency
or body or any financial institution is required in connection with the
consummation by the Company of the transactions contemplated by this Agreement.
(i) This Agreement has been duly authorized, executed and delivered by the
Company.
<PAGE>
-5-
(j) The Company owns, or has valid rights to use, all items of real and
personal property which are material to the business of the Company and its
Subsidiaries taken as a whole, free and clear of all liens, encumbrances and
claims which may materially interfere with the business, properties, financial
condition or results of operations of the Company on a consolidated basis.
(k) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company is a party or to which any property
of the Company is subject or which is pending or, to the knowledge of the
Company, contemplated against the Company that is required to be disclosed in
the Prospectus and that is not so disclosed.
(l) The Company is not in violation of any law, ordinance, governmental
rule or regulation or court decree to which it is subject, which violation could
have a material adverse effect on the condition (financial or other), results of
operations, business or prospects of the Company on a consolidated basis.
(m) The Company owns or possesses adequate licenses or other rights to use
all intellectual property rights, including patents, trademarks, service marks,
trade names, copyrights or know-how, necessary to conduct its business as
described or referred to in the Prospectus, and, except as disclosed in the
Prospectus, the Company has not received any notice of infringement of or
conflict with (and does not know of any such infringement of or conflict with)
rights or claims of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how, that if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
effect upon the Company on a consolidated basis, and, except as disclosed in the
Prospectus, all products or processes referred to in the Prospectus and relating
to the business of the Company now conducted by it do not infringe upon or
conflict with any right or patent, or with any discovery, invention, product or
process which is the subject of any patent application known to the Company, in
a manner which would materially and adversely affect the Company on a
consolidated basis.
(n) Neither the Company nor any Subsidiary of the Company has taken and
none of such companies shall take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Securities.
(o) The Securities have been approved for listing on the Nasdaq National
Market, subject only to official notice of issuance.
2. Purchase and Sale.
-----------------
(a) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company agrees to sell to
each Underwriter, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase
<PAGE>
-6-
price of $______ per share, the amount of the Underwritten Securities set forth
opposite such Underwriter's name in Schedule I hereto.
(b) Subject to the terms and conditions and in reliance upon the
representations and warranties herein set forth, the Company hereby grants an
option to the several Underwriters to purchase, severally and not jointly, up to
000,000 shares of the Option Securities at the same purchase price per share as
the Underwriters shall pay for the Underwritten Securities. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten
Securities by the Underwriters. Said option may be exercised in whole or in
part at any time (but not more than once) on or before the 30th day after the
date of the Prospectus upon written or telegraphic notice by the Representatives
to the Company setting forth the number of shares of the Option Securities as to
which the several Underwriters are exercising the option and the Settlement
Date. Delivery of certificates for the shares of Option Securities by the
Company, and payment therefor to the Company, shall be made as provided in
Section 3 hereof. The number of shares of the Option Securities to be purchased
by each Underwriter shall be the same percentage of the total number of shares
of the Option Securities to be purchased by the several Underwriters as such
Underwriter is purchasing of the Underwritten Securities, subject to such
adjustments as you in your absolute discretion shall make to eliminate any
fractional shares.
3. Delivery and Payment. Delivery of and payment for the Underwritten
--------------------
Securities and the Option Securities (if the option provided for in Section 2(b)
hereof shall have been exercised on or before the second Business Day prior to
the Closing Date) shall be made at 10:00 AM, Eastern time, on __________, 1997,
or such later date (not later than __________, 1997) as the Representatives
shall designate, which date and time may be postponed by agreement among the
Representatives and the Company or as provided in Section 9 hereof (such date
and time of delivery and payment for the Securities being herein called the
"Closing Date"). Delivery of the Securities shall be made to the
Representatives for the respective accounts of the several Underwriters against
payment by the several Underwriters through the Representatives of the aggregate
purchase price thereof to or upon the order of the Company by certified or
official bank check or checks drawn on or by a New York Clearing House bank and
payable in same day funds or by wire transfer of New York Clearing House bank
same day funds. Delivery of the Underwritten Securities and the Option
Securities shall be made at such location as the Representatives shall
reasonably designate at least one Business Day in advance of the Closing Date
and payment for such Securities shall be made at the office of Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts. Certificates for the Securities shall be
registered in such names and in such denominations as the Representatives may
request not less than two full Business Days in advance of the Closing Date.
The Company agrees to have the Securities available for inspection,
checking and packaging by the Representatives in New York, New York, not later
than 1:00 PM on the Business Day prior to the Closing Date.
If the option provided for in Section 2(b) hereof is exercised after the
second Business Day prior to the Closing Date, the Company will deliver (at the
expense of the Company) to the Representatives, at Seven World Trade Center, New
York, New York, on
<PAGE>
-7-
the date specified by the Representatives (which shall be within three Business
Days after exercise of said option), certificates for the Option Securities in
such names and denominations as the Representatives shall have requested against
payment of the purchase price thereof to or upon the order of the Company by
certified or official bank check or checks drawn on or by a New York Clearing
House bank and payable in same day funds or by wire transfer of New York
Clearing House bank same day funds. If settlement for the Option Securities
occurs after the Closing Date, the Company will deliver to the Representatives
on the Settlement Date for the Option Securities, and the obligation of the
Underwriters to purchase the Option Securities shall be conditioned upon receipt
of, supplemental opinions, certificates and letters confirming as of such date
the opinions, certificates and letters delivered on the Closing Date pursuant to
Section 6 hereof.
4. Offering by Underwriters. It is understood that the several
------------------------
Underwriters propose to offer the Securities for sale to the public as set forth
in the Prospectus.
5. Agreements. The Company agrees with the several Underwriters that:
----------
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereof, to
become effective. Prior to the termination of the offering of the Securities,
the Company will not file any amendment of the Registration Statement,
supplement to the Prospectus or any Rule 462(b) Registration Statement without
your prior consent. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or filing of
the Prospectus is otherwise required under Rule 424(b), the Company will cause
the Prospectus, properly completed, and any supplement thereto to be filed with
the Commission pursuant to the applicable paragraph of Rule 424(b) within the
time period prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. Upon your request, the Company will
cause the Rule 462(b) Registration Statement, completed in compliance with the
Act and the applicable rules and regulations thereunder, to be filed with the
Commission pursuant to Rule 462(b) and will provide evidence satisfactory to the
Representatives of such filing. The Company will promptly advise the
Representatives (i) when the Registration Statement, if not effective at the
Execution Time, and any amendment thereto, shall have become effective, (ii)
when the Prospectus, any supplement thereto or any Rule 462(b) Registration
Statement shall have been filed (if required) with the Commission pursuant to
Rule 424(b), (iii) when, prior to termination of the offering of the Securities,
any amendment to the Registration Statement shall have been filed or become
effective, (iv) of any request by the Commission for any amendment of the
Registration Statement or any Rule 462(b) Registration Statement or supplement
to the Prospectus or for any additional information, (v) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the institution or threatening of any proceeding for that purpose
and (vi) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
and, if issued, to obtain as soon as possible the withdrawal thereof.
<PAGE>
-8-
(b) If, at any time when a prospectus relating to the Securities is
required to be delivered under the Act, any event occurs as a result of which
the Prospectus as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein in the light of the circumstances under which they were made
not misleading, or if it shall be necessary to amend the Registration Statement
or supplement the Prospectus to comply with the Act or the rules thereunder, the
Company promptly will (i) prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 5, an amendment or supplement
which will correct such statement or omission or effect such compliance and (ii)
supply any supplemented Prospectus to you in such quantities as you may
reasonably request.
(c) As soon as practicable, the Company will make generally available to
its security holders and to the Representatives an earnings statement or
statements of the Company which will satisfy the provisions of Section 11(a) of
the Act and Rule 158 under the Act.
(d) The Company will furnish to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration Statement
(including exhibits thereto) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as delivery of a
prospectus by an Underwriter or dealer may be required by the Act, as many
copies of each Preliminary Prospectus and the Prospectus and any supplement
thereto as the Representatives may reasonably request. The Company will furnish
or cause to be furnished to the Representatives copies of all reports on Form SR
required by Rule 463 under the Act. The Company will pay the expenses of
printing or other production of all documents relating to the offering.
(e) The Company will arrange for the qualification of the Securities for
sale under the laws of such jurisdictions as the Representatives may designate,
will maintain such qualifications in effect so long as required for the
distribution of the Securities and will pay the fee of the National Association
of Securities Dealers, Inc., in connection with its review of the offering.
(f) The Company will not, for a period of 180 days following the date of
the Prospectus, without the prior written consent of Salomon Brothers Inc,
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, or announce the offering of, any other shares of Common Stock or any
securities convertible into, or exchangeable for, shares of Common Stock;
provided, however, that the Company may issue and sell Common Stock or grant
stock options pursuant to any stock option or stock option plan in effect at the
Execution Time in accordance with the terms thereof, and the Company may issue
Common Stock issuable upon the conversion of securities or the exercise of
warrants outstanding at the Execution Time in accordance with the terms thereof.
In addition, the Company will not permit any stock option permitted to be
granted pursuant to the preceding sentence that is granted by it within 180 days
after the date hereof to be exercised prior to the expiration of the 180-day
period following the date of the Prospectus, without the prior written consent
of Salomon Brothers Inc.
<PAGE>
-9-
6. Conditions to the Obligations of the Underwriters. The obligations of
-------------------------------------------------
the Underwriters to purchase the Underwritten Securities and the Option
Securities, as the case may be, shall be subject to the accuracy of the
representations and warranties on the part of the Company contained herein as of
the Execution Time, the Closing Date and any Settlement Date pursuant to Section
3 hereof, to the accuracy of the statements of the Company made in any
certificates pursuant to the provisions hereof, to the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Representatives agree in writing to a later time, the
Registration Statement will become effective not later than (i) 6:00 PM Eastern
time on the date of determination of the public offering price, if such
determination occurred at or prior to 3:00 PM Eastern time on such date, or (ii)
12:00 Noon on the Business Day following the day on which the public offering
price was determined, if such determination occurred after 3:00 PM Eastern time
on such date; if filing of the Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Prospectus, and any such supplement, will
be filed in the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been instituted
or threatened.
(b) The Company shall have furnished to the Representatives the opinion of
Goodwin, Procter & Hoar LLP, counsel for the Company, dated the applicable
Settlement Date, to the effect that:
(i) the Company and each of its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of the respective jurisdictions in which they are organized,
with the corporate power and authority to own their properties and conduct
their businesses as described in the Prospectus, and are duly qualified to
do business and in good standing in each jurisdiction in which they own or
lease real property;
(ii) the Company's authorized capital stock and outstanding
capital stock is as set forth in the Prospectus under the caption
"Description of Capital Stock"; the capital stock of the Company conforms
as to legal matters in all material respects to the description thereof
contained in the Prospectus under the caption "Description of Capital
Stock"; the outstanding shares of Common Stock have been duly and validly
authorized and issued and are fully paid and nonassessable; the Securities
have been duly and validly authorized, and, when issued and delivered to
and paid for by the Underwriters pursuant to this Agreement, will be fully
paid and nonassessable; the Securities are duly authorized for listing,
subject to official notice of issuance, on the Nasdaq National Market; the
certificates for the Securities are in valid and sufficient form; there are
no preemptive or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any of the Securities pursuant
to the Company's corporate charter, by-laws, other governing documents, or
any agreement or other instrument known to such counsel to which the
Company or a Subsidiary thereof is a party or by which the Company or a
Subsidiary thereof may be bound or to which any of their respective
properties is subject; and, to such
<PAGE>
-10-
counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated by this Agreement
gives rise to any rights for or relating to the registration of any shares
of Common Stock except such as have been waived or satisfied; and all of
the outstanding shares of capital stock of each Subsidiary of the Company
have been duly and validly authorized and issued and are fully paid and
nonassessable and are owned directly or indirectly by the Company free and
clear of any claim, lien, encumbrance or security interest known to such
counsel;
(iii) to the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding before any court or governmental
agency, authority or body or any arbitrator involving the Company or any
Subsidiary required to be disclosed in the Registration Statement which is
not adequately disclosed in the Prospectus under the caption "Business--
Legal Proceedings," and there is no franchise, contract or other document
required to be described in the Registration Statement or Prospectus, or to
be filed as an exhibit, which is not described or filed as required;
(iv) the Registration Statement has become effective under the
Act; any required filing of the Prospectus, and any supplements thereto,
pursuant to Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); to the knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued, no proceedings for that purpose have been instituted or threatened
and the Registration Statement and the Prospectus (other than the financial
statements and schedules and other financial, statistical and accounting
information contained therein as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the rules thereunder;
(v) this Agreement has been duly authorized, executed and delivered by
the Company;
(vi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated herein, except (a) such as have been obtained under the Act, (b)
such as may be required under the blue sky and state securities laws of any
jurisdiction applicable to the offering and sale of the Securities by the
Underwriters and such as may be required for the clearance of the underwriting
arrangements relating to such offering and sale with the NASD (as to which such
counsel need express no opinion), and (c) such other approvals (specified in
such opinion) as have been obtained; and
(vii) neither the issue and sale of the Securities, nor the
consummation of any other of the transactions herein contemplated nor the
fulfillment of the terms hereof will conflict with, result in a breach or
violation of, or constitute a default under any law or the charter or by-laws of
the Company or a Subsidiary or the terms of any indenture or other agreement or
instrument known to such counsel and to which the Company or a Subsidiary is a
party or bound or any judgment, injunction, order or decree known to such
counsel to
<PAGE>
-11-
be applicable to the Company or a Subsidiary of any court, regulatory body,
administrative agency, governmental body or arbitrator having jurisdiction over
the Company or a Subsidiary.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent accountants of the Company, representatives
of the Underwriters and representatives of counsel for the Underwriters, at
which the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel need not pass upon, and need
not assume any responsibility for, the accuracy, completeness or fairness of any
statement contained in the Registration Statement or the Prospectus (except for
those statements referred to in the opinions expressed in the first two clauses
of subsection (ii) above) and has made no independent check or verification
thereof, such counsel shall state that on the basis of the foregoing, no facts
have come to such counsel's attention that has led such counsel to believe that
the Registration Statement, as of the date thereof, included any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date or the date of such opinion, included or
includes any untrue statement of a material fact or omitted or omits to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that such
counsel need express no opinion or belief with respect to the financial
statements, financial statement schedules and other financial, accounting and
statistical data included therein.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
Commonwealth of Massachusetts, the United States or the General Corporation Law
of the State of Delaware, to the extent such counsel deems proper and as
specified in such opinion, upon the opinion of other counsel of good standing
whom such counsel believes to be reliable and who are satisfactory to counsel
for the Underwriters and (B) as to matters of fact, to the extent such counsel
deems proper, on certificates of responsible officers of the Company and public
officials. References to the Prospectus in this paragraph (b) include any
supplements thereto.
(c) The Representatives shall have received from Testa, Hurwitz &
Thibeault, LLP, counsel for the Underwriters, such opinion or opinions, dated
the applicable Settlement Date, with respect to the issuance and sale of the
Securities, the Registration Statement, the Prospectus (together with any
supplement thereto) and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such counsel such
documents as they request for the purpose of enabling them to pass upon such
matters.
(d) The Company shall have furnished to the Representatives a certificate
of the Company, signed by the Chairman of the Board or the President and the
principal financial or accounting officer of the Company, dated the applicable
Settlement Date, to the effect that the signers of such certificate have
carefully examined the Registration Statement, the Prospectus, any supplements
to the Prospectus and this Agreement and that:
<PAGE>
-12-
(i) the representations and warranties of the Company in this
Agreement are true and correct on and as of the applicable Settlement Date
with the same effect as if made on the applicable Settlement Date and the
Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the
applicable Settlement Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or, to the Company's knowledge, threatened; and
(iii) since the date of the most recent financial statements
included in the Prospectus (exclusive of any supplement thereto), there has
been no material adverse change in the condition (financial or other),
earnings, business or properties of the Company on a consolidated basis,
whether or not arising from transactions in the ordinary course of
business, except as set forth in or contemplated in the Prospectus
(exclusive of any supplement thereto).
(e) At the Execution Time and at the applicable Settlement Date, Price
Waterhouse LLP shall have furnished to the Representatives a letter or letters,
dated respectively as of the Execution Time and as of the applicable Settlement
Date, in form and substance satisfactory to the Representatives, confirming that
they are independent accountants within the meaning of the Act and the
applicable published rules and regulations thereunder and stating in effect
that:
(i) in their opinion the audited financial statements and
financial statement schedules included in the Registration Statement and
the Prospectus and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations;
(ii) they have read the minutes of the meetings of the
stockholders, directors and committees of the Board of Directors of the
Company and its Subsidiaries; have performed the procedures specified by
the American Institute of Certified Public Accountants for a review of
interim financial information as described in SAS No. 71, Interim Financial
Information, on the unaudited combined balance sheet as of June 30, 1997,
the unaudited statements of operations, changes in stockholders' equity and
cash flows for the six months ended June 30, 1997 and June 30, 1996
included in the Registration Statement and the Prospectus; and have
inquired of certain officials of the Company who have responsibility for
financial and accounting matters whether such unaudited combined financial
statements comply as to form, in all material respects, with the applicable
accounting requirements of the Act and the related published rules and
regulations; and that nothing came to their attention as a result of the
foregoing procedures that caused them to believe that any material
modifications should be made to such unaudited combined financial
statements included in the Registration Statement and the Prospectus for
them to be in conformity with generally accepted accounting principles or
that such unaudited combined financial statements do not comply as to
<PAGE>
-13-
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iii) they have read the minutes of the meetings of the
stockholders, directors and committees of the Board of Directors of the
Company and its Subsidiaries; and have inquired of certain officials of the
Company who have responsibility for financial and accounting matters
whether, with respect to the period subsequent to June 30, 1997, there
were any changes, at a specified date not more than five Business Days
prior to the date of the letter, in the long-term debt, cash, cash
equivalents and temporary investments or capital stock of the Company or
decreases in the total stockholders' equity of the Company or decreases in
working capital of the Company, on a combined basis, as compared with the
amounts shown on the June 30, 1997 combined balance sheet included in the
Registration Statement and the Prospectus, or for the period from June 30,
1997, to such specified date there were any decreases, as compared with the
corresponding period in the preceding year, in revenues, operating income
or in total or per share amounts of net income of the Company on a combined
basis; and that nothing came to their attention that caused them to believe
that there was any such change, increase or decrease, except in all
instances for changes or decreases set forth in such letter, in which case
the letter shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed necessary by the
Representatives;
(iv) they have read the information included in the Registration
Statement and the Prospectus in response to Regulation S-K, Item 301
(Selected Financial Data), Item 302 (Supplementary Financial Information)
and Item 402 (Executive Compensation), and nothing has come to their
attention that caused them to believe that such information is not in
conformity with the applicable disclosure requirements of Regulation S-K;
(v) they have performed certain other specified procedures as a
result of which they determined that certain information of an accounting,
financial or statistical nature (which is limited to accounting, financial
or statistical information derived from the general accounting records of
the Company) set forth in the Registration Statement and the Prospectus
agrees with the accounting records of the Company, excluding any questions
of legal interpretation; and
(vi) they have read the unaudited pro forma [specify financial
statements] included in the Registration Statement and the Prospectus;
inquired of certain officials of the Company who have responsibility for
financial and accounting matters about the basis for their determination of
the pro forma adjustments and whether such pro forma financial statements
comply as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Act; and proved the
arithmetic accuracy of the application of the pro forma adjustments to the
historical amounts in such pro forma financial statements; and that nothing
came to their attention as a result of such procedures that caused them to
believe that such unaudited pro forma financial statements do not comply as
<PAGE>
-14-
to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X and that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements (it being understood that such accountants
may state that had they performed additional procedures or had they made an
examination of such pro forma financial statements, other matter may have
come to their attention that would have been reported to you).
References to the Prospectus in this paragraph (e) include any supplement
thereto at the date of the letter.
The Representatives shall have also received from Price Waterhouse LLP a
letter stating that the Company's system of internal accounting controls taken
as a whole is sufficient to meet the broad objectives of internal accounting
control insofar as those objectives pertain to the prevention or detection of
errors or irregularities in amounts that would be material in relation to the
financial statements of the Company (sometimes referred to as a "No Material
Weakness Letter").
(f) Subsequent to the Execution Time or, if earlier, the dates as of which
information is given in the Registration Statement (exclusive of any amendment
thereof) and the Prospectus (exclusive of any supplement thereto), there shall
not have been (i) any change or decrease specified in the letter or letters
referred to in paragraph (e) of this Section 6 or (ii) any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company the effect of which, in any case referred to in clause
(i) or (ii) above, is, in the judgment of the Representatives, so material and
adverse as to make it impractical or inadvisable to proceed with the offering or
delivery of the Securities as contemplated by the Registration Statement
(exclusive of any amendment thereof) and the Prospectus (exclusive of any
supplement thereto).
(g) At the Execution Time, the Company shall have furnished to the
Representatives a letter substantially in the form of Exhibit A hereto from each
officer and director of the Company and each holder of one percent (1%) or more
of any class of the outstanding capital stock of the Company addressed to the
Representatives, in which each such person agrees not to offer, sell or contract
to sell, or otherwise dispose of, directly or indirectly, or announce an
offering of, any shares of Common Stock beneficially owned by such person or any
securities convertible into, or exchangeable for, shares of Common Stock for a
period of 180 days following the Execution Time without the prior written
consent of Salomon Brothers Inc, other than shares of Common Stock disposed of
as bona fide gifts.
(h) Prior to the applicable Settlement Date, the Company shall have
furnished to the Representatives such further information, certificates and
documents as the Representatives may reasonably request.
<PAGE>
-15-
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Representatives and counsel for the Underwriters, this
Agreement and all obligations of the Underwriters hereunder may be canceled at,
or at any time prior to, the applicable Settlement Date by the Representatives.
Notice of such cancellation shall be given to the Company in writing or by
telephone or facsimile confirmed in writing.
The documents required to be delivered by this Section 6 shall be delivered
at the office of Testa, Hurwitz & Thibeault, LLP, , counsel for the
Underwriters, at 125 High Street, Boston, Massachusetts, on the applicable
Settlement Date.
7. Reimbursement of Underwriters' Expenses. If the sale of the Securities
---------------------------------------
provided for herein is not consummated because any condition to the obligations
of the Underwriters set forth in Section 6 hereof is not satisfied, because of
any termination pursuant to Section 10 hereof or because of any refusal,
inability or failure on the part of the Company to perform any agreement herein
or comply with any provision hereof other than by reason of a default by any of
the Underwriters, the Company and the Operating Subsidiaries will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the proposed purchase and sale of the Securities.
8. Indemnification and Contribution. (a) The Company and the Operating
--------------------------------
Subsidiaries, jointly and severally, agree to indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each Underwriter
and each person who controls any Underwriter within the meaning of either the
Act or the Securities Exchange Act of 1934 (the "Exchange Act") against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other Federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement made by the Company or the Operating Subsidiaries in Section 1 hereof,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the registration statement for the registration of the Securities
as originally filed or in any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or in any amendment thereof or supplement thereto,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection with, or relating
in any manner to, the Securities or the offering contemplated hereby, and which
is included as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon matters covered by clause (i) or (ii) above
(provided that the Company and the Operating Subsidiaries shall not be liable
under this clause (iii) to the extent that it is determined in a final judgment
by a court of competent jurisdiction that such loss, claim, damage, liability or
action resulted directly or indirectly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct); and agrees to reimburse each such
<PAGE>
-16-
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that (i) the Company and
the Operating Subsidiaries will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any Underwriter through
the Representatives specifically for inclusion therein and (ii) with respect to
any untrue statement or omission of a material fact made in any Preliminary
Prospectus, the indemnity agreement contained in this Section 8(a) shall not
inure to the benefit of any Underwriter (or any of the directors, officers,
employees and agents of such Underwriter or any controlling person of such
Underwriter) from whom the person asserting any such loss, claim, damage or
liability purchased the Securities concerned, to the extent that any such loss,
claim, damage or liability of such Underwriter occurs under the circumstances
where it shall have been determined by a court of competent jurisdiction by
final and nonappealable judgment that (w) the Company had previously furnished
copies of the Prospectus to the Underwriters, (x) delivery of the Prospectus was
required by the Act to be made to such person, (y) the untrue statement or
omission of a material fact contained in the Preliminary Prospectus was
corrected in the Prospectus and (z) there was not sent or given to such person,
at or prior to the written confirmation of the sale of such Securities to such
person, a copy of the Prospectus. This indemnity agreement will be in addition
to any liability which the Company or the Operating Subsidiaries may otherwise
have.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who signs the
Registration Statement, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, but only with
reference to written information relating to such Underwriter furnished to the
Company by or on behalf of such Underwriter through the Representatives
specifically for inclusion in the documents referred to in the foregoing
indemnity. This indemnity agreement will be in addition to any liability which
any Underwriter may otherwise have. The Company acknowledges that the
statements set forth in the last paragraph of the cover page and under the
heading "Underwriting" in any Preliminary Prospectus and the Prospectus
constitute the only information furnished in writing by or on behalf of the
several Underwriters for inclusion in any Preliminary Prospectus or the
Prospectus, and you, as the Representatives, confirm that such statements are
correct.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint counsel of the
indemnifying party's choice at the
<PAGE>
-17-
indemnifying party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying party shall
not thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be satisfactory to the indemnified
party. Notwithstanding the indemnifying party's election to appoint counsel to
represent the indemnified party in an action, the indemnified party shall have
the right to employ separate counsel (including local counsel), and the
indemnifying party shall bear the reasonable fees, costs and expenses of such
separate counsel if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnifying party will not, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and the Operating Subsidiaries, on
the one hand, and the Underwriters on the other agree to contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating or defending same)
(collectively "Losses") to which the Company and one or more of the Underwriters
may be subject in such proportion as is appropriate to reflect the relative
benefits received by the Company and by the Underwriters from the offering of
the Securities; provided, however, that in no case shall any Underwriter (except
as may be provided in any agreement among underwriters relating to the offering
of the Securities) be responsible for any amount in excess of the underwriting
discount or commission applicable to the Securities purchased by such
Underwriter hereunder. If the allocation provided by the immediately preceding
sentence is unavailable for any reason, the Company and the Operating
Subsidiaries on the one hand and the Underwriters on the other shall contribute
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Operating Subsidiaries on the
one hand and of the Underwriters on the other in connection with the statements
or omissions which resulted in such Losses as well as any other relevant
equitable considerations. Benefits received by the Company and the Operating
Subsidiaries shall be deemed to be equal to the total net proceeds from the
offering (before deducting expenses), and benefits received by the Underwriters
shall be deemed to be equal to the total underwriting discounts and commissions,
in each case as set forth on the cover page of the Prospectus. Relative fault
<PAGE>
-18-
shall be determined by reference to whether any alleged untrue statement or
omission relates to information provided by the Company (or the Operating
Subsidiaries) or the Underwriters. The Company, the Operating Subsidiaries and
the Underwriters agree that it would not be just and equitable if contribution
were determined by pro rata allocation or any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls an Underwriter within the meaning of either the Act or the Exchange Act
and each director, officer, employee and agent of an Underwriter shall have the
same rights to contribution as such Underwriter, and each person who controls
the Company within the meaning of either the Act or the Exchange Act, each
officer of the Company who shall have signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
9. Default by an Underwriter. If any one or more Underwriters shall fail
-------------------------
to purchase and pay for any of the Securities agreed to be purchased by such
Underwriter or Underwriters hereunder and such failure to purchase shall
constitute a default in the performance of its or their obligations under this
Agreement, the remaining Underwriters shall be obligated severally to take up
and pay for (in the respective proportions which the amount of Securities set
forth opposite their names in Schedule I hereto bears to the aggregate amount of
Securities set forth opposite the names of all the remaining Underwriters) the
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase; provided, however, that in the event that the aggregate amount of
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase shall exceed 10% of the aggregate amount of Securities set forth in
Schedule I hereto, the remaining Underwriters shall have the right to purchase
all, but shall not be under any obligation to purchase any, of the Securities,
and if such nondefaulting Underwriters do not purchase all the Securities, this
Agreement will terminate without liability to any nondefaulting Underwriter or
the Company. In the event of a default by any Underwriter as set forth in this
Section 9, the Closing Date shall be postponed for such period, not exceeding
seven days, as the Representatives shall determine in order that the required
changes in the Registration Statement and the Prospectus or in any other
documents or arrangements may be effected. Nothing contained in this Agreement
shall relieve any defaulting Underwriter of its liability, if any, to the
Company and any nondefaulting Underwriter for damages occasioned by its default
hereunder.
10. Termination. This Agreement shall be subject to termination in the
-----------
absolute discretion of the Representatives, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in the Company's Common Stock shall have been suspended by the Commission or the
Nasdaq National Market or trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or limited or
minimum prices shall have been established on either the New York Stock Exchange
or the Nasdaq National Market, (ii) a banking moratorium shall have been
declared either by Federal, New York State or Massachusetts authorities or
<PAGE>
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(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Representatives, impracticable or inadvisable to
proceed with the offering or delivery of the Securities as contemplated by the
Prospectus (exclusive of any supplement thereto).
11. Representations and Indemnities to Survive. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Underwriters set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to the Representatives, will be mailed,
delivered or faxed and confirmed to them, care of Salomon Brothers Inc, at Seven
World Trade Center, New York, New York, 10048, attention: Legal Department; or,
if sent to the Company, will be mailed, delivered or faxed and confirmed to it
at 22 Water Street, Cambridge, Massachusetts 02141, attention of Stewart G.
MacDonald.
13. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and no
other person will have any right or obligation hereunder.
14. Definitions. For purposes of this Agreement, (a) "Business Day" means
-----------
any day on which the New York Stock Exchange is open for trading and (b)
"Subsidiary" and "Significant Subsidiary" have the meanings set forth in Rule
405 under the Act.
15. APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
--------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank]
<PAGE>
-20-
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among the
Company, the Operating Subsidiaries and the several Underwriters.
Very truly yours,
Mac-Gray Corporation
By:____________________________________
Name:
Title:
Mac-Gray Services, Inc.
By:____________________________________
Name:
Title:
Sun Services of America, Inc.
By:____________________________________
Name:
Title:
R. Bodden Coin-Op-Laundry, Inc.
By:____________________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
Salomon Brothers Inc
Smith Barney Inc.
By: Salomon Brothers Inc
By:__________________________
Name:
Title:
For themselves and the other
several Underwriters named in
Schedule I to the foregoing
Agreement.
<PAGE>
EXHIBIT A
Mac-Gray Corporation
Public Offering of Common Stock
__________, 1997
Salomon Brothers Inc
Smith Barney Inc.
As Representatives of the several Underwriters
c/o Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Dear Sirs:
This letter is being delivered to you in connection with the proposed
Underwriting Agreement (the "Underwriting Agreement"), between Mac-Gray
Corporation, a Delaware corporation (the "Company"), and each of you as
representatives of a group of Underwriters named therein, relating to an
underwritten public offering of Common Stock, $.01 par value (the "Common
Stock"), of the Company.
In order to induce you and the other Underwriters to enter into the
Underwriting Agreement, the undersigned agrees not to offer, sell or contract to
sell, or otherwise dispose of, directly or indirectly, or announce an offering
of, any shares of Common Stock beneficially owned by the undersigned or any
securities convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of 180 days following the day on which the
Underwriting Agreement is executed without the prior written consent of Salomon
Brothers Inc, other than shares of Common Stock disposed of as bona fide gifts
(which shall remain subject to this Agreement).
If for any reason the Underwriting Agreement shall be terminated prior to
the Closing Date (as defined in the Underwriting Agreement), the agreement set
forth above shall likewise be terminated.
Yours very truly,
[Signature of officer, director or major
shareholder]
[Name and address of officer, director or
major shareholder]
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Shares of
Underwritten Securities
Underwriters To Be Purchased
- ------------ -----------------------
<S> <C>
Salomon Brothers Inc..............................
Smith Barney Inc..................................
TOTAL............................................. ========
</TABLE>
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MAC-GRAY II, INC.
MAC-GRAY II, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY:
1. The name of the Corporation is Mac-Gray II, Inc. The date of the
filing of its original Certificate of Incorporation with the secretary of State
of the State of Delaware was April 7, 1997.
2. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the Corporation
filed with the Secretary of State of the State of Delaware on April 7, 1997 (the
"Certificate of Incorporation"), and the Board of Directors has duly adopted a
resolution setting forth the proposed amendment and restatement to the
Certificate of Incorporation of the Corporation, recommending said amendment and
restatement to the stockholders of the Corporation as being advisable and in the
best interests of the Corporation and directing that such amendment be submitted
to and be considered by the stockholders of the Corporation for approval by
written consent, all in accordance with the applicable provisions of Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
3. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
----
The name of the Corporation is Mac-Gray Corporation.
<PAGE>
ARTICLE II
REGISTERED OFFICE
-----------------
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware (the
"DGCL").
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Number of Shares.
---------------------------
The total number of shares of capital stock which the Corporation shall
have the authority to issue is 35,000,000 shares, of which (a) 5,000,000 shares
shall be preferred stock, par value $.01 per share (the "Preferred Stock") and
(b) 30,000,000 shares shall be common stock, par value $.01 per share (the
"Common Stock"). As set forth in this Article IV, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Preferred Stock, to fix and determine the
variations in the relative rights and preferences as between the different
series of Preferred Stock in the manner hereinafter set forth in this Article
IV, and to fix or alter the number of shares comprising any such series and the
designation thereof to the extent permitted by law.
The number of authorized shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares outstanding) by the
affirmative vote of the holders of a majority of the Common Stock entitled to
vote, without a vote of the holders of the Preferred Stock, pursuant to the
resolution or resolutions establishing the class of Preferred Stock or this
Certificate of Incorporation, as it may be amended from time to time.
2
<PAGE>
Section 2. General.
------------------
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, Sections 3 and
4 of this Article IV.
Section 3. Common Stock.
-----------------------
Subject to all of the rights, powers and preferences of the Preferred
Stock, and except as provided by law or in this Article IV (or in any
certificate of designation of any series of Preferred Stock) or by the Board of
Directors or any authorized committee thereof pursuant to this Article IV:
(a) the holders of the Common Stock shall have the exclusive right to
vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally available
for the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
Section 4. Preferred Stock.
--------------------------
Subject to any limitations prescribed by law, the Board of Directors or any
authorized committee thereof is expressly authorized to provide for the issuance
of the shares of Preferred Stock in one or more series of such stock, and by
filing a certificate pursuant to applicable law of the State of Delaware, to
establish or change from time to time the number of shares to be included in
each such series, and to fix the designations, powers, preferences and the
relative, participating, optional or other special rights of the shares of each
series and any qualifications, limitations and restrictions thereof. Any action
by the Board of Directors or any authorized committee thereof under this Section
4 shall require the affirmative vote of a majority of the directors then in
office or a majority of the members of such committee. The Board of Directors
or any authorized committee thereof shall have the right to determine or fix one
or more of the following with respect to each series of Preferred Stock to the
extent permitted by law:
3
<PAGE>
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rates or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price or prices at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount or amounts payable upon the shares of such series and
any preferences applicable thereto in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or of any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued;
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of Preferred Stock (or
series thereof) and whether such shares may be reissued as shares of the same or
any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
4
<PAGE>
ARTICLE V
STOCKHOLDER ACTION
------------------
If at any time the Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
for so long as such class is so registered, any action required or permitted to
be taken by the stockholders of the Corporation at any annual or special meeting
of stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders and may not be taken or effected by a written
consent of stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
---------
Section 1. General.
-------------------
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors except as otherwise provided herein or
required by law.
Section 2. Election of Directors.
---------------------------------
Election of Directors need not be by written ballot unless the By-laws of
the Corporation shall so provide.
Section 3. Terms of Directors.
------------------------------
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. The Directors, other
than those who may be elected by the holders of any series of Preferred Stock of
the Corporation, shall be classified, with respect to the term for which they
severally hold office, into three classes, as nearly equal in number as
possible. The initial Class I Directors shall serve for a term expiring at the
annual meeting of stockholders to be held in 1998, the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 1999, and the initial Class III Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 2000. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality of
the votes cast at such meeting and shall hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. The Directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
5
<PAGE>
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate of Incorporation, the holders of any one or more
series of Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect Directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any certificate of designations
applicable thereto, and such Directors so elected shall not be divided into
classes pursuant to this Section 3.
During any period when the holders of any series of Preferred Stock have
the right to elect additional Directors as provided for or fixed pursuant to the
provisions of Article IV hereof, then upon commencement and for the duration of
the period during which such right continues: (i) the then otherwise total
authorized number of Directors of the Corporation shall automatically be
increased by such specified number of Directors, and the holders of such
Preferred Stock shall be entitled to elect the additional Directors so provided
for or fixed pursuant to said provisions, and (ii) each such additional Director
shall serve until such Director's successor shall have been duly elected and
qualified, or until such Director's right to hold such office terminates
pursuant to said provisions, whichever occurs earlier, subject to such
Director's earlier death, disqualification, resignation or removal. Except as
otherwise provided by the Board in the resolution or resolutions establishing
such series, whenever the holders of any series of Preferred Stock having such
right to elect additional Directors are divested of such right pursuant to the
provisions of such stock, the terms of office of all such additional Directors
elected by the holders of such stock, or elected to fill any vacancies resulting
from the death, resignation, disqualification or removal of such additional
Directors, shall forthwith terminate and the total and authorized number of
Directors of the Corporation shall be reduced accordingly.
Section 4. Vacancies.
--------------------
Subject to the rights, if any, of the holders of any series of Preferred
Stock to elect Directors and to fill vacancies in the Board of Directors
relating thereto, any and all vacancies in the Board of Directors, however
occurring, including, without limitation, by reason of an increase in size of
the Board of Directors, or the death, resignation, disqualification or removal
of a Director, shall be filled solely by the affirmative vote of a majority of
the remaining Directors then in office, even if less than a quorum of the Board
of Directors. Any Director appointed in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been duly elected and qualified or until his or
her earlier resignation or removal. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect Directors, when the number of
Directors is increased or decreased, the Board of Directors shall determine the
class or classes to which the increased or decreased number of Directors shall
be apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a
6
<PAGE>
vacancy in the Board of Directors, the remaining Directors, except as otherwise
provided by law, may exercise the powers of the full Board of Directors until
the vacancy is filled.
Section 5. Removal.
------------------
Subject to the rights, if any, of any series of Preferred Stock to elect
Directors and to remove any Director whom the holders of any such stock have the
right to elect, any Director (including persons elected by Directors to fill
vacancies in the Board of Directors) may be removed from office (i) only with
cause and (ii) only by the affirmative vote of at least two-thirds of the total
votes which would be eligible to be cast by stockholders in the election of such
Director. At least thirty (30) days prior to any meeting of stockholders at
which it is proposed that any Director be removed from office, written notice of
such proposed removal shall be sent to the Director whose removal will be
considered at the meeting. For purposes of this Certificate of Incorporation,
"cause," with respect to the removal of any Director shall mean only (i)
conviction of a felony, (ii) declaration of unsound mind by order of court,
(iii) gross dereliction of duty, (iv) commission of any action involving moral
turpitude, or (v) commission of an action which constitutes intentional
misconduct or a knowing violation of law if such action in either event results
both in an improper substantial personal benefit and a material injury to the
Corporation.
ARTICLE VII
LIMITATION OF LIABILITY
-----------------------
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a director at the time of such repeal or
modification.
7
<PAGE>
ARTICLE VIII
AMENDMENT OF BY-LAWS
--------------------
Section 1. Amendment by Directors
---------------------------------
Except as otherwise provided by law, the By-laws of the Corporation may be
amended or repealed by the Board of Directors by the affirmative vote of a
majority of the directors then in office.
Section 2. Amendment by Stockholders
------------------------------------
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least three-fourths of the shares present
in person or represented by proxy at such meeting and entitled to vote on such
amendment or repeal, voting together as a single class; provided, however, that
if the Board of Directors recommends that stockholders approve such amendment or
repeal at such meeting of stockholders, such amendment or repeal shall only
require the affirmative vote of the majority of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
-----------------------------------------
The Corporation reserves the right to amend or repeal this Certificate of
Incorporation in the manner now or hereafter prescribed by statute and this
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation. No amendment or repeal of this
Certificate of Incorporation shall be made unless the same is first approved by
the Board of Directors pursuant to a resolution adopted by the Board of
Directors in accordance with Section 242 of the DGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders. Whenever any vote of
the holders of voting stock is required to amend or repeal any provision of this
Certificate of Incorporation, and in addition to any other vote of the holders
of voting stock that is required by this Certificate of Incorporation or by law,
the affirmative vote of a majority of the outstanding shares entitled to vote on
such amendment or repeal, and the affirmative vote of a majority of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of this Certificate of Incorporation;
provided, however, that the affirmative vote of not less than four-fifths of the
outstanding shares entitled to vote on such amendment or repeal,
8
<PAGE>
and the affirmative vote of not less than four-fifths of the outstanding shares
of each class entitled to vote thereon as a class, shall be required to amend or
repeal any of the provisions of Article V, Article VI, Article VII or Article IX
of this Certificate of Incorporation.
9
<PAGE>
I, Stewart G. MacDonald, Jr., Chief Executive Officer of the Corporation,
for the purpose of amending and restating the Corporation's Certificate of
Incorporation pursuant to the General Corporation Law of the state of Delaware,
do make this certificate, hereby declaring and certifying that this is my act
and deed on behalf of the Corporation this 13th day of August, 1997.
/s/ Stewart G. MacDonald, Jr.
------------------------------
Name: Stewart G. MacDonald, Jr.
Title: Chief Executive Officer
ATTEST:
/s/
- ------------------------------
Name: Patrick A. Flanagan
Title: Secretary
10
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
MAC-GRAY CORPORATION
ARTICLE I
---------
Stockholders
------------
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
--------------
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the Chief Executive Officer, which time, date and place may
subsequently be changed at any time by vote of the Board of Directors. If no
annual meeting has been held for a period of thirteen months after the
Corporation's last annual meeting of stockholders, a special meeting in lieu
thereof may be held, and such special meeting shall have, for the purposes of
these By-laws or otherwise, all the force and effect of an annual meeting. Any
and all references hereafter in these By-laws to an annual meeting or annual
meetings also shall be deemed to refer to any special meeting(s) in lieu
thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
-------------------------------------------
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual
<PAGE>
Meeting or (y) the 15th day following the day on which public announcement of
the date of such Annual Meeting is first made by the Corporation. For all
subsequent Annual Meetings, a stockholder's notice shall be timely if delivered
to, or mailed to and received by, the Corporation at its principal executive
office not less than 75 days nor more than 120 days prior to the anniversary
date of the immediately preceding Annual Meeting (the "Anniversary Date");
provided, however, that in the event the Annual Meeting is scheduled to be held
on a date more than 30 days before the Anniversary Date or more than 60 days
after the Anniversary Date, a stockholder's notice shall be timely if delivered
to, or mailed to and received by, the Corporation at its principal executive
office not later than the close of business on the later of (1) the 75th day
prior to the scheduled date of such Annual Meeting or (2) the 15th day following
the day on which public announcement of the date of such Annual Meeting is first
made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each matter
proposed to be brought before an Annual Meeting: (i) a brief description of the
business the stockholder desires to bring before such Annual Meeting and the
reasons for conducting such business at such Annual Meeting, (ii) the name and
address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines that
any stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If neither the Board of Directors nor such committee makes
a determination as to the validity of any stockholder proposal in the manner set
forth above, the presiding officer of the Annual Meeting shall determine whether
2
<PAGE>
the stockholder proposal was made in accordance with the terms of this Section
2. If the presiding officer determines that any stockholder proposal was not
made in a timely fashion in accordance with the provisions of this Section 2 or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this Section 2 in any material respect, such
proposal shall not be presented for action at the Annual Meeting in question.
If the Board of Directors, a designated committee thereof or the presiding
officer determines that a stockholder proposal was made in accordance with the
requirements of this Section 2, the presiding officer shall so declare at the
Annual Meeting and ballots shall be provided for use at the meeting with respect
to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
----------------
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
--------------------------------------------
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
--------------------------------
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
3
<PAGE>
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting
of stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
SECTION 6. Quorum. A majority of the shares entitled to vote, present in
------
person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
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SECTION 7. Voting and Proxies. Stockholders shall have one vote for each
------------------
share of stock entitled to vote owned by them of record according to the books
of the Corporation, unless otherwise provided by law or by the Certificate.
Stockholders may vote either in person or by written proxy, but no proxy shall
be voted or acted upon after three years from its date, unless the proxy
provides for a longer period. Proxies shall be filed with the Secretary of the
meeting before being voted. Except as otherwise limited therein or as otherwise
provided by law, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting, but they shall not be valid after final
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by or on behalf of any one of
them unless at or prior to the exercise of the proxy the Corporation receives a
specific written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a stockholder shall be deemed
valid, and the burden of proving invalidity shall rest on the challenger.
SECTION 8. Action at Meeting. When a quorum is present, any matter before
-----------------
any meeting of stockholders shall be decided by the affirmative vote of the
majority of shares present in person or represented by proxy at such meeting and
entitled to vote on such matter, except where a larger vote is required by law,
by the Certificate or by these By-laws. Any election by stockholders shall be
determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary (or
-----------------
the Corporation's transfer agent or other person authorized by these By-laws or
by law) shall prepare and make, at least 10 days before every Annual Meeting or
special meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
-----------------
elected, or if not elected or in his or her absence, the Chief Executive
Officer, shall preside at all Annual Meetings or special meetings of
stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
5
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Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
---------------------------------------------
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
----------
Directors
---------
SECTION 1. Powers. The business and affairs of the Corporation shall be
------
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation
----------------
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
--------------------
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has
complied with the timing, informational and other requirements set forth in this
Section 3 and
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who seeks to make such a nomination, or his, her or its representative, must be
present in person at the Annual Meeting. Only persons nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3. For the first Annual Meeting
following the initial public offering of common stock of the Corporation, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal executive office not later than the close
of business on the later of (i) the 75th day prior to the scheduled date of such
Annual Meeting or (ii) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(x) the 75th day prior to the scheduled date of such Annual Meeting or (y) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
A stockholder's notice to the Secretary shall set forth as to each person
whom the stockholder proposes to nominate for election or re-election as a
director: (1) the name, age, business address and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (4) the consent
of each nominee to serve as a director if elected. A stockholder's notice to
the Secretary shall further set forth as to the stockholder giving such notice:
(a) the name and address, as they appear on the Corporation's stock transfer
books, of such stockholder and of the beneficial owners (if any) of the
Corporation's capital stock registered in such stockholder's name and the name
and address of other stockholders known by such stockholder to be supporting
such nominee(s), (b) the class and number of shares of the Corporation's capital
stock which are held of record, beneficially owned or represented by proxy by
such stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the Annual Meeting in question
(if such date shall then have been made publicly available) and on the date of
such stockholder's notice, and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
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If the Board of Directors or a designated committee thereof determines that
any stockholder nomination was not made in accordance with the terms of this
Section 3 or that the information provided in a stockholder's notice does not
satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect, then such nomination shall not be considered
at the Annual Meeting in question. If the Board of Directors, a designated
committee thereof or the presiding officer determines that a nomination was made
in accordance with the terms of this Section 3, the presiding officer shall so
declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 75 days prior to the
Anniversary Date, a stockholder's notice required by this Section 3 shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if such notice shall be delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the 15th day following the day on which such public
announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
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SECTION 4. Qualification. No director need be a stockholder of the
-------------
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
---------
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
preferred stock to elect directors, when the number of directors is increased or
decreased, the Board of Directors shall determine the class or classes to which
the increased or decreased number of directors shall be apportioned; provided,
however, that no decrease in the number of directors shall shorten the term of
any incumbent director. In the event of a vacancy in the Board of Directors,
the remaining directors, except as otherwise provided by law, may exercise the
powers of the full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the manner
-------
provided in the Certificate.
SECTION 7. Resignation. A director may resign at any time by giving
-----------
written notice to the Chairman of the Board, if one is elected, the Chief
Executive Officer or the Secretary. A resignation shall be effective upon
receipt, unless the resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
----------------
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may
be held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of all
------------------
special meetings of the Board of Directors shall be given to each director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by
9
<PAGE>
the Chairman of the Board, if one is elected, or the Chief Executive Officer or
such other officer designated by the Chairman of the Board, if one is elected,
or the Chief Executive Officer. Notice of any special meeting of the Board of
Directors shall be given to each director in person, by telephone, or by
facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any
notice of the hour, date or place of any meeting adjourned for less than 30 days
or of the business to be transacted thereat, other than an announcement at the
meeting at which such adjournment is taken of the hour, date and place to which
the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a majority
------
of the directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 10 of
this Article II. Any business which might have been transacted at the meeting
as originally noticed may be transacted at such adjourned meeting at which a
quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
-----------------
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of
10
<PAGE>
the meetings of the Board of Directors and shall be treated for all purposes as
a vote at a meeting of the Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in meetings
-----------------------
of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority of
----------
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which
the Board of Directors delegates any of its powers or duties shall keep records
of its meetings and shall report its action to the Board of Directors. The
Board of Directors shall have power to rescind any action of any committee, to
the extent permitted by law, but no such rescission shall have retroactive
effect.
SECTION 16. Compensation of Directors. Directors shall receive such
-------------------------
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
-----------
Officers
--------
SECTION 1. Enumeration. The officers of the Corporation shall consist of
-----------
a Chief Executive Officer, a Treasurer, a Secretary and such other officers,
including, without limitation, a Chairman of the Board of Directors, a
President, a Chief Financial Officer, a Chief Operating Officer and one or more
Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents),
Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as
the Board of Directors may determine.
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SECTION 2. Election. At the regular annual meeting of the Board following
--------
the Annual Meeting of stockholders, the Board of Directors shall elect the Chief
Executive Officer, the Treasurer and the Secretary. Other officers may be
elected by the Board of Directors at such regular annual meeting of the Board of
Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a director.
-------------
Any person may occupy more than one office of the Corporation at any time. Any
officer may be required by the Board of Directors to give bond for the faithful
performance of his or her duties in such amount and with such sureties as the
Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or by
------
these By-laws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
-----------
written resignation to the Corporation addressed to the Chief Executive Officer
or the Secretary, and such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
-------
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
SECTION 7. Absence or Disability. In the event of the absence or
---------------------
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
---------
unexpired portion of the term by the Board of Directors.
SECTION 9. Chief Executive Officer. The Chief Executive Officer shall,
-----------------------
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he or she is absent, the Chief Executive Officer shall preside, when present,
at all meetings of stockholders and of the Board of Directors. The Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
---------------------
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors.
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The Chairman of the Board shall have such other powers and shall perform such
other duties as the Board of Directors may from time to time designate.
SECTION 11. President. The President, if one is elected, shall have such
---------
powers and shall perform such duties as the Board of Directors may from time to
time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
---------------------------------------------
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
----------------------------------
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have
such other duties and powers as may be designated from time to time by the Board
of Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
-----------------------------------
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose.
In his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the
absence of the Secretary, any Assistant Secretary may perform his or her duties
and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to such
-----------------------
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective
13
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offices, as well as such powers and duties as from time to time may be conferred
by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
----------
Capital Stock
-------------
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to a
---------------------
certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the Chief Executive Officer or
a Vice President and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. The Corporation seal and the signatures by
the Corporation's officers, the transfer agent or the registrar may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on such certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and unless
---------
otherwise provided by the Board of Directors, shares of stock may be transferred
only on the books of the Corporation by the surrender to the Corporation or its
transfer agent of the certificate theretofore properly endorsed or accompanied
by a written assignment or power of attorney properly executed, with transfer
stamps (if necessary) affixed, and with such proof of the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
SECTION 3. Record Holders. Except as may otherwise be required by law, by
--------------
the Certificate or by these By-laws, the Corporation shall be entitled to treat
the record holder of stock as shown on its books as the owner of such stock for
all purposes, including the payment of dividends and the right to vote with
respect thereto, regardless of any transfer, pledge or other disposition of such
stock, until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
-----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any
14
<PAGE>
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date: (a) in the case of determination of
stockholders entitled to vote at any meeting of stockholders, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting and (b) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed: (i)
the record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and (ii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
---------------------------
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
---------
Indemnification
---------------
SECTION 1. Definitions. For purposes of this Article:
-----------
(a) "Director" means any person who serves or has served the Corporation as
a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the Corporation as
an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as an
employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, inquiry, investigation,
administrative hearing or other proceeding, whether civil, criminal,
administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom
15
<PAGE>
presentation aids and devices, costs incurred in connection with document
review, organization, imaging and computerization, telephone charges, postage,
delivery service fees, and all other disbursements, costs or expenses of the
type customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in,
settling or otherwise participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the case
of a Director, is or was a director of the Corporation and is or was acting in
such capacity, (ii) in the case of an Officer, is or was an officer, employee or
agent of the Corporation or is or was a director, officer, employee or agent of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such Officer is or was serving at the request of the
Corporation, and (iii) in the case of a Non-Officer Employee, is or was an
employee of the Corporation or is or was a director, officer, employee or agent
of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such Non-Officer Employee is or was serving at
the request of the Corporation; and
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. Indemnification of Directors and Officers. Subject to the
-----------------------------------------
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation.
16
<PAGE>
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
----------------------------------------
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such Non-
Officer Employee or on such Non-Officer Employee's behalf in connection with any
threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 3 shall continue as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 4. Good Faith. Unless ordered by a court, no indemnification
----------
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (c) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors Prior to Final
---------------------------------------------------
Disposition. The Corporation shall advance all Expenses incurred by or on behalf
- -----------
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within ten days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Officers and Non-Officer Employees
-------------------------------------------------------------
Prior to Final Disposition. The Corporation may, in the discretion of the Board
- --------------------------
of Directors of the
17
<PAGE>
Corporation, advance any or all Expenses incurred by or on behalf of any Officer
or Non-Officer Employee in connection with any Proceeding in which such Officer
or Non-Officer Employee is involved by reason of such Officer or Non-Officer
Employee's Corporate Status upon the receipt by the Corporation of a statement
or statements from such Officer or Non-Officer Employee requesting such advance
or advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably evidence the
Expenses incurred by such Officer or Non-Officer Employee and shall be preceded
or accompanied by an undertaking by or on behalf of such Officer or Non-Officer
Employee to repay any Expenses so advanced if it shall ultimately be determined
that such Officer or Non-Officer Employee is not entitled to be indemnified
against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of this
----------------------------
Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after the Corporation's
receipt of a written claim for indemnification, or (b) in the case of a
Director, 10 days after the Corporation's receipt of documentation of Expenses
and the required undertaking, such Director or Officer may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, such Director or Officer shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
-------------------------
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
18
<PAGE>
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
-----------
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
----
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
------------------------
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the Chief Executive Officer or the Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors or Executive
Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors otherwise
--------------------
provides, the Chairman of the Board, if one is elected, the Chief Executive
Officer or the Treasurer may waive notice of and act on behalf of this
Corporation, or appoint another person or persons to act as proxy or attorney in
fact for this Corporation with or without discretionary power and/or power of
substitution, at any meeting of stockholders or shareholders of any other
corporation or organization, any of whose securities are held by this
Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a resident
--------------
agent upon whom legal process may be served in any action or proceeding against
the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
-----------------
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Amendment of By-laws.
--------------------
(a) Amendment by Directors. Except as provided otherwise by law, these
----------------------
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
19
<PAGE>
(b) Amendment by Stockholders. These By-laws may be amended or repealed
-------------------------
at any Annual Meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least three-fourths of the
shares present in person or represented by proxy at such meeting and entitled to
vote on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted April 7, 1997 and effective as of April 7, 1997.
20
<PAGE>
EXHIBIT 10.1
================================================================================
STOCKHOLDERS' AGREEMENT
DATED AS OF APRIL 17, 1997
BY AND AMONG
MAC-GRAY II, INC.
AND
THE STOCKHOLDERS OF MAC-GRAY II, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................................. 1
SECTION 1. DEFINITIONS................................................ 1
1.1 Construction of Terms...................................... 1
1.2 Terms not Defined.......................................... 1
1.3 Defined Terms.............................................. 1
SECTION 2. REPRESENTATIONS AND WARRANTIES............................. 5
2.1 Representations and Warranties of the Stockholders......... 5
2.2 Representations and Warranties of the Company.............. 5
2.3 S Corporation Matters...................................... 5
3.1 Generally.................................................. 7
3.2 Certain Permitted Transfers................................ 7
SECTION 4. REGISTRATION RIGHTS........................................ 8
4.1 Piggy-back Registrations................................... 8
4.2 Demand Registration........................................ 9
4.3 Further Obligations of the Company.........................10
4.5 Participation in Registrations.............................13
4.6 Transfer of Registration Rights............................13
4.7 Lock-up Agreement..........................................14
4.8 Information to be Furnished by Stockholder.................14
SECTION 5. PUT AND CALL RIGHTS........................................15
5.1 Puts.......................................................15
5.2 Call.......................................................16
SECTION 6. ANTI-DILUTION ADJUSTMENTS..................................17
6.1 Issuance of Common Stock...................................17
6.2 Issuance or Grant of Options...............................18
6.3 Issuances to the Investor and Permitted Transferees........18
6.4 Stock Dividends, Subdivisions and Combinations.............18
6.5 Affiliate Issuances........................................18
SECTION 7. COVENANTS REGARDING VOTING.................................19
7.1 Director Nomination........................................19
7.2 Termination................................................19
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8. MISCELLANEOUS..............................................19
8.1 Successors and Assigns.....................................19
8.2 Amendments and Waivers.....................................19
8.3 Governing Law..............................................19
8.4 Notices....................................................19
8.5 Counterparts...............................................20
8.6 Effect of Headings.........................................20
8.7 Remedies...................................................20
8.8 Attorneys' Fees............................................20
8.9 Severability...............................................20
8.10 Dispute Resolution.........................................20
8.11 Entire Agreement...........................................22
8.12 Term.......................................................22
8.13 Legend on Securities.......................................22
</TABLE>
EXHIBITS
--------
EXHIBIT A - Form of Joinder Agreement
(ii)
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT dated as of April 17, 1997 by and among Mac-Gray
II, Inc., a Delaware corporation (the "Company"), and the Stockholders of the
Company identified as such on the signature pages hereto, including any Person
becoming a party to this Agreement by execution of a Joinder Agreement in the
form attached hereto as Exhibit A (collectively, the "Stockholders," and, each
---------
individually a "Stockholder").
RECITALS:
--------
WHEREAS, concurrently herewith, the Company, Mac-Gray Co., Inc. ("Mac-
Gray"), Mac-Gray Acquisition Corp. ("Acquisition Corp."), Sun Services of
America, Inc. ("SSA"), R. Bodden Coin-Op-Laundry, Inc. ("Bodden") and Jeffrey C.
Huenink (the "Investor") have entered into an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which SSA is being merged with and into the
Company and Acquisition Corp. is being merged with and into Bodden (together the
"Mergers"); and
WHEREAS, it is condition precedent to the consummation of the transactions
contemplated by the Merger Agreement that the Company and the Stockholders enter
into this Agreement setting forth certain rights and obligations of the Company,
the Investor and the other Stockholders.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
- --------- -----------
1.1 Construction of Terms. The terms in this Agreement shall include the
---------------------
plural as well as the singular and the use of any gender herein shall be deemed
to include the other gender. References to sections shall mean sections of this
Agreement unless otherwise specified.
1.2 Terms not Defined. Capitalized terms used herein without definition
-----------------
shall have the meanings assigned to them in the Merger Agreement.
1.3 Defined Terms. The following capitalized terms, as used in this
-------------
Agreement, shall have the meanings set forth below.
"Affiliate" means, with respect to any person or entity (herein the "first
party"), any other person or entity that directly or indirectly controls, or is
controlled by, or is under common control with, such first party (the term
"control" as used herein (including the terms
<PAGE>
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to (i) vote twenty-five percent (25%) or more of the
outstanding voting securities of such person or entity, or (ii) otherwise direct
the management or policies of such person or entity by contract or otherwise).
"Call" shall have the meaning set forth in Section 5.2.
"Callable Shares" shall have the meaning set forth in Section 5.2.
"Call Exercise Period" shall have the meaning set forth in Section 5.2.
"Call Exercise Price" shall have the meaning set forth in Section 5.2.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Mac-Gray II, Inc., a Delaware corporation, and any
successor thereto.
"Controlling Person" shall have the meaning set forth in Section 4.4.
"CPR Rules" shall have the meaning set forth in Section 8.9.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as the same
may be amended from time to time, and the rules and regulations promulgated
thereunder.
"Excluded Options" shall have the meaning set forth in Section 6.1.1.
"Fair Market Value" means, as of any date, the fair market value of each
Share as determined from time to time by the Board of Directors of the Company,
acting in good faith, and which initially shall be $14.54.
"Holder" shall mean, for purposes of Section 4 hereof, the Investor and any
Permitted Transferee of the Investor who is the record holder of Registrable
Securities.
"Initial Public Offering" means the first underwritten public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act.
"Initial Put Period" shall have the meaning set forth in Section 5.1.1.
2
<PAGE>
"Investor Shares" means the 612,026 shares of Common Stock received by the
Investor pursuant to the Mergers, including (i) any additional shares of Common
Stock issued with respect to such shares upon any stock split, stock dividend,
recapitalization or similar event and (ii) any additional issuances in respect
of such shares made in accordance with Section 6 hereof, but excluding any
Shares otherwise received by the Investor or any Permitted Transferee after the
date hereof.
"Investor Share Price" shall mean the price per share of the Investor
Shares, initially $14.54, as the same may be adjusted from time to time in
accordance with this Agreement.
"Letter of Credit" shall have the meaning set forth in Section 5.1.5.
"Mergers" shall have the meaning set forth in the Recitals.
"Merger Agreement" shall have the meaning set forth in the Recitals.
"Net Aggregate Consideration" shall have the meaning set forth in Section
6.2.1.
"Permitted Transfer" shall have the meaning set forth in Section 3.2.
"Permitted Transferee" shall have the meaning set forth in Section 3.2.
"Person" means any individual, corporation, association, partnership,
limited liability company, joint venture, trust, estate or other entity or
organization.
"Putable Shares" means, as of the time of any Put Exercise, the Investor
Shares held as of such date by the Investor and any Permitted Transferees.
"Put Closing" shall have the meaning set forth in Section 5.1.4.
"Put Exercise" shall have the meaning set forth in Section 5.1.1.
"Put Exercise Period" shall have the meaning set forth in Section 5.1.
"Put Exercise Price" shall have the meaning set forth in Section 5.1.2.
"Put Holders" shall have the meaning set forth in Section 5.1.
"Put Notice" shall have the meaning set forth in Section 5.1.1.
"Put Option" shall have the meaning set forth in Section 5.1.
3
<PAGE>
"Registrable Securities" means the Investor Shares except for (i) Investor
Shares with respect to which a registration statement has been declared
effective under the Securities Act, (ii) any Investor Shares which may be
transferred pursuant to Rule 144 (or any similar provision then in force) under
the Securities Act, including a sale pursuant to the provisions of Rule 144(k),
(iii) any Investor Shares which cease to be outstanding and (iv) any Investor
Shares with respect to which a Put Option or Call Option has been exercised in
accordance with Sections 4.1 and 4.2 hereof.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 3.1 and 3.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of legal counsel for the Company, fees and disbursements
of one legal counsel for the Holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"S Corporation" shall have the meaning set forth in Section 2.3.
"SEC" means the Securities and Exchange Commission, or any successor agency
thereto.
"Second Put Period" shall have the meaning set forth in Section 5.1.1.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations promulgated thereunder.
"Selling Stockholders" shall have the meaning set forth in Section 4.1.2.
"Shares" means shares of Common Stock.
"Transfer" means, with respect to any Shares, to sell, exchange, deliver or
assign, dispose of, bequeath or gift, pledge, mortgage, hypothecate, or
otherwise encumber, transfer or permit to be transferred (Shares with respect to
which a Transfer has been completed are referred to as having been "Transferred"
and any recipient of such Shares is referred to as a "Transferee").
SECTION 2. REPRESENTATIONS AND WARRANTIES AND S CORPORATION MATTERS.
- --------- --------------------------------------------------------
2.1 Representations and Warranties of the Stockholders. Each of the
--------------------------------------------------
Stockholders, individually and not jointly, hereby represents and warrants to
the Company as follows: (a)
4
<PAGE>
such Stockholder has full authority and power and, if an individual, capacity,
under its charter, by-laws, governing trust agreement or comparable document, as
applicable, to enter into this Agreement; (b) this Agreement constitutes the
valid and binding obligation of such Stockholder enforceable against such
Stockholder in accordance with its terms; and (C) the execution, delivery and
performance by such Stockholder of this Agreement (i) does not and will not
violate any laws, rules or regulations of the United States or any state or
other jurisdiction applicable to such Stockholder, or require such Stockholder
to obtain any approval, consent or waiver of, or to make any filing with, any
Person that has not been obtained or made and (ii) does not and will not result
in a breach of, constitute a default under, accelerate any obligation under or
give rise to a right of termination of any agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award to which such Stockholder is a party
or by which the property of such Stockholder is bound or affected, or result in
the creation or imposition of any lien on any of the assets or properties of
such Stockholder.
2.2 Representations and Warranties of the Company. The Company, hereby
---------------------------------------------
represents and warrants to the Stockholders as follows: (a) the Company has full
corporate authority and power to enter into this Agreement; (b) the execution,
delivery and performance by the Company of this Agreement has been duly
authorized by all necessary corporate action and this Agreement constitutes the
valid and binding obligation of the Company enforceable against it in accordance
with its terms; and (C) the execution, delivery and performance by the Company
of this Agreement: (i) does not and will not violate any laws, rules or
regulations of the United States or any state or other jurisdiction applicable
to the Company, or require the Company to obtain any approval, consent or waiver
of, or to make any filing with, any Person that has not been obtained or made;
and (ii) does not and will not result in a breach of, constitute a default
under, accelerate any obligation under or give rise to a right of termination of
any agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Company is a party or by which the property of
the Company is bound or affected, or result in the creation or imposition of any
lien on any of the assets or properties of the Company.
2.3 S Corporation Matters.
---------------------
(a) Stockholders' Representation and Warranties. Each Stockholder
-------------------------------------------
hereby represents and warrants to the Company and to each other Stockholder that
he, she or it is eligible to hold the stock of a "small business corporation"
within the meaning of Section 1361(b) of the Code (a small business corporation
for which a valid S Election is in effect is referred to herein as an "S
Corporation") and that such Stockholder is described in Section 1361(b)(1)(B) of
the Code. An "S Election" shall mean an election pursuant to Section 1362(a) of
the Code.
5
<PAGE>
Each Stockholder further represents and warrants that he, she or it is not
(and whose spouse, if any, is neither) a nonresident alien of the United States
or a resident of, nor subject to any jurisdiction, having laws governing
community property, or having adopted in whole or in part the Uniform Marital
Property Act.
Each Stockholder further represents and warrants that he, she or it does
not hold any of the Shares as the nominee or agent of any other Person and that
he, she or it does not hold any of the Shares as a tenant in common, joint
tenant or tenant by the entirety with any other Person.
Each Stockholder further represents and warrants that he, she or it will
not Transfer any of the Shares to a Person which could result in termination of
the Company's status as an S Corporation. For purposes of this Section 2.3
only, the term "Transfer" means (a) any sale, exchange, gift, bequest,
hypothecation, pledge or grant of a security interest or (b) any other
disposition of Shares, or of any interest in Shares, whether voluntary or by
operation of law, that could change the legal or beneficial ownership of such
Shares. A "Transfer" includes, without limitation, any transaction that creates
a form of joint ownership in Shares between the transferor and one or more
Persons (whether or not that other Person is the spouse of the transferor) or
any transaction that creates or grants an option, warrant, or right to obtain an
interest in any Shares.
Each Stockholder recognizes that an S Corporation is not permitted to have
more than 75 shareholders.
(b) Consent to Election; Duration of Election. Each Stockholder hereby
-----------------------------------------
consents to the S Election, and agrees to execute Internal Revenue Service Form
2553 or its successor, and such other or additional documents and consents as
the Board of Directors of the Company (the "Board of Directors") in its
discretion considers necessary or desirable to make and/or continue the S
Election. No Stockholder will take any action which would result in the
termination of the S Election or precludes an S Election.
The Company and the Stockholders agree that from and after the date hereof,
(i) the Company shall maintain its status as an S Corporation until the Board of
Directors determines to terminate such status, and (ii) that if in the absence
of such a determination by the Board of Directors a termination of S Corporation
status nevertheless occurs, then immediately upon its discovery the officers of
the Company shall take action pursuant to Section 1362(f) of the Code (or any
successor or similar provision) to restore, if possible, the status of the
Company as an S Corporation. Notwithstanding the foregoing, nothing in this
Agreement shall be construed to prevent the Board of Directors in its sole
discretion from terminating the status of the Company as an S Corporation. To
effectuate the termination of the status of the Company as an S Corporation, the
Company, if necessary, shall complete, execute and file with the Internal
Revenue Service a revocation statement together with all other necessary
documents, including
6
<PAGE>
any necessary statements of consent from Stockholders. Upon request of the Board
of Directors, each Stockholder shall execute and deliver to the Company any
statement of consent or other documents required under Subchapter S of Chapter 1
of the Code to be filed in connection with the termination of the status of the
Company as an S Corporation.
SECTION 3. RESTRICTIONS ON TRANSFER BY THE INVESTOR.
- --------- ----------------------------------------
3.1 Generally. Prior to the closing of an Initial Public Offering, the
---------
Investor shall not Transfer, whether voluntarily, involuntarily or by operation
of law (including the laws of bankruptcy and insolvency), any of the Investor
Shares, except for (a) Transfers effected pursuant to Section 3.2 hereof, in
accordance with the terms set forth therein, (b) any Transfer effected pursuant
to the exercise of a Put Option as contemplated by and in accordance with the
terms set forth in Section 5.1 hereof, any Transfer effected pursuant to the
exercise of the Call Option as contemplated by and in accordance with the terms
set forth in Section 5.2 hereof and (d) any Transfer for which the Company has
granted its prior written consent. Notwithstanding any of the above, the
Investor shall not Transfer any Investor Shares except in accordance with the
provisions of this Agreement and all applicable provisions of the Securities Act
and any relevant state securities law.
3.2 Certain Permitted Transfers. The following Transfers shall be
---------------------------
permitted (each a "Permitted Transfer") subject to the limitations set forth
below:
3.2.1 Transfers of Investor Shares by the Investor (a) to his spouse
and their lineal descendants, (b) to a family limited partnership or family
limited liability company (provided that all of the partnership interests of any
such partnership and all of the capital stock and/or limited liability company
interests of any such limited liability company are beneficially owned by the
Investor or one or more Transferees of the Investor permitted under this Section
3.2.1), and to a trust of which the Investor is the settlor, is revocable solely
by the Investor and is for the benefit of the Investor, his spouse and/or their
lineal descendants, provided that (i) any such partnership, limited liability
--------
company, or trust does not require or permit distribution of such Investor
Shares prior to the closing of an Initial Public Offering, (ii) any such
Transferee shall have executed and delivered to the Company a Joinder Agreement
in the form attached hereto as Exhibit A and (iii) no further Transfer of such
---------
Investor Shares shall thereafter be permitted hereunder.
3.2.2 Transfers of Investor Shares upon the death of the Investor to
his heirs, devisees, executors or administrators or to a trust under his will,
provided that (i) the Transferee shall have executed and delivered to the
- --------
Company a Joinder Agreement in the form attached hereto as Exhibit A and (ii) no
---------
further Transfer of such Investor Shares shall thereafter be permitted
hereunder.
7
<PAGE>
3.2.3 Transfers of Shares between the Investor and his guardian or
conservator;
Any permitted Transferee described in the preceding Sections 3.2.1, 3.2.2 and
3.2.3 shall be referred to herein as a "Permitted Transferee." Anything to the
contrary in this Agreement notwithstanding, Permitted Transferees shall take any
Shares so Transferred subject to all provisions of this Agreement as if such
Shares were still held by the Investor, whether or not they so agree with the
Investor and/or the Company.
SECTION 4. REGISTRATION RIGHTS.
- --------- -------------------
4.1 Piggy-back Registrations.
------------------------
4.1.1 If at any time or times after the completion of an Initial
Public Offering the Company shall determine to register under the Securities Act
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock (other than in connection with a
registration on Form S-4 or S-8 (or then equivalent forms) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing securityholders) and the form of registration
statement to be used permits the registration of Registrable Securities, then
the Company shall promptly give written notice of such proposed registration to
the Holders of Registrable Securities (but in no event less than twenty (20)
days prior to the anticipated effective date of the registration statement). If
within ten (10) days after the receipt of such notice the Company receives a
written request from any Holder for the inclusion in such registration of some
or all of the Registrable Securities (which request shall specify the number of
Registrable Securities intended to be disposed of by such Holder and the
intended method of distribution thereof), the Company shall use commercially
reasonable efforts to cause the Registrable Securities requested to be included
in such registration on the same terms and conditions as any similar securities
of the Company or any other securityholder included therein and to permit the
sale or other disposition of such Registrable Securities in accordance with the
intended method of distribution thereof. The Company may withdraw a registration
under this Section 4.1.1 at any time prior to the time it becomes effective,
provided that the Company shall give prompt notice of such withdrawal to the
Holders of Registrable Securities requested to be included in such registration.
4.1.2 In connection with any offering under this Section 4.1
involving an underwriting, the Company shall not be required to include a
Holder's Registrable Securities in the underwritten offering unless such Holder
accepts the terms of the underwriting (which shall be customary) as agreed upon
between the Company and the underwriters selected by the Company. If the
managing underwriter of an underwritten offering with respect to which
registration has been requested by any Holder pursuant to this Section 4.1 has
advised the
8
<PAGE>
Company in writing that the number of securities to be sold in such offering by
persons other than the Company (collectively, "Selling Stockholders") is greater
than the number which can be offered without adversely affecting such offering,
then the Company may reduce the number of securities to be included in such
offering for the accounts of Selling Stockholders (including the Holders) to a
number deemed satisfactory by the managing underwriter, provided, however, that
-------- -------
the securities to be excluded shall be determined in the following order of
priority: first, securities held by any Selling Stockholder not having
contractual, incidental registration rights; second, securities held by any
Selling Stockholder participating in such offering pursuant to the exercise of
contractual piggyback registration rights pursuant to an agreement other than
this Agreement, as determined on a pro rata basis (based upon the aggregate
number of securities held by such Selling Stockholders) and third, Registrable
Securities held by any Selling Stockholder participating in such offering
pursuant to the exercise of the registration rights under this Section 4.1, as
determined on a pro rata basis (based upon the aggregate number of Registrable
Securities held by such Selling Stockholders).
4.2 Demand Registration.
-------------------
4.2.1 If on any one (1) occasion after the expiration of the one
hundred and eighty (180) day period following an Initial Public Offering,
Holders holding sixty-six and two-thirds percent (66 2/3%) of the Registrable
Securities shall notify the Company of their desire to offer or cause to be
offered for public sale all or any portion of their Registrable Securities, the
Company shall use its commercially reasonable efforts to cause such number of
Registrable Securities as may be requested by the Holders to be registered under
the Securities Act by filing with the SEC a registration statement on the
appropriate form covering such Registrable Securities. The Company shall not be
required to cause a registration statement requested pursuant to this Section
4.2 to become effective prior to one hundred eighty (180) days following the
effective date of a registration statement initiated by the Company, if the
request for registration has been received by the Company subsequent to the
giving of written notice by the Company, made in good faith, to the Holders of
Registrable Securities to the effect that the Company is commencing to prepare a
Company-initiated registration statement; provided, however, that the Company
-------- -------
shall use commercially reasonable efforts to achieve such effectiveness promptly
following such one hundred eighty (180)-day period if the request pursuant to
this Section 4.2 has been made prior to the expiration of such one hundred
eighty (180)-day period.
4.2.2 If the Holders intend to distribute by means of an underwriting
the Registrable Securities that, by their request, are to be registered, the
right of each Holder to include such Holder's Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting. Each Holder shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by the Company.
9
<PAGE>
4.2.3 The Company may postpone the filing of any registration
statement required under this Section 4.2 for a reasonable period of time, not
to exceed ninety (90) days during any twelve-month period, if the Company has
made a good faith, reasonable determination that such filing would either: (i)
require the disclosure of a material transaction or other matter and such
disclosure would have a material adverse effect on the Company; or (ii)
otherwise have a material adverse effect on the Company because of unusual
market conditions or other circumstances. Any registration effected pursuant to
this Section 4.2 and so designated by the Holder shall be subject to this
Section 4.2, regardless of the form in which such registration is effected.
4.3 Further Obligations of the Company. Whenever pursuant to the terms of
----------------------------------
Sections 4.1 or 4.2 of this Agreement the Company is required to register any
Registrable Securities, the Company shall also do the following:
4.3.1 Use commercially reasonable efforts to diligently prepare and
file with the SEC a registration statement and such amendments and supplements
to said registration statement and the prospectus used in connection therewith
as may be necessary to keep said registration statement effective and to comply
with the provisions of the Securities Act with respect to the sale of securities
covered by said registration statement for the lesser of: (i) one hundred
eighty (180) days or (ii) the period necessary to complete the proposed offering
of Registrable Securities;
4.3.2 Furnish to the Holders such number of copies of each
preliminary and final prospectus (in each case not less than ten (10)
prospectuses) and such other documents as each Holder may reasonably request to
facilitate the offering of the Holder's Registrable Securities;
4.3.3 Enter into any reasonable underwriting agreement containing
customary terms required by the proposed underwriter;
4.3.4 Use commercially reasonable efforts to register or qualify the
Registrable Securities covered by said registration statement under the
securities or "blue-sky" laws of such jurisdiction as the Holders may reasonably
request; provided, that the Company shall not be required to register or qualify
--------
the securities in any jurisdiction which require it to qualify to do business,
subject itself to general service of process therein or subject itself to
taxation therein;
4.3.5 Immediately notify the Holders, at any time when a prospectus
relating to the Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which such
prospectus contains an untrue statement of a material fact or omits any material
fact necessary to make the statements therein not misleading, and, at the
request of the Holders, prepare a supplement or amendment to such
10
<PAGE>
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not misleading;
4.3.6 Cause all such Registrable Securities to be quoted on the
market or listed on each securities exchange, as applicable, on which similar
securities issued by the Company are then quoted or listed; and
4.3.7 Otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but not later than
forty-five (45) days after the close of the period covered thereby (ninety (90)
days in case the period covered corresponds to a fiscal year of the Company), an
earnings statement of the Company which will satisfy the provisions of Section
11(a) of the Securities Act.
4.4 Indemnification; Contribution.
-----------------------------
4.4.1 Incident to any registration statement referred to in this
Section 4, and subject to applicable law, the Company will indemnify and hold
harmless each Holder who offers or sells any such Registrable Securities in
connection with such registration statement (including its directors, officers,
employees and agents), and each person who controls any of them within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"Controlling Person"), from and against any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based on (a) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement (including any related
preliminary or definitive prospectus, or any amendment or supplement to such
registration statement or prospectus), (b) any omission or alleged omission to
state in such document a material fact required to be stated in it or necessary
to make the statements in it not misleading, or any violation by the Company of
the Securities Act, any state securities or "blue sky" laws or any rule or
regulation thereunder in connection with such registration; provided, however,
-------- -------
that the Company will not be liable to the extent that such loss, claim, damage,
expense or liability arises from and is based on an untrue statement or omission
or alleged untrue statement or omission made in reliance on and in conformity
with information furnished in writing to the Company by such Holder or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to the Company by such Holder
expressly for use in such registration statement, such Holder will indemnify and
hold harmless the Company (including its directors,
11
<PAGE>
officers, employees and agents), and each person who controls any of them within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, damages, expenses and
liabilities, joint or several, to which they, or any of them, may become subject
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise to the same extent provided in the
immediately preceding sentence. In no event, however, shall the liability of a
Holder for indemnification under this Section 4.4.1 in its capacity as such (and
not in its capacity as an officer or director of the Company) exceed the
proceeds received by such Holder from its sale of Registrable Securities under
such registration statement.
4.4.2 If the indemnification provided for in Section 4.4.1 above for
any reason is held by a court of competent jurisdiction to be unavailable to an
indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
4.4, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (a) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand, and the Holders on the other, from the offering of the Registrable
Securities or (b) if the allocation provided by clause (a) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (a) above but also the relative
fault of the Company, on the one hand, and the Holders, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Holders
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable
if contribution pursuant to this Section 4.4.2 were determined by pro rata or
per capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In no event, however, shall a Holder be required to contribute any
amount under this Section 4.4.2 in excess of the proceeds received by such
Holder from its sale of Registrable Securities under such registration
statement. No person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
4.4.3 The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 4.4 shall be deemed to include, subject to the
limitations set forth above, any legal or other
12
<PAGE>
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim, payable as the same are
incurred. The indemnification and contribution provided for in this Section 4.4
will remain in full force and effect regardless of any investigation made by or
on behalf of the indemnified parties or any officer, director, employee, agent
or controlling person of the indemnified parties.
4.4.4 Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification, but the failure to do so shall not relieve the
indemnifying party from any liability, except to the extent it is actually
prejudiced by the failure or delay in giving such notice, and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld).
4.5 Participation in Registrations. Each Holder hereby agrees that such
------------------------------
Holder may not participate in any underwritten offering hereunder unless the
Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by persons entitled hereunder
to approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of the underwriting arrangements.
4.6 Transfer of Registration Rights. The registration rights granted to
-------------------------------
the Investor under this Agreement may be transferred to any Permitted Transferee
of Registrable Securities. Each such Permitted Transferee shall be deemed to be
a "Holder" for purposes of this Agreement, and any references to "Holder" in
this Section 4 shall be deemed to refer to all Holders; provided, however, that
-------- -------
for purposes of Section 4.2 hereof, the Holders shall collectively have the
right to demand only one (1) registration hereunder; and provided, further, that
-------- -------
the Company shall only be responsible for paying the reasonable counsel fees of
one (1) counsel for all of the Holders in any registration hereunder.
4.7 Lock-up Agreement. Each Holder who beneficially owns 5% or more of
-----------------
the then issued and outstanding Shares shall agree, if requested by the Company
and an underwriter of Registrable Securities, not to sell or otherwise Transfer
(other than pursuant to such registration statement) any Shares held by such
Holder for such period, not to exceed one hundred eighty (180) days following
the effective date of any registration statement of the Company filed pursuant
to the Securities Act (including any registration statement filed by the Company
in connection with an Initial Public Offering), as the Company and such
underwriter shall specify. Such agreement shall be in form satisfactory to the
Company and such
13
<PAGE>
underwriter. This Section 4.7 shall not limit the rights of the Holders pursuant
to Section 4.1 hereof.
4.8 Information to be Furnished by Stockholder. The Company may require
------------------------------------------
each Holder as to which any registration is being effected to furnish to the
Company any information regarding such Holder and such Holder's intended method
of distribution of the Registrable Securities as the Company may, from time to
time, reasonably request in writing, but only to the extent that the information
is required in order to comply with the Securities Act. Each Holder agrees to
notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by the Holder to the Company or of the
occurrence of any event in either case as a result of which any prospectus
relating to the registration contains or would contain an untrue statement of a
material fact regarding the Holder or the Holder's intended method of
distribution of the Registrable Securities or omits or would omit to state any
material fact regarding the Holder or the Holder's intended method of
distribution of the Registrable Securities required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that the prospectus shall not contain, with respect
to the Holder or the distribution of the Registrable Securities, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
4.9 All Registration Expenses in connection with any registration and
offering pursuant to Section 4.1 or 4.2 shall be borne by the Company, except
that the Holders shall bear any underwriting discounts and commissions and
transfer taxes applicable to the Registrable Securities pro rata based on the
number of Registrable Securities being registered by each Holder.
SECTION 5. PUT AND CALL RIGHTS.
- --------- -------------------
5.1 Puts. The Investor and any Permitted Transferees (together, the "Put
----
Holders") shall have the option (the "Put Option") to require the Company to
purchase all or a portion of the Putable Shares then held by the Investor and
any Permitted Transferees upon the following terms and conditions:
5.1.1 Put Exercise. The Put Holders may exercise the Put Option (a
------------
"Put Exercise") by delivering to the Company during one of the periods set forth
below a written notice (the "Put Notice") signed by Put Holders holding (i) in
the case of a Put Exercise during the Initial Put Period (as defined below), at
least sixty-six and two-thirds percent (66 2/3%) of the Putable Shares and (ii)
in the case of a Put Exercise during the Second Put Period (as
14
<PAGE>
defined below), all of the Putable Shares subject to such Put Exercise. The Put
Option shall be exercisable:
(a) If the Company has not consummated an Initial Public Offering on
or prior to January 2, 1998, at any time during the sixty-day period
commencing on the later of (i) January 2, 1998 and (ii) if as of January 2,
1998 the Company has on file with the SEC a pending registration statement
to register Shares, the date, if any, on which such registration statement
is withdrawn by the Company or otherwise terminated (the "Initial Put
Period"); and
(b) At any time during the three-year period commencing on the date
the Company closes an Initial Public Offering (the "Second Put Period").
5.1.2 Put Price. The purchase price to be paid by the Company for
---------
each Putable Share with respect to any Put Option (the "Put Exercise Price")
shall be (a) with respect to a Put Exercise during the Initial Put Period,
$14.71, and (b) with respect to a Put Exercise during the Second Put Period,
$12.74. The Put Exercise Price shall be subject to appropriate adjustment for
any stock dividend, stock split, recapitalization or similar transaction.
5.1.3 Minimum Size of Put Exercise. Any Put Exercise made during the
----------------------------
Initial Put Period must be made with respect to all, and not less than all, of
the Putable Shares then held by the Investor and any Permitted Transferees. The
first Put Exercise made during the Second Put period must be made with respect
to at least forty percent (40%) of the Investor Shares. Any Put Exercise made
during the Second Put Period after the first Put Exercise must be made with
respect to at least ten percent (10%) of the Investor Shares.
5.1.4 Closing. The closing of any Put Option (a "Put Closing") shall
-------
occur on a date mutually acceptable to the Company and the Put Holders, but no
later than thirty (30) days after receipt by the Company of the Put Notice. At
the Put Closing, the Put Holders shall tender to the Company the certificate or
certificates representing each Put Holder's respective Putable Shares being
purchased by the Company, together with stock powers duly executed in blank, and
the Company shall deliver the applicable Put Exercise Price for each Putable
Share being purchased by the Company by wire transfer of same day funds to an
account designated by such Put Holder, which designation shall be made at least
three (3) business days prior to the Put Closing.
5.1.4 Letter of Credit. Contemporaneously with the execution of this
----------------
Agreement, the Company shall deliver to the Investor an irrevocable standby
letter of credit from State Street Bank and Trust Company or another commercial
bank mutually acceptable to the Company and the Investor, issued in favor of the
Investor in the amount of $9,000,000 (the
15
<PAGE>
"Letter of Credit"). The Letter of Credit shall be held by the Investor and
drawn upon by the Investor or returned to the Company in accordance with the
following terms and conditions:
(a) in the event that the Company fails to deliver an amount equal to
the aggregate Put Exercise Price for the Putable Shares to be purchased at
the Put Closing with respect to a Put Exercise made during the Initial Put
Period, the Investor shall be entitled to draw upon the Letter of Credit
only to the extent necessary to collect in full the aggregate Put Exercise
Price with respect to all of the Putable Shares to be purchased by the
Company; and
(b) in the event that (i) the Company delivers to the Investor an
amount equal to the aggregate Put Exercise Price for the Putable Shares
purchased at the Put Closing with respect to a Put Exercise made during the
Initial Put Period, (ii) the Initial Put Period expires without exercise of
the Put Option by the Put Holders or (iii) the Company consummates an
Initial Public Offering, the Investor shall immediately return the Letter
of Credit to the Company for cancellation.
5.1.6 Miscellaneous. The Put Option shall be exercisable only by the
-------------
Put Holders in accordance with the terms hereof, and the rights herein shall not
be assigned or otherwise Transferred to any Person other than a Permitted
Transferee. The Put Option shall terminate upon the earlier of (i) the
expiration of the Second Put Period and (ii) the exercise by the Company of the
Call Option (as defined below).
5.2 Call. If as of the fourth anniversary of the date of this Agreement
----
the Company has not consummated an Initial Public Offering, from and after such
fourth anniversary to and including the date of consummation of an Initial
Public Offering (the "Call Exercise Period"), the Company shall have the right
(the "Call Option") to require the Investor and any Permitted Transferees to
sell all, but not less than all, of the Investor Shares then held by the
Investor and such Permitted Transferees (the "Callable Shares") by delivering to
the Investor and any Permitted Transferees written notice stating its intent to
exercise the Call Option with respect to all, but not less than all, of the
Callable Shares. The purchase price to be paid by the Company for each Callable
Share with respect to the Call Option shall be $14.71 (which purchase price
shall be subject to appropriate adjustment for any stock dividend, stock split,
recapitalization or similar transaction, the "Call Exercise Price"). On a date
mutually acceptable to the Company and the Investor, but no later than thirty
(30) business days after delivery of such notice, the Investor and any Permitted
Transferees shall tender to the Company the certificate or certificates
representing their respective Callable Shares, and the Company shall deliver by
wire transfer of same day funds to accounts designated by the Investor and each
such Permitted Transferees, which designation shall be made at least three (3)
business days prior to the closing therefor, an amount equal to the product of
(a) the number of Callable Shares held by the Investor or such Permitted
Transferee, as the case may be, multiplied by (b) the Call Exercise Price. The
Company may assign its rights under the
16
<PAGE>
Call Option at any time, and such assignment shall be binding on the Investor
and any Permitted Transferees.
SECTION 6. ANTI-DILUTION ADJUSTMENTS.
- --------- -------------------------
6.1 Issuance of Common Stock. In the event that the Company shall at any
------------------------
time or from time to time after the date of this Agreement and prior to the
closing of an Initial Public Offering, issue, sell or exchange any Shares
(including shares held in the Company's treasury but excluding any Shares issued
upon the exercise of any options granted under the Company's 1997 Stock Option
and Incentive Plan (the "Excluded Options")) for a consideration per share less
than Fair Market Value, then, and thereafter successively upon each such
issuance, sale or exchange, the Investor Share Price in effect immediately prior
to such issuance, sale or exchange of such Shares shall forthwith be adjusted to
an amount determined by multiplying such Investor Share Price by a fraction:
6.1.1 the numerator of which shall be (a) the number of Shares
outstanding immediately prior to the issuance of such additional Shares
(excluding treasury shares and Shares issuable with respect to the Excluded
Options but including all Shares issuable upon conversion, exercise or exchange
of any other outstanding options, warrants, rights or convertible or
exchangeable securities), plus (b) the number of Shares which the total
aggregate consideration received by the Company for the total number of such
additional Shares so issued would purchase at a purchase price per share equal
to Fair Market Value; and
6.1.2 the denominator of which shall be (a) the number of Shares
outstanding immediately prior to the issuance of such additional Shares
(excluding treasury shares and Shares issuable with respect to the Excluded
Options but including all Shares issuable upon conversion, exercise or exchange
of any other outstanding options, warrants, rights or convertible or
exchangeable securities), plus (b) the number of such additional Shares so
issued.
6.2 Issuance or Grant of Options. In the event that the Company shall at
----------------------------
any time or from time to time after the date of this Agreement and prior to the
closing of an Initial Public Offering issue options, warrants or rights to
subscribe for Shares (other than the Excluded Options), or issue any securities
convertible into or exchangeable for Shares, for a consideration per share
(determined by dividing the Net Aggregate Consideration (as determined below) by
the aggregate number of Shares that would be issued if all such options,
warrants, rights or convertible or exchangeable securities were exercised,
converted or exchanged to the fullest extent permitted by their terms) less than
Fair Market Value, the Investor Share Price in effect immediately prior to the
issuance of such options, warrants,
17
<PAGE>
rights or convertible or exchangeable securities shall forthwith be reduced to
an amount determined by multiplying such Investor Share Price by a fraction:
6.2.1 the numerator of which shall be (a) the number of Shares
outstanding immediately prior to the issuance of such options, rights or
convertible or exchangeable securities (excluding treasury shares and Shares
issued with respect to the Excluded Options but including all Shares issuable
upon conversion, exercise or exchange of any other outstanding options,
warrants, rights or convertible securities), plus (b) the number of Shares which
the total amount of consideration received by the Company for the issuance of
such options, warrants, rights or convertible or exchangeable securities plus
the minimum amount set forth in the terms of such security as payable to the
Company upon the exercise, conversion or exchange thereof (the "Net Aggregate
Consideration") would purchase at a purchase price per share equal to Fair
Market Value; and
6.2.2 the denominator of which shall be (a) the number of Shares
outstanding immediately prior to the issuance of such options, warrants, rights
or convertible or exchangeable securities (excluding treasury shares and Shares
issued with respect to the Excluded Options but including all Shares issuable
upon conversion, exercise or exchange of any other outstanding options,
warrants, rights or convertible or exchangeable securities), plus (b) the
aggregate number of Shares that would be issued if all such options, warrants,
rights or convertible or exchangeable securities were exercised, converted or
exchanged.
6.3 Issuances to the Investor and Permitted Transferees. At any time the
---------------------------------------------------
Investor Share Price is adjusted in accordance with Section 6.1 or Section 6.2
above, the Company shall as soon as is reasonably practical issue and deliver to
the Investor and each Permitted Transferee holding Investor Shares a certificate
or certificates representing that number of Shares equal to a fraction (rounded
to the nearest whole number), the numerator of which is equal to the difference
between (a) an amount equal to (i) the aggregate number of Investor Shares held
by the Investor or such Permitted Transferee, as the case may be, multiplied by
(ii) the Investor Share Price immediately prior to any adjustment for such
issuance pursuant to Section 6.1 or Section 6.2, as applicable, and (b) an
amount equal to (i) the aggregate number of Investor Shares held by the Investor
or such Permitted Transferee, as the case may be, multiplied by (ii) the
Investor Share Price immediately following any adjustment for such issuance in
accordance with Section 6.1 or Section 6.2, as applicable, and the denominator
of which is equal to the Investor Share Price immediately following any
adjustment for such issuance in accordance with Section 6.1 or Section 6.2, as
applicable.
6.4 Stock Dividends, Subdivisions and Combinations. Upon the issuance to
----------------------------------------------
all of the Stockholders of additional Shares as a dividend or other distribution
on outstanding Shares, the subdivision of outstanding Shares into a greater
number of Shares, or the combination of outstanding Shares into a smaller number
of Shares, the Investor Share Price shall, simultaneously with the happening of
such dividend, subdivision or split, be adjusted by
18
<PAGE>
multiplying the then effective Investor Share Price by a fraction, (a) the
numerator of which shall be the number of Shares outstanding immediately prior
to such event and (b) the denominator of which shall be the number of Shares
outstanding immediately after such event.
6.5 Affiliate Issuances. After the date of this Agreement and prior to
-------------------
the closing of an Initial Public Offering, the Company shall not issue or sell
any Shares to any Affiliate of the Company other than (i) issuances pursuant to
any compensatory arrangement, including, without limitation, the exercise of
stock options, (ii) issuances pursuant to any stock dividend, stock split, stock
exchange, recapitalization, reorganization or similar transaction involving the
Company pursuant to which the stockholders of the Company are treated on the
same basis and (iii) issuances for a consideration per share not less than the
greater of (A) Fair Market Value and (B) $14.54 (such number being subject to
appropriate adjustment for any stock split, stock dividend, recapitalization or
similar event).
SECTION 7. COVENANTS REGARDING VOTING.
- --------- --------------------------
7.1 Director Nomination. Until the second anniversary of the date of this
-------------------
Agreement, at (a) each annual meeting of the stockholders of the Company, (b)
each special meeting of the stockholders of the Company involving the election
of directors of the Company and any other time at which stockholders of the
Company have the right to vote for or consent in writing to the nomination or
election of directors of the Company, the Stockholders shall vote their
respective Shares which are presently or hereafter owned or controlled by them
to cause and maintain the nomination and election of the Investor to the Board
of Directors of the Company.
7.2 Termination. The provisions of this Section 7 will terminate upon the
-----------
earlier of (a) the second anniversary of this Agreement, (b) a Put Exercise
pursuant to Section 5.1.1(a) hereof, and the Investor and his Permitted
Transferees shall cease to beneficially own at least five percent (5%) of the
then issued and outstanding Shares.
SECTION 8. MISCELLANEOUS.
- --------- -------------
8.1 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns permitted
hereunder, provided, that any Transfer shall have complied in all respects with
the provisions of this Agreement.
8.2 Amendments and Waivers. Any party hereto may waive any provision
----------------------
hereof intended for his, her or its benefit in writing. No failure or delay on
the part of any party hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
party hereto at law or in equity or otherwise. This Agreement may be
19
<PAGE>
amended with the prior written consent of the Company, the Investor, and a
majority in interest of the Stockholders other than the Investor.
8.3 Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the State of Delaware and, together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
the State of Delaware, without giving effect to conflicts or choice of laws
provisions the effect of which would result in the application of the domestic
substantive laws of any other jurisdiction.
8.4 Notices. All notices and other communications provided for herein
-------
shall be in writing and shall be deemed to have been duly given, delivered and
received (a) if delivered personally or (b) if sent by telex or facsimile,
registered or certified mail (return receipt requested) postage prepaid, or by
courier guaranteeing next day delivery, in each case to the party to whom it is
directed at the address set forth opposite each party's name on the signature
pages hereto and, in the case of any Permitted Transferee, at the address set
forth in the Joinder Agreement executed by such Permitted Transferee (or at such
other address for any party as shall be specified by notice given in accordance
with the provisions hereof, provided that notices of a change of address shall
be effective only upon receipt thereof). Notices delivered personally shall be
effective on the day so delivered, notices sent by registered or certified mail
shall be effective three days after mailing, notices sent by telex shall be
effective when answered back, notices sent by facsimile shall be effective when
receipt is acknowledged, and notices sent by courier guaranteeing next day
delivery shall be effective on the earlier of the second business day after
timely delivery to the courier or the day of actual delivery by the courier.
8.5 Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same instrument.
8.6 Effect of Headings. The section and paragraph headings herein are for
------------------
convenience only and shall not affect the construction hereof.
8.7 Remedies. It is specifically understood and agreed that any breach of
--------
the provisions of this Agreement by any Person subject hereto will result in
irreparable injury to the other parties hereto, that the remedy at law alone
will be an inadequate remedy for such breach, and that, in addition to any other
legal or equitable remedies which they may have, such other parties may enforce
their respective rights by actions for specific performance (to the extent
permitted by law) and the Company may refuse to recognize any unauthorized
Transferee as one of its stockholders for any purpose, including, without
limitation, for purposes of dividend and voting rights, until the relevant party
or parties have complied with all applicable provisions of this Agreement.
20
<PAGE>
8.8 Attorneys' Fees. If any suit or action is instituted by any party to
---------------
enforce or in connection with any dispute relating to this Agreement, the
prevailing party in such suit or action shall be entitled to have all court
costs and attorneys' fees paid by the non-prevailing party.
8.9 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
8.10 Dispute Resolution. Except as provided below, any dispute arising
------------------
out of or relating to this Agreement or the breach, termination or validity
hereof shall be finally settled by arbitration conducted expeditiously in
accordance with the CPR Institute For Dispute Resolution Rules for
Nonadministered Arbitration of Business Disputes (the "CPR Rules"). The CPR
Institute For Dispute Resolution shall appoint a neutral advisor from its
National CPR Panel. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. (S)(S)1-16, and judgment upon the award rendered by
the arbitrators may be entered by any court having jurisdiction thereof. The
place of arbitration shall be Tampa, Florida.
Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:
8.10.1 mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
8.10.2 no other discovery;
8.10.3 hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three (3) hours; such
hearings to take place on one or two days at a maximum; and
8.10.4 decision to be rendered not more than ten (10) days following
such hearings.
Notwithstanding anything to the contrary contained herein, the provisions
of this Section 8.9 shall not apply with regard to any equitable remedies to
which any party may be entitled hereunder.
21
<PAGE>
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of the United States District Court for the District of
Massachusetts for the purpose of enforcing the award or decision in any such
proceeding, (b) hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (C) hereby waives and
agrees not to seek any review by any court of any other jurisdiction which may
be called upon to grant an enforcement of the judgment of any such court. Each
of the parties hereto hereby consents to service of process by registered mail
at the address to which notices are to be given. Each of the parties hereto
agrees that its or his submission to jurisdiction and its or his consent to
service of process by mail is made for the express benefit of the other parties
hereto. Final judgment against any party hereto in any such action, suit or
proceeding may be enforced in other jurisdictions by suit, action or proceeding
on the judgment, or in any other manner provided by or pursuant to the laws of
such other jurisdiction; provided, however, that any party hereto may at its or
-------- -------
his option bring suit, or institute other judicial proceedings, in any state or
federal court of the United States or of any country or place where the other
parties or their assets, may be found.
8.11 Entire Agreement. This Agreement, the Merger Agreement, the
----------------
Consulting Agreement and the Noncompetition Agreement constitutes the entire
understanding of the parties hereto with respect to their subject matter and
supersede any and all prior agreements with respect to such subject matter,
including, without limitation, any and all letters of intent between any of the
parties hereto with respect to such subject matter.
8.12 Term. The provisions of Sections 3 and 6 hereof shall remain in
----
effect until and shall expire upon the closing of an Initial Public Offering and
all other Sections of this Agreement shall remain in effect until such time as
is specified in such Section or until this Agreement is otherwise terminated.
8.13 Legend on Securities. The Company and the Holders acknowledge and
--------------------
agree that the following legends shall appear on each certificate evidencing any
of the Investor Shares held at any time by any of the Holders or their Permitted
Transferees until such Investor Shares are registered under the Securities Act:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
THE ACT OR (2) AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT.
22
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
A CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF APRIL 17, 1997, AS AMENDED FROM
TIME TO TIME, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A
COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND
WITHOUT CHARGE.
IN WITNESS WHEREOF this Stockholders' Agreement has been executed as a
sealed instrument as of the date first set forth above.
ADDRESS: COMPANY:
MAC-GRAY II, INC.
22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386 By: /s/ Stewart G. MacDonald, Jr.
------------------------------------
Name: Stewart G. MacDonald, Jr.
Title: Chairman of the Board
STOCKHOLDERS:
c/o Mac-Gray II, Inc.
22 Water Street
Cambridge, MA 02141 /s/ Stewart G. MacDonald, Jr.
Fax: (617) 492-5386 ----------------------------------------
Stewart G. MacDonald, Jr.
c/o Mac-Gray II, Inc.
22 Water Street
Cambridge, MA 02141 /s/ Sandra E. MacDonald
Fax: (617) 492-5386 ----------------------------------------
Sandra E. MacDonald
c/o Mac-Gray II, Inc.
22 Water Street
Cambridge, MA 02141 /s/ Daniel W. MacDonald
Fax: (617) 492-5386 ----------------------------------------
Daniel W. MacDonald
c/o Sun Services of America, Inc.
6301 Benjamin Center Drive, #101
Tampa, FL 33634 /s/ Jeffrey C. Huenink
----------------------------------------
23
<PAGE>
Fax: (813) 243-0916 Jeffrey C. Huenink
24
<PAGE>
DANIEL W. MACDONALD TRUST 1988
[See Address Above] By: /s/ Daniel W. MacDonald
----------------------------------------
Daniel W. MacDonald, as Grantor
[See Address Above] By: /s/ Daniel W. MacDonald
----------------------------------------
Daniel W. MacDonald, as Trustee
[See Address Above] By: /s/ Sandra E. MacDonald
----------------------------------------
Sandra E. MacDonald, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
----------------------------------------
Daniel W. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
F/B/O DANIEL W. MACDONALD
c/o Mac-Gray II, Inc.
22 Water Street
Cambridge, MA 02141 By: /s/ Evelyn C. MacDonald
Fax: (617) 492-5386 ----------------------------------------
Evelyn C. MacDonald, as Grantor
c/o State Street Research
and Management Company
One Financial Center, 31st Fl.
Boston, MA 02110 By: /s/ Peter C. Bennett
Fax: (617) ________ ----------------------------------------
Peter C. Bennett, as Trustee
c/o Palmer & Dodge
One Beacon Street
Boston, MA 02108 By: /s/ R. Robert Woodburn, Jr.
Fax: (617) ________ ----------------------------------------
R. Robert Woodburn, Jr., Trustee
c/o Mac-Gray II, Inc.
25
<PAGE>
22 Water Street
Cambridge, MA 02141 By: /s/ Patrick A. Flanagan
Fax: (617) 492-5386 ----------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
----------------------------------------
Daniel W. MacDonald, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
----------------------------------------
Daniel W. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
F/B/O SANDRA E. MACDONALD
[See Address Above] By: /s/ Evelyn C. MacDonald
----------------------------------------
Evelyn C. MacDonald, as Grantor
[See Address Above] By: /s/ Peter C. Bennett
----------------------------------------
Peter C. Bennett, as Trustee
[See Address Above] By: /s/ R. Robert Woodburn, Jr.
----------------------------------------
R. Robert Woodburn, Jr., as Trustee
[See Address Above By: /s/ Patrick A. Flanagan
----------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Sandra E. MacDonald
----------------------------------------
Sandra E. MacDonald, as Trustee
26
<PAGE>
[See Address Above] By: /s/ Sandra E. MacDonald
------------------------------------------
Sandra E. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
F/B/O STEWART G. MACDONALD, JR.
[See Address Above] By: /s/ Evelyn C. MacDonald
------------------------------------------
Evelyn C. MacDonald, as Grantor
[See Address Above] By: /s/ Peter C. Bennett
------------------------------------------
Peter C. Bennett, as Trustee
[See Address Above] By: /s/ R. Robert Woodburn, Jr.
------------------------------------------
R. Robert Woodburn, Jr., as Trustee
[See Address Above] By: /s/ Patrick A. Flanagan
------------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
------------------------------------------
Stewart G. MacDonald, Jr., as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
------------------------------------------
Stewart G. MacDonald, Jr., as Beneficiary
27
<PAGE>
STEWART G. MACDONALD, JR.
1984 TRUST
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
-----------------------------------------
Stewart G. MacDonald, Jr., as Grantor
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
-----------------------------------------
Stewart G. MacDonald, Jr., as Trustee
c/o Mac-Gray II, Inc.
22 Water Street
Cambridge, MA 02141 By: /s/ Cynthia V. Doggett
Fax: (617) 492-5386 -----------------------------------------
Cynthia V. Doggett, as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
-----------------------------------------
Stewart G. MacDonald, Jr., as Beneficiary
28
<PAGE>
EXHIBIT A
---------
FORM OF JOINDER AGREEMENT
-------------------------
The undersigned hereby agrees, effective as of the date hereof, to become a
party to that certain Stockholders' Agreement (the "Agreement") dated as of
April 17, 1997 by and among Mac-Gray II, Inc. (the "Company") and the parties
named therein. For all purposes of the Agreement, the undersigned shall be
included within the term "Permitted Transferee". "Holder" and "Stockholder"
(each as defined in the Agreement) and the undersigned agrees to bound by all of
the obligations under the Agreement applicable to Permitted Transferees, Holders
and Stockholders. As of the date hereof the undersigned makes each of the
representations and warranties set forth in Section 2.1 of the Agreement. The
address and facsimile number to which notices may be sent to the undersigned is
as follows:
Address: ___________________________________________________________________
Facsimile No. ____________________.
Date: _______________
______________________________
[NAME OF UNDERSIGNED]
A-1
<PAGE>
EXHIBIT 10.2
================================================================================
STOCKHOLDERS' AGREEMENT
Dated as of June 26, 1997
by and among
MAC-GRAY II, INC.
and
CERTAIN STOCKHOLDERS OF MAC-GRAY II, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS ................................................... 1
1.1 Construction of Terms.......................................... 1
1.2 Defined Terms.................................................. 1
SECTION 2. REPRESENTATIONS AND WARRANTIES; S CORPORATION MATTERS.......... 4
2.1 Representations and Warranties of the Stockholders............. 4
2.2 Representations and Warranties of the Company.................. 4
2.3 S Corporation Matters.......................................... 4
SECTION 3. RESTRICTIONS ON TRANSFER....................................... 6
3.1 Generally...................................................... 6
3.2 Certain Permitted Transfers.................................... 6
3.3 Right of First Refusal......................................... 7
SECTION 4. REGISTRATION RIGHTS............................................ 9
4.1 Piggy-back Registrations....................................... 9
4.2 Demand Registration............................................11
4.3 Further Obligations of the Company.............................12
4.5 Participation in Registrations.................................15
4.6 Transfer of Registration Rights................................15
4.7 Lock-up Agreement..............................................15
4.8 Information to be Furnished by Stockholder.....................15
SECTION 5. MISCELLANEOUS..................................................16
5.1 Successors and Assigns.........................................16
5.2 Amendments and Waivers.........................................16
5.3 Governing Law..................................................16
5.4 Notices........................................................16
5.5 Counterparts...................................................17
5.6 Effect of Headings.............................................17
5.7 Remedies.......................................................17
5.8 Severability...................................................17
5.9 Entire Agreement...............................................17
5.10 Term...........................................................17
5.11 Legend on Securities...........................................17
</TABLE>
(i)
<PAGE>
Page
----
EXHIBITS
EXHIBIT A - Form of Joinder Agreement
(ii)
<PAGE>
STOCKHOLDERS' AGREEMENT
-----------------------
STOCKHOLDERS' AGREEMENT dated as of June 26, 1997 by and among Mac-Gray II,
Inc., a Delaware corporation (the "Company"), and certain of the stockholders of
the Company identified as such on the signature pages hereto, including any
Person becoming a party to this Agreement by execution of a Joinder Agreement in
the form attached hereto as Exhibit A (collectively, the "Stockholders," and,
---------
each individually, a "Stockholder").
WHEREAS, the Stockholders and the Company desire to provide for certain
rights, restrictions and other provisions relating to the Shares (as defined
below) held from time to time by the Stockholders.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
---------- -----------
1.1 Construction of Terms. The terms in this Agreement shall include the
---------------------
plural as well as the singular and the use of any gender herein shall be deemed
to include the other gender. References to sections shall mean sections of this
Agreement unless otherwise specified.
1.2 Defined Terms. The following capitalized terms, as used in this
-------------
Agreement, shall have the meanings set forth below.
"Affiliate" means, with respect to any person or entity (herein the "first
party"), any other person or entity that directly or indirectly controls, or is
controlled by, or is under common control with, such first party (the term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (i)
vote twenty-five percent (25%) or more of the outstanding voting securities of
such person or entity or (ii) otherwise direct the management or policies of
such person or entity by contract or otherwise).
"Board of Directors" means the Board of Directors of the Company as shall be
duly elected and constituted from time to time.
"Closing Price" means, for any date, the last sale price on such date or, in
case no sale takes place on such date, the average of the last reported bid and
asked prices, in either case on the principal national securities exchange on
which the Common Stock is listed if that is the principal market for the Common
Stock or, if not listed on any national securities exchange or if such national
securities exchange is not the principal market for the Common Stock, the
average of the closing high bid and low asked prices on such date as reported by
<PAGE>
the National Association of Securities Dealers, Inc. Automated Quotation System
or its successor, if any.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Mac-Gray II, Inc., a Delaware corporation, and any successor
thereto.
"Controlling Person" shall have the meaning set forth in Section 4.4.
"Exchange Act" means the Securities Exchange Act of 1934, as the same may be
amended from time to time, and the rules and regulations promulgated thereunder.
"Fair Market Value" shall have the meaning set forth in Section 3.3.4.
"Holder" means any Original Stockholder and any Permitted Transferee who is
the record holder of Shares.
"Initial Public Offering" means the first underwritten public offering of
Common Stock pursuant to an effective registration statement under the
Securities Act.
"Original Stockholders" means Stewart G. MacDonald, Jr., Sandra E. MacDonald,
Daniel W. MacDonald, Cynthia Doggett, New Century Trust, The Evelyn C. MacDonald
Family Trust f/b/o Stewart G. MacDonald, Jr., The Evelyn C. MacDonald Family
Trust f/b/o Sandra E. MacDonald, The Evelyn C. MacDonald Family Trust f/b/o
Daniel W. MacDonald, The Daniel W. MacDonald Trust 1988, The Stewart G.
MacDonald, Jr., 1984 Trust, The Whitney E. MacDonald GST Trust - 1997, The
Whitney E. MacDonald Gift Trust, The Jonathan S. MacDonald GST Trust - 1997, The
Jonathan S. MacDonald Gift Trust, The Robert C. MacDonald GST Trust - 1997 and
The Robert C. MacDonald Gift Trust.
"Permitted Transfer" shall have the meaning set forth in Section 3.2.
"Permitted Transferee" shall have the meaning set forth in Section 3.2.
"Person" means any individual, corporation, association, partnership, limited
liability company, joint venture, trust, estate or other entity or organization.
"Registrable Securities" means, as of any date, Shares except for (i) Shares
with respect to which a registration statement has been declared effective under
the Securities Act, (ii) any Shares which, as of such date, may be transferred
pursuant to Rule 144 (or any
2
<PAGE>
similar provision then in force) under the Securities Act, including a sale
pursuant to the provisions of Rule 144(k), and (iii) any Shares which cease to
be outstanding.
"Registration Expenses" means all expenses incurred by the Company in
complying with Sections 4.1 and 4.2 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of legal counsel for the Company, fees and disbursements
of one legal counsel for all of the Holders, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"S Corporation" shall have the meaning set forth in Section 2.3.1.
"S Election" shall have the meaning set forth in Section 2.3.1.
"SEC" means the Securities and Exchange Commission, or any successor agency
thereto.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, and the rules and regulations promulgated thereunder.
"Selling Stockholders" shall have the meaning set forth in Section 4.1.2.
"Shares" means shares of Common Stock.
"Sun Services Agreement" means the Stockholders' Agreement dated as of April
17, 1997 by and among the Company and certain stockholders of the Company.
"Trading Days" means (i) if the Common Stock is quoted on the NASDAQ National
Market or any similar system of automated dissemination of quotations of
securities prices, days on which trades may be made on such system or (ii) if
the Common Stock is listed or admitted for trading on any national securities
exchange, days on which such national securities exchange is open for business.
"Transfer" means, with respect to any Shares, to sell, exchange, deliver or
assign, dispose of, bequeath or gift, pledge, mortgage, hypothecate, or
otherwise encumber, transfer or permit to be transferred (Shares with respect to
which a Transfer has been completed are referred to herein as having been
"Transferred" and any recipient of such Shares is referred to herein as a
"Transferee"). In addition, for purposes of Section 2.3 only, "Transfer" shall
have the meaning set forth in such Section.
"Valuation Date" shall have the meaning set forth in Section 3.3.4.
3
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES; S CORPORATION MATTERS.
--------- -----------------------------------------------------
2.1 Representations and Warranties of the Stockholders. Each of the
--------------------------------------------------
Stockholders, individually and not jointly, hereby represents and warrants to
the Company as follows: (a) such Stockholder has full authority and power and,
if an individual, capacity, under its charter, by-laws, governing trust
agreement or comparable document, as applicable (a "Governing Document"), to
enter into this Agreement; (b) this Agreement constitutes the valid and binding
obligation of such Stockholder enforceable against such Stockholder in
accordance with its terms; and (c) the execution, delivery and performance by
such Stockholder of this Agreement (i) does not and will not violate any laws,
rules or regulations of the United States or any state or other jurisdiction
applicable to such Stockholder, or require such Stockholder to obtain any
approval, consent or waiver of, or to make any filing with, any Person that has
not been obtained or made, (ii) does not and will not result in a breach of,
constitute a default under, accelerate any obligation under or give rise to a
right of termination of any agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party or by
which the property of such Stockholder is bound or affected, or result in the
creation or imposition of any lien on any of the assets or properties of such
Stockholder and (iii) does not and will not violate any provision of the
Governing Document of such Stockholder, if any.
2.2 Representations and Warranties of the Company. The Company, hereby
---------------------------------------------
represents and warrants to the Stockholders as follows: (a) the Company has full
corporate authority and power to enter into this Agreement; (b) the execution,
delivery and performance by the Company of this Agreement has been duly
authorized by all necessary corporate action and this Agreement constitutes the
valid and binding obligation of the Company enforceable against it in accordance
with its terms; and (c) the execution, delivery and performance by the Company
of this Agreement: (i) does not and will not violate any laws, rules or
regulations of the United States or any state or other jurisdiction applicable
to the Company, or require the Company to obtain any approval, consent or waiver
of, or to make any filing with, any Person that has not been obtained or made,
(ii) does not and will not result in a breach of, constitute a default under,
accelerate any obligation under or give rise to a right of termination of any
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which the Company is a party or by which the property of the Company is bound or
affected, or result in the creation or imposition of any lien on any of the
assets or properties of the Company and (iii) does not and will not violate any
provision of the Certificate of Incorporation or By-laws of the Company, as
amended to date.
2.3 S Corporation Matters.
---------------------
2.3.1 Stockholders' Representations, Warranties and Covenants.
-------------------------------------------------------
Each Stockholder hereby represents and warrants to the Company and to each other
Stockholder that he, she or it is eligible to hold the stock of a "small
business corporation" within the
4
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meaning of Section 1361(b) of the Code (a small business corporation for which a
valid S Election is in effect is referred to herein as an "S Corporation") and
that such Stockholder is described in Section 1361(b)(1)(B) of the Code. An "S
Election" shall mean an election pursuant to Section 1362(a) of the Code.
Each Stockholder further represents and warrants that he, she or it is not
(and whose spouse, if any, is neither) a nonresident alien of the United States
or a resident of, nor subject to any, jurisdiction having laws governing
community property or having adopted in whole or in part the Uniform Marital
Property Act.
Each Stockholder further represents and warrants that he, she or it does not
hold any Shares as the nominee or agent of any other Person and that he, she or
it does not hold any Shares as a tenant in common, joint tenant or tenant by the
entirety with any other Person.
Each Stockholder further represents, warrants, covenants and agrees that he,
she or it will not Transfer any Shares to a Person which could result in
termination of the Company's status as an S Corporation. For purposes of this
Section 2.3 only, the term "Transfer" means (a) any sale, exchange, gift,
bequest, hypothecation, pledge or grant of a security interest or (b) any other
disposition of Shares, or of any interest in Shares, whether voluntary or by
operation of law, that could change the legal or beneficial ownership of such
Shares. For purposes of this Section 2.3 only, a "Transfer" includes, without
limitation, any transaction that creates a form of joint ownership in Shares
between the transferor and one or more Persons (whether or not such Person is
the spouse of the transferor) or any transaction that creates or grants an
option, warrant, or right to obtain an interest in any Shares.
Each Stockholder acknowledges and understands that an S Corporation is not
permitted to have more than seventy-five (75) shareholders.
2.3.2 Consent to Election; Duration of Election. Each Stockholder
-----------------------------------------
hereby consents to the S Election, and agrees to execute and deliver Internal
Revenue Service Form 2553, or any successor form, and such other or additional
documents and consents as the Board of Directors in its discretion considers
necessary or desirable to effect and/or continue the S Election. No Stockholder
shall take any action which would result in the termination of the S Election or
precludes the Company from making an S Election.
The Company and the Stockholders agree that from and after the date hereof,
(a) the Company shall maintain its status as an S Corporation until the Board of
Directors determines to terminate such status, and (b) that if in the absence of
such a determination by the Board of Directors a termination of S Corporation
status nevertheless occurs, then immediately upon its discovery the officers of
the Company shall take action pursuant to Section 1362(f) of the Code (or any
successor or similar provision) to restore, if possible, the status of the
Company as an S Corporation. Notwithstanding the foregoing, nothing in this
Agreement shall be construed to prevent the Board of Directors, in its sole
discretion, from terminating the status of the Company as an S Corporation. To
effectuate the termination of
5
<PAGE>
the status of the Company as an S Corporation, the Company, if necessary, shall
complete, execute and file with the Internal Revenue Service a revocation
statement together with all other necessary documents, including any necessary
statements of consent from the Stockholders. Upon request of the Board of
Directors, each Stockholder shall execute and deliver to the Company any
statement of consent or other documents required under Subchapter S of Chapter 1
of the Code to be filed in connection with the termination of the status of the
Company as an S Corporation.
SECTION 3. RESTRICTIONS ON TRANSFER.
--------- ------------------------
3.1 Generally. A Stockholder shall not Transfer, whether voluntarily,
---------
involuntarily or by operation of law (including the laws of bankruptcy and
insolvency), any Shares or any interest therein now held or hereafter acquired,
except for (a) Transfers permitted pursuant to Section 3.2 hereof, in accordance
with the terms set forth therein, and (b) Transfers made in compliance with the
provisions of Section 3.3 hereof. Notwithstanding the foregoing, a Stockholder
shall not Transfer any Shares except in accordance with the provisions of this
Agreement and all applicable provisions of the Securities Act and any relevant
state securities law.
3.2 Certain Permitted Transfers. The following Transfers shall be permitted
---------------------------
(each a "Permitted Transfer") subject to the limitations set forth below:
3.2.1 Transfers of Shares by a Stockholder (a) to his or her
spouse, (b) to one or more lineal descendants of such Stockholder, (c) to a
family limited partnership or family limited liability company (provided that
all of the partnership interests of any such partnership and all of the
interests of any such limited liability company are beneficially owned by such
Stockholder and/or one or more Transferees of such Stockholder permitted under
this Section 3.2.1), and (d) to a trust of which such Stockholder is the settlor
and which is for the benefit of such Stockholder and/or one or more Transferees
of such Stockholder permitted under this Section 3.2.1, provided that in the
--------
case of any Transfer pursuant to this Section 4.2.1, the Transferee shall have
executed and delivered to the Company a Joinder Agreement in the form attached
hereto as Exhibit A;
---------
3.2.2 Transfers of Shares upon the death of a Stockholder to his or
her executors or administrators or to a trust under his or her will, provided
--------
that the Transferee shall have executed and delivered to the Company a Joinder
Agreement in the form attached hereto as Exhibit A; and
---------
3.2.3 Transfers of Shares between a Stockholder and his or her
guardian or conservator, provided that the Transferee shall have executed and
--------
delivered to the Company a Joinder Agreement in the form attached hereto as
Exhibit A.
- ---------
Any permitted Transferee described in the preceding Sections 3.2.1, 3.2.2 and
3.2.3 shall be referred to herein as a "Permitted Transferee." Anything to the
contrary in this Agreement
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<PAGE>
notwithstanding, Permitted Transferees shall take any Shares so Transferred
subject to all provisions of this Agreement as if such Shares were still held by
the Stockholder Transferring such Shares, whether or not such Permitted
Transferees so agree with such Stockholder or the Company.
3.3 Right of First Refusal. Except for Transfers permitted under Section 3.2
----------------------
of this Agreement, no Stockholder (a "Transferring Stockholder") may Transfer
any Shares or any interest therein now held or hereafter acquired except
pursuant to and in accordance with the following provisions of this Section 3.3:
3.3.1 Offer Notice. Such Transferring Stockholder shall deliver to
------------
each Original Stockholder and the Company written notice (the "Offer Notice") of
his, her or its desire to Transfer Shares and otherwise comply with the
provisions of this Section 3.3. If delivered prior to an Initial Public
Offering, the Offer Notice shall specify (a) the name and address of the
proposed Transferee, (b) the number of Shares of the Transferring Stockholder to
be Transferred (the "Offered Shares"), (c) the consideration per share to be
paid for the Shares and (d) all other material terms and conditions of the
proposed Transfer. If delivered after an Initial Public Offering, the Offer
Notice shall specify only the number of Offered Shares. The Offer Notice shall
constitute an irrevocable offer to sell the Offered Shares first to the Original
Stockholders and second to the Company in accordance with this Section 3.3.
3.3.2 Acceptance Notice. The Original Stockholders shall have the
-----------------
right to purchase some or all of the Offered Shares by delivering to the
Transferring Stockholder written notice (the "Acceptance Notice") stating such
Original Stockholder's desire to purchase all or some of the Offered Shares
within five (5) business days after receipt of the Offer Notice (the
"Stockholder Period"). Such communication shall be delivered by hand or mailed
to such Transferring Stockholder in accordance with Section 5.4 hereof and
shall, when taken in conjunction with the Offer Notice, be deemed to constitute
a valid, legally binding and enforceable agreement for the sale and purchase of
the Offered Shares to the extent of the number of Offered Shares, if any,
allocated to such Original Stockholder in accordance with the following
paragraph.
Each Original Stockholder electing to purchase Offered Shares (an "Electing
Stockholder") shall include in the Acceptance Notice the number, if less than
all, of the Offered Shares that such Original Stockholder is electing to
purchase from the Transferring Stockholder. Each Electing Stockholder shall be
entitled to purchase at least that number of Offered Shares as shall be equal to
the product obtained by multiplying (a) the total number of Offered Shares by
(b) a fraction, the numerator of which is the total number of Shares owned by
such Original Stockholder on the date of the Offer Notice, and the denominator
of which is the total number of Shares then held by all Original Stockholders on
the date of the Offer Notice (with respect to an Electing Stockholder, such
Electing Stockholder's "Pro Rata Fraction"). In the event that an Electing
Stockholder shall elect to purchase an amount of Offered Shares in excess of
such Electing Stockholder's Pro Rata Fraction, such Electing Stockholder shall
be entitled to purchase, pro rata with other Electing Stockholders electing
7
<PAGE>
to purchase Offered Shares in excess of their Pro Rata Fraction, any remaining
Offered Shares with respect to which an Original Stockholder elected not to
purchase.
Upon the expiration of the Stockholder Period, the Transferring Stockholder
shall notify all of the Original Stockholders as to how many of the Offered
Shares subject to the Offer Notice have been subscribed for and the number of
Shares to be purchased by each Electing Stockholder as follows: (a) there shall
first be allocated to each Electing Stockholder a number of Shares equal to the
lesser of (i) the number of Shares as to which such Electing Stockholder
accepted the offer from the Transferring Stockholder and (ii) such Electing
Stockholder's Pro Rata Fraction of the total number of Offered Shares, and (b)
the balance of any remaining Offered Shares shall be allocated, pro rata, among
those Electing Stockholders who accepted the offer from the Transferring
Stockholder as to a number of Offered Shares in excess of their respective Pro
Rata Fraction.
3.3.3 Company Right to Purchase. If the Original Stockholders do
-------------------------
not purchase all of the Offered Shares in accordance with Section 3.3.2 above,
the Company shall have the right to purchase that number of Offered Shares not
so purchased by the Original Stockholders (the "Remaining Offered Shares") by
delivering to the Transferring Stockholder written notice within five (5)
business days after the expiration of the Stockholder Period (the "Company
Period") stating the Company's election to purchase any number of the Remaining
Offered Shares. Such notice shall be delivered by hand or mailed to such
Transferring Stockholder in accordance with Section 5.4 hereof and shall, when
taken in conjunction with the Offer Notice, be deemed to constitute a valid,
legally binding and enforceable agreement for the sale and purchase of the
Remaining Offered Shares.
3.3.4 Purchase Price, Closing. The purchase price per share to be
-----------------------
paid for any Common Stock purchased by any Original Stockholder or the Company
pursuant to this Section 3.3 shall equal to greater of (i) the price per share
of Common Stock offered by any bona fide third party purchaser and (ii) Fair
Market Value, provided that any Transfer in connection with or involving a sale
of Common Stock into the public market or any charitable or other gift shall be
deemed to have been proposed at Fair Market Value. The closing for any purchase
of Offered Shares hereunder shall take place within fifteen (15) days after the
expiration of the Stockholder Period (or, if later, the determination of Fair
Market Value pursuant to the appraisal process described below) at the place and
on the date specified by, with respect to a purchase by the Electing
Stockholders, a majority in interest of the Electing Stockholders, and with
respect to a purchase by the Company, the Company. For purposes of this
Agreement, "Fair Market Value" means, as of the date of any Offer Notice, (for
purposes of this definition, the "Valuation Date") (i) if the Common Stock is
listed on a national securities exchange or quoted on a national quotation
system, the average of the Closing Prices of the Common Stock for the five (5)
Trading Days immediately preceding the Valuation Date or (ii) if the Common
Stock is not so listed or quoted, the value per share of all of the issued and
outstanding Common Stock taken as a whole as of the Valuation Date determined by
unanimous agreement of the Original Stockholders then living or in existence
within twenty (20) days after the applicable Valuation Date; provided,
--------
8
<PAGE>
however, that if such Original Stockholders are unable to agree upon such
- -------
valuation in such circumstances within such 20-day period, Fair Market Value
shall be determined by appraisal. For purposes of determining Fair Market Value
by appraisal, if required, within thirty (30) days after the Valuation Date the
Original Stockholders proposing to purchase shall appoint an appraiser, the
Stockholder whose shares are being purchased shall appoint a second appraiser,
and the two appraisers so appointed shall appoint a third appraiser, or failing
action within such period by any party or the appraisers, any unappointed
appraiser or appraisers shall be appointed by the American Arbitration
Association, Boston, Massachusetts, upon application of any party or appraiser.
The appraisers shall proceed by majority vote to determine the fair market value
per share of the issued and outstanding Common Stock taken as a whole as of the
Valuation Date, and such determination shall be final and binding upon all
interested persons. The appraisers shall complete their appraisal and, within
fifty (50) days after the Valuation Date, shall promptly notify in writing the
parties to this Agreement and any other interested person known to the
appraisers, of the appraisers' final determination of Fair Market Value. The
parties hereto involved in any transaction in which appraisal is required
(including the person whose shares are subject to purchase) shall each bear the
fees and expenses of any appraiser appointed hereunder, pro rata as to the
number of shares of Common Stock held by each of them as of the applicable
Valuation Date.
3.3.5 Subsequent Sales. In the event that neither the Original
----------------
Stockholders nor the Company elect to purchase, in the aggregate, all of the
Offered Shares, the Transferring Stockholder may sell the balance of the Offered
Shares to the proposed Transferee on the terms and conditions set forth in the
Offer Notice. If the Transferring Stockholder's transfer to a proposed
Transferee is not consummated in accordance with the terms of the Offer Notice
within thirty (30) days after the expiration of the Company Period, the Offer
Notice shall be deemed to lapse, and any Transfers of Shares by the Transferring
Stockholder shall be deemed to be in violation of the provisions of this
Agreement unless the Original Stockholders and the Company are once again
afforded the opportunity to purchase in accordance with this Section 3.3 the
Shares proposed to be Transferred.
SECTION 4. REGISTRATION RIGHTS.
--------- -------------------
4.1 Piggy-back Registrations.
------------------------
4.1.1 If at any time or times after the completion of an Initial
Public Offering the Company shall determine to register under the Securities Act
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock (other than in connection with a
registration on Form S-4 or S-8 (or then equivalent forms) or a registration
statement filed in connection with an exchange offer or offering of securities
solely to the Company's existing securityholders) and the form of registration
statement to be used permits the registration of Registrable Securities, then
the Company shall promptly give written notice of such proposed registration to
the Holders of Registrable
9
<PAGE>
Securities (but in no event less than twenty (20) days prior to the anticipated
effective date of the registration statement). If within ten (10) days after the
receipt of such notice the Company receives a written request from any Holder
for the inclusion in such registration of some or all of the Registrable
Securities (which request shall specify the number of Registrable Securities
intended to be disposed of by such Holder and the intended method of
distribution thereof), the Company shall use commercially reasonable efforts to
cause the Registrable Securities requested to be included in such registration
on the same terms and conditions as any similar securities of the Company or any
other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. The Company may withdraw a registration under
this Section 4.1.1 at any time prior to the time it becomes effective, provided
that the Company shall give prompt notice of such withdrawal to the Holders of
Registrable Securities requested to be included in such registration.
4.1.2 In connection with any offering under this Section 4.1
involving an underwriting, the Company shall not be required to include a
Holder's Registrable Securities in the underwritten offering unless such Holder
accepts the terms of the underwriting (which shall be customary) as agreed upon
between the Company and the underwriters selected by the Company. If the
managing underwriter of an underwritten offering with respect to which
registration has been requested by any Holder pursuant to this Section 4.1 has
advised the Company in writing that the number of securities to be sold in such
offering by Persons other than the Company (collectively, "Selling
Stockholders") is greater than the number which can be offered without adversely
affecting such offering, then the Company may reduce the number of securities to
be included in such offering for the accounts of Selling Stockholders (including
the Holders) to a number deemed satisfactory by the managing underwriter,
provided, however, that the securities to be excluded shall be determined in the
- -------- -------
following order of priority: first, securities held by any Selling Stockholder
not having contractual, incidental registration rights; second, securities held
by any Selling Stockholder participating in such offering pursuant to the
exercise of contractual piggyback registration rights pursuant to an agreement
other than the Sun Services Agreement, as determined on a pro rata basis (based
upon the aggregate number of securities held by such Selling Stockholders); and
third, securities held by any Selling Stockholder participating in such offering
pursuant to the exercise of the registration rights under Section 4.1 of the Sun
Services Agreement, as determined on a pro rata basis (based upon the aggregate
number of securities held by such Selling Stockholders).
4.2 Demand Registration.
-------------------
4.2.1 If on any occasion after the expiration of the one hundred and
eighty (180) day period following an Initial Public Offering, a Holder shall
notify the Company of its desire to offer or cause to be offered for public sale
all or any portion of the Registrable Securities held by such Holder and such
Holder's Permitted Transferees, the Company shall use its commercially
reasonable efforts to cause such number of such Registrable Securities as may be
requested by such Holder to be registered under the Securities Act by filing
with
10
<PAGE>
the SEC a registration statement on the appropriate form covering such
Registrable Securities. The Company shall not be required to cause a
registration statement requested pursuant to this Section 4.2 to become
effective prior to one hundred eighty (180) days following the effective date of
a registration statement initiated by the Company, if the request for
registration has been received by the Company subsequent to the giving of
written notice by the Company, made in good faith, to the Holders of Registrable
Securities to the effect that the Company is commencing to prepare a Company-
initiated registration statement; provided, however, that the Company shall use
-------- -------
commercially reasonable efforts to achieve such effectiveness promptly following
such one hundred eighty (180)-day period if the request pursuant to this Section
4.2 has been made prior to the expiration of such one hundred eighty (180)-day
period. Each Holder shall be entitled to initiate one (1) demand registration
pursuant to this Section 4.2 and such demand registration shall be exercisable
by such Holder by notice to the Company signed by such Holder and/or one or more
Permitted Transferee of such Holder, in either case holding in the aggregate at
least fifty percent (50%) of the total number of Shares then held by such Holder
and all of such Holder's Permitted Transferees; provided that for purposes of
--------
determining which Holders are entitled to initiate a demand registration
pursuant to this Section 4.2.1, (i) an individual Holder and one or more Holders
which are trusts of which such individual Holder is the settlor shall be deemed
to be one and the same Holder and (ii) The Evelyn C. MacDonald Family Trust
f/b/o Stewart G. MacDonald, Jr., The Evelyn C. MacDonald Family Trust f/b/o
Sandra E. MacDonald and The Evelyn C. MacDonald Family Trust f/b/o Daniel W.
MacDonald shall be deemed to be one and the same Holder.
4.2.2 If the Holders intend to distribute by means of an
underwriting the Registrable Securities that, by their request, are to be
registered, the right of each Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting. Each Holder shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected by the Company.
4.2.3 The Company may postpone the filing of any registration
statement required under this Section 4.2 for a reasonable period of time, not
to exceed ninety (90) days during any twelve-month period, if the Company has
made a good faith, reasonable determination that such filing would either: (a)
require the disclosure of a material transaction or other matter and such
disclosure would have a material adverse effect on the Company; or (b) otherwise
have a material adverse effect on the Company because of unusual market
conditions or other circumstances. Any registration effected pursuant to this
Section 4.2 and so designated by the Holder shall be subject to this Section
4.2, regardless of the form in which such registration is effected.
4.3 Further Obligations of the Company. Whenever pursuant to the terms of
----------------------------------
Sections 4.1 or 4.2 of this Agreement the Company is required to register any
Registrable Securities, the Company shall also do the following:
11
<PAGE>
4.3.1 Use commercially reasonable efforts to diligently prepare and
file with the SEC a registration statement and such amendments and supplements
to said registration statement and the prospectus used in connection therewith
as may be necessary to keep said registration statement effective and to comply
with the provisions of the Securities Act with respect to the sale of securities
covered by said registration statement for the lesser of: (i) one hundred
eighty (180) days or (ii) the period necessary to complete the proposed offering
of Registrable Securities;
4.3.2 Furnish to the Holders such number of copies of each
preliminary and final prospectus and such other documents as each Holder may
reasonably request to facilitate the offering of the Holder's Registrable
Securities;
4.3.3 Enter into any reasonable underwriting agreement containing
customary terms required by the proposed underwriter;
4.3.4 Use commercially reasonable efforts to register or qualify
the Registrable Securities covered by said registration statement under the
securities or "blue-sky" laws of such jurisdiction as the Holders may reasonably
request; provided, that the Company shall not be required to register or qualify
--------
the securities in any jurisdiction which require it to qualify to do business,
subject itself to general service of process therein or subject itself to
taxation therein;
4.3.5 Immediately notify the Holders, at any time when a prospectus
relating to the Registrable Securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which such
prospectus contains an untrue statement of a material fact or omits any material
fact necessary to make the statements therein not misleading, and, at the
request of the Holders, prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading;
4.3.6 Cause all such Registrable Securities to be quoted on the
market or listed on each securities exchange, as applicable, on which similar
securities issued by the Company are then quoted or listed; and
4.3.7 Otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC and make generally available to
its security holders, in each case as soon as practicable, but not later than
forty-five (45) days after the close of the period covered thereby (ninety (90)
days in case the period covered corresponds to a fiscal year of the Company), an
earnings statement of the Company which will satisfy the provisions of Section
11(a) of the Securities Act.
4.4 Indemnification; Contribution.
-----------------------------
12
<PAGE>
4.4.1 Incident to any registration statement referred to in this
Section 4, and subject to applicable law, the Company will indemnify and hold
harmless each Holder who offers or sells any such Registrable Securities in
connection with such registration statement (including its directors, officers,
employees and agents), and each person who controls any of them within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (a
"Controlling Person"), from and against any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities arise out of
or are based on (a) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement (including any related
preliminary or definitive prospectus, or any amendment or supplement to such
registration statement or prospectus), (b) any omission or alleged omission to
state in such document a material fact required to be stated in it or necessary
to make the statements in it not misleading, or (c) any violation by the Company
of the Securities Act, any state securities or "blue sky" laws or any rule or
regulation thereunder in connection with such registration; provided, however,
-------- -------
that the Company will not be liable to the extent that such loss, claim, damage,
expense or liability arises from and is based on an untrue statement or omission
or alleged untrue statement or omission made in reliance on and in conformity
with information furnished in writing to the Company by such Holder or
Controlling Person expressly for use in such registration statement. With
respect to such untrue statement or omission or alleged untrue statement or
omission in the information furnished in writing to the Company by such Holder
expressly for use in such registration statement, such Holder will indemnify and
hold harmless the Company (including its directors, officers, employees and
agents), and each person who controls any of them within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, expenses and liabilities, joint or several, to
which they, or any of them, may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise to the same extent provided in the immediately preceding
sentence. In no event, however, shall the liability of a Holder for
indemnification under this Section 4.4.1 in its capacity as such (and not in its
capacity as an officer or director of the Company) exceed the net proceeds
received by such Holder from its sale of Registrable Securities under such
registration statement.
4.4.2 If the indemnification provided for in Section 4.4.1 above
for any reason is held by a court of competent jurisdiction to be unavailable to
an indemnified party in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
4.4, in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities in such proportion as is
appropriate to reflect the relative fault of the Company, on the one hand, and
the Holders, on the other, in connection with the statements or omissions which
resulted in such losses,
13
<PAGE>
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative fault of the Company and the Holders
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Holders and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Holders agree that it would not be just and equitable if
contribution pursuant to this Section 4.4.2 were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In no event, however, shall a Holder be required to contribute any
amount under this Section 4.4.2 in excess of the net proceeds received by such
Holder from its sale of Registrable Securities under such registration
statement. No person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
4.4.3 The amount paid by an indemnifying party or payable to an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in this Section 4.4 shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim, payable as the same are incurred. The indemnification and
contribution provided for in this Section 4.4 will remain in full force and
effect regardless of any investigation made by or on behalf of the indemnified
parties or any officer, director, employee, agent or controlling person of the
indemnified parties.
4.4.4 Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification, but the failure to do so shall not relieve the
indemnifying party from any liability, except to the extent it is actually
prejudiced by the failure or delay in giving such notice, and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld).
4.5 Participation in Registrations. Each Holder hereby agrees that such
------------------------------
Holder may not participate in any underwritten offering hereunder unless the
Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by persons entitled hereunder
to approve such arrangements, and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting
14
<PAGE>
agreements and other documents reasonably required under the terms of the
underwriting arrangements.
4.6 Transfer of Registration Rights. The registration rights granted to the
-------------------------------
Holders under this Agreement may be transferred to any Permitted Transferee of
such Holders' Registrable Securities. Each such Permitted Transferee shall be
deemed to be a "Holder" for purposes of this Agreement, and any references to
"Holder" in this Section 4 shall be deemed to refer to all Holders; provided,
--------
however, that the Company shall only be responsible for paying the reasonable
- -------
counsel fees of one (1) counsel for all of the Holders in any registration
hereunder.
4.7 Lock-up Agreement. Each Holder who beneficially owns five percent (5%)
-----------------
or more of the then issued and outstanding Shares shall agree, if requested by
the Company and an underwriter of Registrable Securities, not to sell or
otherwise Transfer (other than pursuant to such registration statement) any
Shares held by such Holder for such period, not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the
Company filed pursuant to the Securities Act (including any registration
statement filed by the Company in connection with an Initial Public Offering),
as the Company and such underwriter shall specify. Such agreement shall be in
form satisfactory to the Company and such underwriter.
4.8 Information to be Furnished by Stockholder. The Company may require each
------------------------------------------
Holder as to which any registration is being effected to furnish to the Company
any information regarding such Holder and such Holder's intended method of
distribution of the Registrable Securities as the Company may, from time to
time, reasonably request in writing, but only to the extent that the information
is required in order to comply with the Securities Act. Each Holder agrees to
notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by the Holder to the Company or of the
occurrence of any event in either case as a result of which any prospectus
relating to the registration contains or would contain an untrue statement of a
material fact regarding the Holder or the Holder's intended method of
distribution of the Registrable Securities or omits or would omit to state any
material fact regarding the Holder or the Holder's intended method of
distribution of the Registrable Securities required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that the prospectus shall not contain, with
respect to the Holder or the distribution of the Registrable Securities, an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
4.9 Registration Expenses. All Registration Expenses in connection with any
---------------------
registration and offering pursuant to Section 4.1 or 4.2 shall be borne by the
Company, except that the Holders shall bear any underwriting discounts and
commissions and transfer
15
<PAGE>
taxes applicable to the Registrable Securities pro rata based on the number of
Registrable Securities being registered by each Holder.
SECTION 5. MISCELLANEOUS.
- ---------- -------------
5.1 Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the respective successors and assigns permitted hereunder,
provided, that any Transfer shall have complied in all respects with the
provisions of this Agreement.
5.2 Amendments and Waivers. Any party hereto may waive any provision hereof
----------------------
intended for his, her or its benefit in writing. No failure or delay on the
part of any party hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to any
party hereto at law or in equity or otherwise. This Agreement may be amended
with the prior written consent of the Company and a majority in interest of the
Stockholders.
5.3 Governing Law. This Agreement shall be deemed a contract made under the
-------------
laws of the State of Delaware and, together with the rights and obligations of
the parties hereunder, shall be construed under and governed by the laws of the
State of Delaware, without giving effect to conflicts or choice of laws
provisions the effect of which would result in the application of the domestic
substantive laws of any other jurisdiction.
5.4 Notices. All notices and other communications provided for herein shall
-------
be in writing and shall be deemed to have been duly given, delivered and
received (a) if delivered personally or (b) if sent by facsimile, registered or
certified mail (return receipt requested) postage prepaid, or by courier
guaranteeing next day delivery, in each case to the party to whom it is directed
at the address set forth opposite each party's name on the signature pages
hereto and, in the case of any Permitted Transferee, at the address set forth in
the Joinder Agreement executed by such Permitted Transferee (or at such other
address for any party as shall be specified by notice given in accordance with
the provisions hereof, provided that notices of a change of address shall be
effective only upon receipt thereof). Notices delivered personally shall be
effective on the day so delivered, notices sent by registered or certified mail
shall be effective three days after mailing, notices sent by facsimile shall be
effective when receipt is acknowledged, and notices sent by courier guaranteeing
next day delivery shall be effective on the earlier of the second business day
after timely delivery to the courier or the day of actual delivery by the
courier.
5.5 Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same instrument.
5.6 Effect of Headings. The section and paragraph headings herein are for
------------------
convenience only and shall not affect the construction hereof.
16
<PAGE>
5.7 Remedies. It is specifically understood and agreed that any breach of
--------
the provisions of this Agreement by any Person subject hereto will result in
irreparable injury to the other parties hereto, that the remedy at law alone
will be an inadequate remedy for such breach, and that, in addition to any other
legal or equitable remedies which they may have, such other parties may enforce
their respective rights by actions for specific performance (to the extent
permitted by law) and the Company may refuse to recognize any unauthorized
Transferee as one of its stockholders for any purpose, including, without
limitation, for purposes of dividend and voting rights, until the relevant party
or parties have complied with all applicable provisions of this Agreement.
5.8 Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
hereto shall be enforceable to the fullest extent permitted by law.
5.9 Entire Agreement. This Agreement constitutes the entire understanding of
----------------
the parties hereto with respect to its subject matter and supersedes any and all
prior agreements with respect to such subject matter, including, without
limitation, that certain S-Corporation Shareholders' Agreement dated as of
December 30/31, 1992 by and among Mac-Gray Co., Inc. and its stockholders, any
and all letters of intent between any of the parties hereto with respect to such
subject matter.
5.10 Term. The provisions of Section 2.3 hereof shall remain in effect
----
until and shall expire upon the closing of an Initial Public Offering and all
other Sections of this Agreement shall remain in effect until such time as is
specified in such Section or until this Agreement is otherwise terminated.
5.11 Legend on Securities. The Company and the Holders acknowledge and
--------------------
agree that the following legends shall appear on each certificate evidencing any
of the Shares held by any of the Holders or their Permitted Transferees until
such Shares are registered under the Securities Act:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT PURSUANT TO (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
THE ACT OR (2) AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF A
CERTAIN STOCKHOLDERS' AGREEMENT, DATED AS OF
17
<PAGE>
JUNE 26, 1997, AS AMENDED FROM TIME TO TIME, INCLUDING CERTAIN RESTRICTIONS ON
TRANSFER SET FORTH THEREIN. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE
FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE.
[End of Text]
18
<PAGE>
IN WITNESS WHEREOF this Stockholders' Agreement has been executed as a sealed
instrument as of the date first set forth above.
ADDRESS: COMPANY:
MAC-GRAY II, INC.
22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386 By:/s/ Stewart G. MacDonald
------------------------------
Name: Stewart G. MacDonald
Title: Chief Executive Officer
STOCKHOLDERS:
c/o Mac-Gray Co., Inc.
22 Water Street /s/ Stewart G. MacDonald
Cambridge, MA 02141 ---------------------------------
Fax: (617) 492-5386 Stewart G. MacDonald, Jr.
c/o Mac-Gray Co., Inc.
22 Water Street /s/ Sandra E. MacDonald
Cambridge, MA 02141 ---------------------------------
Fax: (617) 492-5386 Sandra E. MacDonald
c/o Mac-Gray Co., Inc.
22 Water Street /s/ Daniel W. MacDonald
Cambridge, MA 02141 ---------------------------------
Fax: (617) 492-5386 Daniel W. MacDonald
19
<PAGE>
DANIEL W. MACDONALD TRUST 1988
[See Address Above] By: /s/ Daniel W. MacDonald
---------------------------------------
Daniel W. MacDonald, as Grantor
[See Address Above] By: /s/ Daniel W. MacDonald
---------------------------------------
Daniel W. MacDonald, as Trustee
[See Address Above] By: /s/ Sandra E. MacDonald, Trustee
---------------------------------------
Sandra E. MacDonald, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
---------------------------------------
Daniel W. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
f/b/o DANIEL W. MACDONALD
c/o Mac-Gray Co., Inc.
22 Water Street By: /s/ Evelyn C. MacDonald
Cambridge, MA 02141 ---------------------------------------
Fax: (617) 492-5386 Evelyn C. MacDonald, as Grantor
c/o State Street Research
and Management Company
One Financial Center, 31st Fl. By: /s/ Peter C. Bennett
Boston, MA 02110 ---------------------------------------
Fax: (617) ________ Peter C. Bennett, as Trustee
c/o Palmer & Dodge
One Beacon Street By: /s/ R. Robert Woodburn, Jr.
Boston, MA 02108 ---------------------------------------
Fax: (617) ________ R. Robert Woodburn, Jr., Trustee
20
<PAGE>
c/o Mac-Gray Co., Inc.
22 Water Street
Cambridge, MA 02141 By: /s/ Patrick A. Flanagan
Fax: (617) 492-5386 -------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
-------------------------------------
Daniel W. MacDonald, as Trustee
[See Address Above] By: /s/ Daniel W. MacDonald
-------------------------------------
Daniel W. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
f/b/o SANDRA E. MACDONALD
[See Address Above] By: /s/ Evelyn C. MacDonald
-------------------------------------
Evelyn C. MacDonald, as Grantor
[See Address Above] By: /s/ Peter C. Bennett
-------------------------------------
Peter C. Bennett, as Trustee
[See Address Above] By: /s/ R. Robert Woodburn, Jr.
-------------------------------------
R. Robert Woodburn, Jr., as Trustee
[See Address Above] By: /s/ Patrick A. Flanagan
-------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Sandra E. MacDonald, Trustee
-------------------------------------
Sandra E. MacDonald, as Trustee
21
<PAGE>
[See Address Above] By: /s/ Sandra E. MacDonald, Beneficiary
-------------------------------------------
Sandra E. MacDonald, as Beneficiary
EVELYN C. MACDONALD FAMILY TRUST
f/b/o STEWART G. MACDONALD, JR.
[See Address Above] By: /s/ Evelyn C. MacDonald
-------------------------------------------
Evelyn C. MacDonald, as Grantor
[See Address Above] By: /s/ Peter C. Bennett
-------------------------------------------
Peter C. Bennett, as Trustee
[See Address Above] By: /s/ R. Robert Woodburn, Jr.
-------------------------------------------
R. Robert Woodburn, Jr., as Trustee
[See Address Above] By: /s/ Patrick A. Flanagan
-------------------------------------------
Patrick A. Flanagan, as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
-------------------------------------------
Stewart G. MacDonald, Jr., as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald, Jr.
-------------------------------------------
Stewart G. MacDonald, Jr., as Beneficiary
22
<PAGE>
STEWART G. MACDONALD, JR.
1984 TRUST
[See Address Above] By: /s/ Stewart G. MacDonald
----------------------------------------
Stewart G. MacDonald, Jr., as Grantor
[See Address Above] By: /s/ Stewart G. MacDonald
-----------------------------------------
Stewart G. MacDonald, Jr., as Trustee
c/o Mac-Gray Co., Inc.
22 Water Street
Cambridge, MA 02141 By: /s/ Cynthia V. Doggett
Fax: (617) 492-5386 -----------------------------------------
Cynthia V. Doggett, as Trustee
[See Address Above] By: /s/ Stewart G. MacDonald
-----------------------------------------
Stewart G. MacDonald, Jr., as Beneficiary
THE WHITNEY E. MACDONALD GST TRUST-1997
By: /s/ Richard G. MacDonald
-----------------------------------------
Richard G. MacDonald, as Trustee
THE JONATHAN S. MACDONALD GST TRUST-1997
By: /s/ Richard G. MacDonald
-----------------------------------------
Richard G. MacDonald, as Trustee
23
<PAGE>
THE ROBERT C. MACDONALD GST TRUST-1997
By: /s/ Richard G. MacDonald
----------------------------------------
Richard G. MacDonald, as Trustee
THE WHITNEY E. MACDONALD GIFT TRUST
By: /s/ Richard G. MacDonald
----------------------------------------
Richard G. MacDonald, as Trustee
THE JONATHAN S. MACDONALD GIFT TRUST
By: /s/ Richard G. MacDonald
----------------------------------------
Richard G. MacDonald, as Trustee
THE ROBERT C. MACDONALD GIFT TRUST
By: /s/ Richard G. MacDonald
----------------------------------------
Richard G. MacDonald, as Trustee
NEW CENTURY TRUST
By: /s/ Cynthia V. Doggett
----------------------------------------
Cynthia V. Doggett, as Trustee
By: /s/ Gilbert M. Roddy, Jr., Trustee
----------------------------------------
Gilbert M. Roddy, Jr., as Trustee
24
<PAGE>
c/o Mac-Gray Co., Inc.
22 Water Street
Cambridge, Ma 02141
Fax: (617) 492-5386 /s/ Cynthia V. Doggett
----------------------------------------
Cynthia V. Doggett
25
<PAGE>
EXHIBIT A
---------
Form of Joinder Agreement
-------------------------
The undersigned hereby agrees, effective as of the date hereof, to
become a party to that certain Stockholders' Agreement (the "Agreement") dated
as of June 26, 1997 by and among Mac-Gray II, Inc. (the "Company") and the
parties named therein. For all purposes of the Agreement, the undersigned shall
be included within the term "Permitted Transferee", "Holder" and "Stockholder"
(each as defined in the Agreement) and the undersigned agrees to bound by all of
the obligations under the Agreement applicable to Permitted Transferees, Holders
and Stockholders. As of the date hereof the undersigned makes each of the
representations and warranties set forth in Section 2.1 of the Agreement. The
address and facsimile number to which notices may be sent to the undersigned is
as follows:
Address:
------------------------------------------------------------------------
Facsimile No. .
------------------------------
Date:
--------------------
----------------------------------------
[NAME OF UNDERSIGNED]
A-1
<PAGE>
================================================================================
EXHIBIT 10.3
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 17, 1997
BY AND AMONG
MAC-GRAY II, INC.,
MAC-GRAY CO., INC.,
MAC-GRAY ACQUISITION CORP.,
SUN SERVICES OF AMERICA, INC.,
R. BODDEN COIN-OP-LAUNDRY, INC.
AND
JEFFREY C. HUENINK
================================================================================
<PAGE>
AGREEMENT AND PLAN OF MERGER
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. THE MERGERS.................................................................. 2
1.1 The Mergers.................................................................. 2
-----------
1.2 Closing...................................................................... 2
-------
1.3 Effective Times.............................................................. 2
---------------
1.4 Effects of the Mergers....................................................... 2
----------------------
1.5 Certificate of Incorporation and By-laws of the Surviving Corporations....... 3
----------------------------------------------------------------------
1.6 Board of Directors and Officers.............................................. 3
-------------------------------
1.7 Income Tax Treatment of the Mergers.......................................... 3
------------------------------------
1.8 Allocation of the Aggregate Consideration to be Received by Stockholder...... 4
----------------------------------------------------------------------
SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; OTHER ACTIONS AT THE CLOSING................................... 4
2.1 Effect of SSA Merger on Capital Stock........................................ 4
-------------------------------------
2.2 Effect of Bodden Merger on Capital Stock..................................... 5
----------------------------------------
2.3 SSA Merger; Surrender of Certificates; Stock Transfer Books.................. 5
-----------------------------------------------------------
2.4 Bodden Merger; Surrender of Certificates; Stock Transfer Books............... 6
--------------------------------------------------------------
2.5 Other Actions at the Closing................................................. 7
----------------------------
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SSA, BODDEN AND THE STOCKHOLDER............ 8
3.1 Making of Representations and Warranties..................................... 8
----------------------------------------
3.2 Organization and Qualifications of SSA and Bodden............................ 8
-------------------------------------------------
3.3 Capital Stock; Beneficial Ownership.......................................... 8
-----------------------------------
3.4 Subsidiaries; Acquisitions................................................... 9
--------------------------
3.5 Required Action; Authority................................................... 9
--------------------------
3.6 No Conflicts.................................................................10
------------
3.7 Taxes........................................................................10
-----
3.8 Leases.......................................................................12
------
3.9 Equipment....................................................................12
---------
3.10 Title........................................................................13
-----
3.11 No Litigation; Compliance....................................................13
-------------------------
3.12 Employee Benefit Programs....................................................13
-------------------------
3.13 Financial Statements and Projections.........................................15
------------------------------------
3.14 Ordinary Course..............................................................16
---------------
3.15 Absence of Certain Changes...................................................16
--------------------------
3.16 Contracts....................................................................18
---------
3.17 Insurance....................................................................19
---------
3.18 Approvals; Consents..........................................................19
-------------------
3.19 Banking Relationships........................................................19
---------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.20 Hazardous Materials..........................................................19
-------------------
3.21 Intellectual Property........................................................20
---------------------
3.22 Books and Records............................................................21
-----------------
3.23 Transactions with Interested Persons.........................................21
------------------------------------
3.24 No Brokers...................................................................21
----------
3.25 Disclosure...................................................................21
----------
3.26 Commission Payments..........................................................21
-------------------
3.27 Labor Matters................................................................21
-------------
3.28 Blue Eagle Leases............................................................22
------------------
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.................22
4.1 Investment Representations...................................................22
--------------------------
4.2 Agreements...................................................................23
----------
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT, MAC-GRAY AND SUB...................23
5.1.................................................................................23
5.2 Organization.................................................................24
------------
5.3 Capital Stock; Beneficial Ownership..........................................24
-----------------------------------
5.4 Subsidiaries.................................................................25
------------
5.5 Required Action; Authority...................................................25
--------------------------
5.6 No Conflicts.................................................................25
------------
5.7 No Litigation; Compliance....................................................26
-------------------------
5.8 Financial Statements.........................................................26
--------------------
5.9 Taxes........................................................................26
-----
5.10 Leases.......................................................................28
------
5.11 Assets; Title................................................................28
-------------
5.12 Employee Benefit Programs....................................................28
-------------------------
5.13 Ordinary Course..............................................................30
---------------
5.14 Absence of Certain Changes...................................................30
--------------------------
5.15 Contracts....................................................................31
---------
5.16 Insurance....................................................................31
---------
5.17 Approvals; Consents..........................................................32
-------------------
5.18 Hazardous Materials..........................................................32
-------------------
5.19 Transactions with Interested Persons.........................................32
------------------------------------
5.20 No Brokers...................................................................32
----------
5.21 Disclosure...................................................................32
----------
5.22 Books and Records............................................................33
-----------------
5.23 Intellectual Property........................................................33
---------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
5.24 Labor Matters................................................................33
-------------
SECTION 6. DELIVERIES AT THE CLOSING....................................................34
6.1 Deliveries by the Company and the Stockholder................................34
---------------------------------------------
6.2 Deliveries by Parent, Mac-Gray and Sub.......................................35
--------------------------------------
6.3 Joint Deliveries of the Parties..............................................35
-------------------------------
6.4 Other Actions................................................................36
-------------
SECTION 7. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.................................36
7.1 Survival of Warranties.......................................................36
----------------------
SECTION 8. INDEMNIFICATION..............................................................36
8.1 Indemnification by the Stockholder...........................................36
----------------------------------
8.2 Limitations on Indemnification by the Stockholder............................38
-------------------------------------------------
8.3 Indemnification by Parent, Mac-Gray and Sub..................................39
-------------------------------------------
8.4 Limitation on Indemnification by Parent, Mac-Gray and Sub....................39
---------------------------------------------------------
8.5 Notice; Defense of Claims....................................................39
-------------------------
8.6 Exclusive Remedy.............................................................40
----------------
SECTION 9. MISCELLANEOUS................................................................40
9.1 Fees and Expenses............................................................40
-----------------
9.2 Governing Law................................................................40
-------------
9.3 Notices......................................................................41
-------
9.4 Entire Agreement.............................................................41
----------------
9.5 Assignability; Binding Effect................................................42
-----------------------------
9.6 Captions and Gender..........................................................42
-------------------
9.7 Execution in Counterparts....................................................42
-------------------------
9.8 Amendments...................................................................42
----------
9.9 Publicity and Disclosures....................................................42
-------------------------
9.10 Covenant of Parent, Mac-Gray and Sub.........................................42
-------------------------------------
9.11 Covenant of Stockholder......................................................42
-----------------------
</TABLE>
(iii)
<PAGE>
SCHEDULES AND EXHIBITS
Schedules
- ---------
Schedule 3.4 - Subsidiaries
Schedule 3.6 - Conflicts
Schedule 3.8 - Leases
Schedule 3.9 - Equipment
Schedule 3.10 - Assets; Liens
Schedule 3.11 - Litigation
Schedule 3.12 - Employee Matters; Benefits
Schedule 3.13(a) - Financial Statements
Schedule 3.13(b) - Liabilities
Schedule 3.13(c) - Projections
Schedule 3.15 - Certain Changes
Schedule 3.16 - Contracts and Commitments
Schedule 3.17 - Insurance
Schedule 3.18 - Approvals; Consents
Schedule 3.19 - Banking Relationships
Schedule 3.21 - Intellectual Property
Schedule 3.23 - Affiliated Transactions
Schedule 3.26 - Commission Payments
Schedule 5.3(a)(i) - Parent Capitalization; Voting Agreements
Schedule 5.3(a)(ii) - Parent Post-Merger Capitalization
Schedule 5.3(b) - Mac-Gray Capitalization
Schedule 5.4(b) - Mac-Gray Subsidiaries
Schedule 5.8 - Mac-Gray Financial Statements
Schedule 5.9 - Mac-Gray Taxes
Schedule 5.11 - Mac-Gray Assets; Liens
Schedule 5.12(a) - Mac-Gray Employee Programs
Schedule 5.12(b) - Mac-Gray Employee Program Matters
Schedule 5.14 - Mac-Gray Changes
Schedule 5.15 - Mac-Gray Contracts
Schedule 5.16 - Mac-Gray Insurance
Schedule 5.17 - Mac-Gray Approvals
Schedule 5.19 - Mac-Gray Affiliated Transactions
Schedule 5.23 - Mac-Gray Intellectual Property
Exhibits
- --------
Exhibit 1.3(a) - SSA Certificate of Merger
Exhibit 1.3(b) - Bodden Certificate of Merger
Exhibit 1.3(c) - SSA Articles of Merger
Exhibit 1.3(d) - Bodden Articles of Merger
(iv)
<PAGE>
Exhibit 2.5(a)(i) - L.P. Assignment and Exchange Agreement
Exhibit 2.5(a)(ii) - Agreement and Plan of Merger between Mac-Gray and
the Partnership
Exhibit 2.5(b) - Stock Exchange Agreement
Exhibit 6.1(f) - Opinion of Foley & Lardner
Exhibit 6.2(f) - Opinion of Goodwin, Procter & Hoar
Exhibit 6.3(b) - Consulting Agreement
Exhibit 6.3(c) - Noncompetition Agreement
Exhibit 6.3(d) - Stockholders' Agreement
(v)
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of April 17, 1997 by and among Mac-Gray II, Inc., a Delaware corporation
("Parent"), Mac-Gray Acquisition Corp., a Delaware corporation ("Sub"), Mac-Gray
Co., Inc., a Delaware corporation ("Mac-Gray"), Sun Services of America, Inc., a
Florida corporation ("SSA"), R. Bodden Coin-Op-Laundry, Inc., a Florida
corporation ("Bodden," and, together with SSA, the "Company"), and Jeffrey C.
Huenink (the "Stockholder").
WHEREAS, the Stockholder is the legal and beneficial owner of all of the
issued and outstanding common stock, par value $1.00 per share, of SSA ("SSA
Stock");
WHEREAS, the Stockholder is the legal and beneficial owner of all of the
issued and outstanding common stock, par value $1.00 per share, of Bodden
("Bodden Stock");
WHEREAS, the Board of Directors of SSA has determined that the merger of
SSA with and into Parent (the "SSA Merger"), upon the terms and subject to the
conditions set forth herein, would be fair and in the best interests of the
Stockholder, and such Board of Directors has approved and the Stockholder has
approved this Agreement and the transactions contemplated hereby, including the
SSA Merger;
WHEREAS, the Board of Directors of Bodden has determined that the merger of
Sub with and into Bodden (the "Bodden Merger," and, together with the SSA
Merger, the "Mergers"), upon the terms and subject to the conditions set forth
herein, would be fair and in the best interests of the Stockholder, and such
Board of Directors has approved and the Stockholder has approved this Agreement
and the transactions contemplated hereby, including the Bodden Merger;
WHEREAS, the Board of Directors of Parent has determined that each of the
SSA Merger and the Bodden Merger (together, the "Mergers"), upon the terms and
subject to the conditions set forth herein, would be fair and in the best
interests of the stockholders of Parent and has approved this Agreement and the
transactions contemplated hereby, including the Mergers;
WHEREAS, the Board of Directors of Sub has determined that the Bodden
Merger, upon the terms and subject to the conditions set forth herein, would be
fair and in the best interests of the stockholder of Sub and such Board of
Directors has approved and such stockholder has approved this Agreement and the
transactions contemplated hereby;
WHEREAS, pursuant to the SSA Merger and as set forth in Section 2.1 hereof,
each share of SSA Stock issued and outstanding immediately prior to the
effectiveness of the SSA Merger, other than shares of SSA Stock held by SSA in
its treasury, shall be converted into the right to receive cash and shares of
common stock, par value $.01 per share, of Parent ("Parent Common Stock"); and
WHEREAS, pursuant to the Bodden Merger and as set forth in Section 2.2
hereof, each share of Bodden Stock issued and outstanding immediately prior to
the effectiveness of the Bodden
<PAGE>
Merger, other than shares of Bodden Stock held by Bodden in its treasury, shall
be converted into the right to receive shares of Parent Common Stock.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements, and upon the terms and subject to the conditions, herein set
forth, the parties hereto hereby agree as follows:
SECTION 1. THE MERGERS.
1.1 The Mergers. Upon the terms and subject to the conditions set forth
-----------
in this Agreement, and in accordance with the General Corporation Law of the
State of Delaware (the "DGCL") and the Florida Business Corporation Act (the
"FBCA"), (a) SSA shall be merged with and into Parent at the SSA Effective Time
(as defined in Section 1.3) and (b) Sub shall be merged with and into Bodden at
the Bodden Effective Time (as defined in Section 1.3). At the SSA Effective
Time, the separate existence of SSA shall cease and Parent shall continue as the
surviving corporation (the "SSA Surviving Corporation"). At the Bodden
Effective Time, the separate existence of Sub shall cease and Bodden shall
continue as the surviving corporation (the "Bodden Surviving Corporation").
1.2 Closing. The closing of the Mergers (the "Closing") shall take place
-------
at the offices of Foley & Lardner, 100 North Tampa Street, Suite 2700, Tampa FL
33602, commencing at 9:00 a.m. on the date of this Agreement (the "Closing
Date"). Except as otherwise expressly provided in this Agreement or in any
document contemplated by this Agreement, all matters at the Closing shall be
considered to take place simultaneously and no delivery of any documents shall
be deemed complete until all transactions and deliveries of documents are
completed.
1.3 Effective Times. As soon as practicable on the Closing Date, the
---------------
parties hereto shall (a) file with the Secretary of State of the State of
Delaware a certificate of merger with respect to the SSA Merger in the form
attached hereto as Exhibit 1.3(a) (the "SSA Certificate") and a certificate of
--------------
merger with respect to the Bodden Merger in the form attached hereto as Exhibit
-------
1.3(b) (the "Bodden Certificate) and (b) file with the Secretary of State of the
- ------
State of Florida articles of merger with respect to the SSA Merger in the form
attached hereto as Exhibit 1.3 (the "SSA Articles") and articles of merger with
-----------
respect to the Bodden Merger in the form attached hereto as Exhibit 1.3(d) (the
--------------
"Bodden Articles"). The SSA Merger shall become effective at such time as the
SSA Certificate has been duly filed with the Secretary of State of the State of
Delaware and the SSA Articles have been duly filed with the Secretary of State
of the State of Florida (the "SSA Effective Time"). The Bodden Merger shall
become effective at such time as the Bodden Certificate has been duly filed with
the Secretary of State of the State of Delaware and the Bodden Articles have
been duly filed with the Secretary of State of the State of Florida (the "Bodden
Effective Time").
1.4 Effects of the Mergers. Each Merger shall have the effects set forth
----------------------
in Section 259 of the DGCL (or any successor provisions thereof) and Section
607.1106 of the FBCA (or any successor provisions thereof).
2
<PAGE>
1.5 Certificate of Incorporation and By-laws of the Surviving
---------------------------------------------------------
Corporations. The Certificate of Incorporation and By-laws of Parent, as in
effect immediately prior to the SSA Effective Time, shall be the Certificate of
Incorporation and By-laws of the SSA Surviving Corporation until thereafter
changed or amended as provided therein or by applicable law. The Articles of
Incorporation and By-laws of Bodden, as in effect immediately prior to the
Bodden Effective Time, shall be the Articles of Incorporation and By-laws of the
Bodden Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
1.6 Board of Directors and Officers.
-------------------------------
(a) SSA Surviving Corporation. From and after the SSA Effective
-------------------------
Time, the Board of Directors of the SSA Surviving Corporation will consist of
such persons as will have been designated by Parent in the SSA Certificate, each
such Director to hold office, subject to the applicable provisions of the
Certificate of Incorporation and the By-Laws of the SSA Surviving Corporation,
until the next annual meeting of stockholders of the SSA Surviving Corporation
and until his successor shall be duly elected or appointed and qualified. From
and after the SSA Effective Time, the officers of the SSA Surviving Corporation
will consist of such persons as will have been designated by Parent in the SSA
Certificate, such persons to hold office until their respective successors are
duly elected or appointed and qualified. If, at or after the SSA Effective Time,
a vacancy shall exist in the Board of Directors or in any of the offices of the
SSA Surviving Corporation by reason of death or inability to act, or for any
other reason, such vacancy may be filled in the manner provided in the By-Laws
of the SSA Surviving Corporation.
(b) Bodden Surviving Corporation. From and after the Bodden
----------------------------
Effective Time, the Board of Directors of the Bodden Surviving Corporation will
consist of such persons as will have been designated by Parent in the Bodden
Certificate and the Bodden Articles, each such Director to hold office, subject
to the applicable provisions of the Articles of Incorporation and the By-Laws of
the Bodden Surviving Corporation, until the next annual meeting of stockholders
of the Bodden Surviving Corporation and until his successor shall be duly
elected or appointed and qualified. From and after the Bodden Effective Time,
the officers of the Bodden Surviving Corporation will consist of such persons as
will have been designated by Parent in the Bodden Certificate and the Bodden
Articles, such persons to hold office until their respective successors are duly
elected or appointed and qualified. If, at or after the Bodden Effective Time, a
vacancy shall exist in the Board of Directors or in any of the offices of the
Bodden Surviving Corporation by reason of death or inability to act, or for any
other reason, such vacancy may be filled in the manner provided in the By-Laws
of the Bodden Surviving Corporation.
1.7 Income Tax Treatment of the Mergers. It is intended that the SSA
-----------------------------------
Merger will be treated as a tax-free reorganization described in (S)368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code"). It is intended
(i) that the Bodden Merger will be treated as a tax-free reorganization
described in (S)368(a)(2)(E) of the Code and (ii) that the following
transactions, which are occurring simultaneously, will be treated as exchanges
qualifying under (S)351 of the Code: the exchange of the Bodden Stock by the
Stockholder for Parent Common Stock in the Bodden Merger, the SSA Merger, the
transfer of the common stock of Mac-Gray by the
3
<PAGE>
stockholders of Mac-Gray to Parent in exchange for Parent Common Stock (as more
fully described below), and the transfer of the limited partnership interests in
the Partnership to Parent by the limited partners of the Partnership in exchange
for Parent Common Stock (as more fully described below). All parties to this
Agreement agree to report the aforementioned transactions, for all purposes,
consistently with the foregoing.
1.8 Allocation of the Aggregate Consideration to be Received by
-----------------------------------------------------------
Stockholder. The Stockholder will receive 25% of the total consideration to be
- -----------
received by the Stockholder (the "Aggregate Consideration") in the form of
Parent Common Stock which the Stockholder will receive in exchange for all of
the issued and outstanding Bodden Stock. The Stockholder will receive the
remaining 75% of the Aggregate Consideration in the form of cash and Parent
Common Stock, in exchange for all of the issued and outstanding SSA Stock.
SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; OTHER ACTIONS AT THE CLOSING.
2.1 Effect of SSA Merger on Capital Stock. As of the SSA Effective Time,
-------------------------------------
by virtue of the SSA Merger and without any action on the part of Parent, Mac-
Gray, SSA or the Stockholder:
(a) Cancellation of Treasury Stock. Each share of SSA Stock that is
------------------------------
owned by SSA or by any subsidiary of SSA shall automatically be canceled and
retired and shall cease to exist, and no cash or other consideration shall be
delivered or deliverable in exchange therefor.
(b) Conversion of SSA Stock. Each issued and outstanding share of
-----------------------
SSA Stock shall be converted into and represent the right to receive by
Stockholder (i) $64,666.67 in cash and (ii) 14,157.40 shares of Parent Common
Stock.
(c) Cancellation and Retirement of SSA Stock. As of the SSA
----------------------------------------
Effective Time, all shares of SSA Stock issued and outstanding immediately prior
to the SSA Effective Time (other than shares to be canceled as provided in
Section 2.1(a)) shall no longer be outstanding, shall automatically be canceled
and retired and shall cease to exist, and the Stockholder shall cease to have
any rights with respect thereto, except the right to receive the applicable
consideration to be paid therefor upon surrender of such certificate in
accordance with Section 2.3.
(d) No Fractional Shares. No fractions of a share of Parent Common
--------------------
Stock shall be issued in the Merger, but in lieu thereof the Stockholder shall,
upon surrender of his certificate or certificates, be entitled to receive
pursuant to Section 2.3(a) an amount of cash (without interest) determined to be
equal to the fractional share interest to which the Stockholder would otherwise
be entitled.
2.2 Effect of Bodden Merger on Capital Stock. As of the Bodden Effective
----------------------------------------
Time, by virtue of the Bodden Merger and without any action on the part of
Parent, Mac-Gray, Sub, Bodden or the Stockholder:
4
<PAGE>
(a) Common Stock of Sub. Each share of common stock, par value $.01
-------------------
per share, of Sub ("Sub Common Stock") issued and outstanding immediately prior
to the Bodden Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common stock, par value
$1.00 per share, of the Bodden Surviving Corporation. From and after the Bodden
Effective Time, each outstanding certificate theretofore representing shares of
Sub Common Stock shall be deemed for all purposes to evidence ownership of and
to represent the number of shares of common stock of the Bodden Surviving
Corporation into which such shares of Sub Common Stock shall have been
converted. Promptly after the Bodden Effective Time, the Bodden Surviving
Corporation shall issue to Parent a stock certificate representing 1,000 shares
of common stock, par value $1.00 per share, of the Bodden Surviving Corporation
in exchange for the certificate or certificates which formerly represented 1,000
shares of Sub Common Stock, which certificate or certificates shall thereupon be
canceled.
(b) Cancellation of Treasury Stock. Each share of Bodden Stock that
------------------------------
is owned by Bodden or by any subsidiary of Bodden shall automatically be
canceled and retired and shall cease to exist, and no Parent Common Stock or
other consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion of Bodden Stock. Each issued and outstanding share of
--------------------------
Bodden Stock shall be converted into and represent the right to receive by
Stockholder 187.304 shares of Parent Common Stock.
(d) Cancellation and Retirement of Bodden Stock. As of the Bodden
-------------------------------------------
Effective Time, all shares of Bodden Stock issued and outstanding immediately
prior to the Effective Time (other than shares to be canceled as provided in
Section 2.2(b)) shall no longer be outstanding, shall automatically be canceled
and retired and shall cease to exist, and the Stockholder shall cease to have
any rights with respect thereto, except the right to receive the applicable
consideration to be paid therefor upon surrender of such certificate in
accordance with Section 2.4.
(e) No Fractional Shares. No fractions of a share of Parent Common
--------------------
Stock shall be issued in the Bodden Merger, but in lieu thereof the Stockholder
shall, upon surrender of his certificate or certificates, be entitled to receive
pursuant to Section 2.4(a) an amount of cash (without interest) determined to be
equal to the fractional share interest to which the Stockholder would otherwise
be entitled.
2.3 SSA Merger; Surrender of Certificates; Stock Transfer Books.
-----------------------------------------------------------
(a) At the SSA Effective Time, upon surrender to the SSA Surviving
Corporation by the Stockholder of a certificate or certificates representing the
Stockholder's shares of SSA Stock (other than shares to be canceled as provided
in Section 2.1(a)), the SSA Surviving Corporation shall (i) deliver to the
Stockholder a certificate representing the 424,722 Parent Shares (as defined
below) to which the Stockholder is entitled pursuant to Section 2.1(b) and (ii)
pay to the Stockholder, by wire transfer in immediately available funds to an
account designated by the Stockholder (which account shall be designated by
Stockholder not less than five (5) business days prior to the Closing Date), an
amount in cash equal to $1,940,000 which the Stockholder is
5
<PAGE>
entitled pursuant to Section 2.1(b) and any cash payable in lieu of fractional
shares of Parent Common Stock to which the Stockholder is entitled pursuant to
Section 2.1(d).
(b) Until so surrendered and exchanged as provided in paragraph (a)
above, each certificate representing shares of SSA Stock (other than shares to
be canceled as provided in Section 2.1(a)) shall, from and after the SSA
Effective Time, be deemed to represent only the right to receive the
consideration to which the Stockholder is entitled pursuant to Section 2.1 of
this Agreement. No interest will be paid or will accrue on the cash to be paid
pursuant to Section 2.1(b) if payment thereof is not made because the
certificate representing SSA Stock was not surrendered. Upon surrender of each
certificate representing shares of SSA Stock, such certificate shall forthwith
be canceled.
(c) If payment of any cash in respect of shares of SSA Stock
surrendered to the SSA Surviving Corporation is to be made to a person other
than the Stockholder, it shall be a condition to such payment that the
certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the Stockholder shall have paid any transfer
and other taxes required by reason of such payment or shall have established to
the satisfaction of Parent that such tax either has been paid or is not payable.
(d) At the SSA Effective Time, the stock transfer books of SSA shall
be closed and there shall be no further registration of transfers of shares of
SSA Stock thereafter on the records of the Company. From and after the SSA
Effective Time, the Stockholder shall cease to have any rights as a stockholder
of SSA or otherwise with respect to such shares, except as otherwise provided
herein or by applicable law.
(e) Notwithstanding anything to the contrary in this Section 2.3,
neither the SSA Surviving Corporation nor any party hereto shall be liable to
the Stockholder for any amount properly paid to a public official pursuant to
any applicable property, escheat or similar law.
2.4 Bodden Merger; Surrender of Certificates; Stock Transfer Books.
--------------------------------------------------------------
(a) At the Bodden Effective Time, upon surrender to the Bodden
Surviving Corporation by the Stockholder of a certificate or certificates
representing the Stockholder's shares of Bodden Stock (other than shares to be
canceled as provided in Section 2.2(b)), the Bodden Surviving Corporation shall
deliver to the Stockholder a certificate representing the 187,304 Parent Shares
(as defined below) to which the Stockholder is entitled pursuant to Section 2.2
and any cash payable in lieu of fractional shares of Parent Common Stock to
which the Stockholder is entitled pursuant to Section 2.2(e).
(b) Until so surrendered and exchanged as provided in paragraph (a)
above, each certificate representing shares of Bodden Stock (other than shares
to be canceled as provided in Section 2.2(b)) shall, from and after the Bodden
Effective Time, be deemed to represent only the right to receive the
consideration to which the Stockholder is entitled pursuant to Section 2.2 of
this Agreement. No interest will be paid or will accrue on the cash to be paid
pursuant to Section 2.2(c) if payment thereof is not made because the
certificate representing Bodden Stock was not
6
<PAGE>
surrendered. Upon surrender of each certificate representing shares of Bodden
Stock, such certificate shall forthwith be canceled.
(c) If payment of any cash in respect of shares of Bodden Stock
surrendered to the Bodden Surviving Corporation is to be made to a person other
than the Stockholder, it shall be a condition to such payment that the
certificate so surrendered shall be properly endorsed or shall be otherwise in
proper form for transfer and that the Stockholder shall have paid any transfer
and other taxes required by reason of such payment or shall have established to
the satisfaction of Parent that such tax either has been paid or is not payable.
(d) At the Bodden Effective Time, the stock transfer books of Bodden
shall be closed and there shall be no further registration of transfers of
shares of Bodden Stock thereafter on the records of Bodden. From and after the
Bodden Effective Time, the Stockholder shall cease to have any rights as a
stockholder of Bodden or otherwise with respect to such shares, except as
otherwise provided herein or by applicable law.
(e) Notwithstanding anything to the contrary in this Section 2.4,
neither the Bodden Surviving Corporation nor any party hereto shall be liable to
the Stockholder for any amount properly paid to a public official pursuant to
any applicable property, escheat or similar law.
2.5 Other Actions at the Closing.
----------------------------
(a) Mac-Gray Exchanges. Immediately prior to the earlier of (i) the
------------------
SSA Effective Time and (ii) the Bodden Effective Time, the following
transactions shall be consummated:
(A) The limited partners of Mac-Gray, L.P. (the "Partnership")
shall assign and transfer to Parent all of their respective limited partner
interests in the Partnership in exchange for shares of Parent Common Stock
pursuant to the Limited Partner Assignment and Exchange Agreement, in the
form attached hereto as Exhibit 2.5(a)(i), and the transactions
-----------------
contemplated thereby shall be consummated (the "LP Exchange").
(B) The stockholders of Mac-Gray shall assign and transfer to
Parent all of their respective shares of common stock, par value $1.00 per
share, of Mac-Gray, in exchange for shares of Parent Common Stock pursuant
to the Stock Exchange Agreement, in the form attached hereto as Exhibit
-------
2.5(b), and the transactions contemplated thereby shall be consummated (the
------
"Stock Exchange," and, together with the LP Exchange and the Partnership
Merger (as defined below), the "Mac-Gray Exchanges").
(b) Partnership Merger. Immediately following the consummation of
------------------
the Stock Exchange and the LP Exchange and the SSA Effective Time and the Bodden
Effective Time, the Partnership shall merge with and into Mac-Gray pursuant to
the Agreement and Plan of Merger, in the form attached hereto as Exhibit
-------
2.5(a)(ii) (the "Partnership Merger").
- ----------
7
<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SSA, BODDEN AND THE STOCKHOLDER.
3.1 Making of Representations and Warranties. As a material inducement
----------------------------------------
to each of Parent, Mac-Gray and Sub to enter into this Agreement and to
consummate the Mergers and the other transactions contemplated hereby, SSA,
Bodden and the Stockholder, jointly and severally, hereby make to Mac-Gray,
Parent and Sub the representations and warranties contained in this Section 3.
For the purposes of this Section 3, references to the "knowledge" or the "best
knowledge" of SSA and/or Bodden shall mean the collective actual knowledge of
Jeffrey C. Huenink, Cindy Hesterman and Kenneth Martin.
3.2 Organization and Qualifications of SSA and Bodden. Each of SSA and
-------------------------------------------------
Bodden is a corporation duly organized, validly existing and in good standing
under the laws of Florida with full corporate power and authority to own or
lease its properties and to conduct its business in the manner and in the places
where such properties are owned or leased or such business is currently
conducted or proposed to be conducted. The copies of each of SSA's and Bodden's
Articles of Incorporation and by-laws, each as amended to date, heretofore
delivered to Parent's counsel, are complete and correct, and no amendments
thereto are pending. Neither SSA nor Bodden is in violation of any term of its
Articles of Incorporation or by-laws. Each of SSA and Bodden is duly qualified
to do business as a foreign corporation under the laws of each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
and assets requires such qualification except where the absence of such
qualification could not reasonably be expected to, individually or in the
aggregate, have a material adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, business, operation or prospects of
SSA or Bodden.
3.3 Capital Stock; Beneficial Ownership.
-----------------------------------
(a) The authorized capital stock of SSA consists of 1,000 shares of
common stock, par value $1.00 per share, of which 30 shares are duly and validly
issued, outstanding, fully-paid and non-assessable. There are no outstanding
shares of any other class of capital stock of SSA, nor are there any outstanding
options, warrants, rights, commitments, preemptive rights, subscriptions or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, exchangeable for or carrying the right to acquire any
additional shares of capital stock of any class of SSA. None of SSA's capital
stock has been issued in violation of any federal or state law. There are no
voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the shares of SSA Stock to which SSA
or the Stockholder is a party.
(b) The authorized capital stock of Bodden consists of 7,000 shares
of common stock, par value $1.00 per share, of which 1,000 shares are duly and
validly issued, outstanding, fully-paid and non-assessable. There are no
outstanding shares of any other class of capital stock of Bodden, nor are there
any outstanding options, warrants, rights, commitments, preemptive rights,
subscriptions or agreements of any kind for the issuance or sale of, or
outstanding securities convertible into, exchangeable for or carrying the right
to acquire any additional shares
8
<PAGE>
of capital stock of any class of Bodden. None of Bodden's capital stock has been
issued in violation of any federal or state law. There are no voting trusts,
voting agreements, proxies or other agreements, instruments or undertakings with
respect to the voting of the shares of Bodden Stock to which Bodden or the
Stockholder is a party.
(c) The Stockholder owns beneficially and of record all of the issued
and outstanding shares of capital stock of SSA, consisting entirely of 30 shares
of SSA Stock, free and clear of any liens, restrictions or encumbrances of any
kind or nature (collectively, "Liens"). By operation of law, the SSA Merger
will vest in Parent legal and valid title to all of the shares of SSA Stock,
free and clear of any Liens.
(d) The Stockholder owns beneficially and of record all of the issued
and outstanding shares of capital stock of Bodden, consisting entirely of 1,000
shares of Bodden Stock, free and clear of any Liens. By operation of law, the
Bodden Merger will vest in Parent legal and valid title to all of the shares of
Bodden Stock, free and clear of any Liens.
3.4 Subsidiaries; Acquisitions. Neither SSA nor Bodden has any
--------------------------
subsidiaries or investments in any other corporation or business organization.
Except as set forth in Schedule 3.4 attached hereto, neither SSA nor Bodden has
------------
any rights or options (the "Acquisition Rights") to purchase or acquire the
capital stock or all or substantially all of the assets of any other corporation
or business organization (an "Acquisition"). Schedule 3.4 attached hereto sets
------------
forth the name of each of the entities subject to any Acquisition Rights, the
type of transaction contemplated by the parties in each Acquisition, the
termination rights, if any, associated with such Acquisition Rights, the number
of laundry machines and the location of such machines to be acquired in each
Acquisition and whether or not the consummation of the Mergers requires the
consent of the selling entity in order that the SSA Surviving Corporation or the
Bodden Surviving Corporation, as the case may be, may legally succeed to such
Acquisition Rights after the Closing. Each of the Acquisition Rights is fully
enforceable, and, after the Closing, will be fully enforceable by the SSA
Surviving Corporation or the Bodden Surviving Corporation, as the case may be.
3.5 Required Action; Authority. All actions and proceedings necessary to
--------------------------
be taken by or on the part of SSA and Bodden in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement has been duly and validly authorized, executed and delivered by SSA
and Bodden. Each of SSA, Bodden and the Stockholder has full right, authority,
power and capacity to execute and deliver this Agreement, the Schedules and
Exhibits hereto and, to the extent such party is a party thereto, each
agreement, document and instrument to be executed and delivered by or on behalf
of it or him pursuant to, or as contemplated by, this Agreement (collectively,
the "Company Documents"), and to carry out the transactions contemplated hereby
and thereby. This Agreement and each other Company Document constitutes, or
when executed and delivered by SSA, Bodden and/or the Stockholder, as
applicable, will constitute, the legal, valid and binding obligation of SSA,
Bodden and/or the Stockholder, as applicable, enforceable against SSA, Bodden,
and/or the Stockholder, as applicable, in accordance with their respective terms
except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium, or other similar laws from time
9
<PAGE>
to time in effect or affecting creditor's rights generally or by principles
governing the availability of equitable remedies.
3.6 No Conflicts. The execution, delivery and performance by SSA, Bodden
------------
and the Stockholder of this Agreement and each other Company Document does not
and will not, with or without the giving of notice or the lapse of time or both,
(a) violate any provision of the Articles of Incorporation or by-laws of SSA or
Bodden, each as amended to date, (b) constitute a violation of, or conflict with
or result in any breach of, acceleration of any obligation under, right of
termination under, or default under, any agreement or instrument to which SSA,
Bodden or the Stockholder is a party or by which SSA, Bodden or the Stockholder
is bound, (c) to the knowledge of SSA, Bodden or the Stockholder violate any
judgment, decree, order, statute, law, rule or regulation applicable to SSA,
Bodden or the Stockholder, (d) except as provided on Schedule 3.6 attached
------------
hereto, require SSA, Bodden or the Stockholder to obtain any approval, consent
or waiver of, or to make any filing with, any person or entity (governmental or
otherwise) that has not been obtained or made or (e) result in the creation or
imposition of any Lien on any of the properties or assets of SSA or Bodden or
the SSA Stock or the Bodden Stock. Each of the officers who execute this
Agreement and the other Company Documents on behalf of SSA and Bodden have all
requisite power to do so in the name of and on behalf of SSA and Bodden.
3.7 Taxes.
-----
(a) Each of SSA and Bodden has paid or caused to be paid all federal,
state, local, foreign, and other taxes, including without limitation, income
taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes,
use taxes, value-added taxes, gross receipts taxes, franchise taxes, capital
stock taxes, employment and payroll-related taxes, withholding taxes, stamp
taxes, transfer taxes, windfall profit taxes, environmental taxes and property
taxes, whether or not measured in whole or in part by net income, and all
deficiencies, or other additions to tax, interest, fines and penalties owed by
it (collectively, "Taxes"), required to be paid by it through the date hereof
whether disputed or not.
(b) Each of SSA and Bodden has in accordance with applicable law
filed all federal, state, local and foreign tax returns required to be filed by
it through the date hereof, and all such returns correctly and accurately set
forth the amount of any Taxes relating to the applicable period. No federal,
state, local or foreign income tax return filed with respect to SSA or Bodden
for any taxable period ended on or after December 31, 1991 has been audited or
is currently the subject of an audit. No extension of time with respect to any
date on which a tax return was or is to be filed by SSA or Bodden is in force,
and no waiver or agreement by SSA or Bodden is in force for the extension of
time for the assessment or payment of any Taxes.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting or, to the knowledge of SSA, Bodden and
the Stockholder, threatening to assert against SSA or Bodden any deficiency or
claim for additional Taxes. No claim has ever been made by an authority in a
jurisdiction where SSA or Bodden does not file reports and returns that such
entity is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of SSA or Bodden that arose in
connection with any failure (or alleged failure)
10
<PAGE>
to pay any Taxes. Neither SSA nor Bodden has entered into a closing agreement
pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) Neither SSA nor Bodden has ever been (or has never had any
liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Neither SSA nor Bodden has
ever filed, or has ever been required to file, a consolidated, combined or
unitary tax return with any other entity. Neither SSA nor Bodden owns or has
ever owned a direct or indirect interest in any trust, partnership, corporation
or other entity. Neither SSA nor Bodden is a party to any tax sharing
agreement.
(e) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
(f) For federal income tax purposes, Bodden elected to be an S
corporation under (S)1362 of the Code effective for its taxable year beginning
on January 1, 1993 and has been an S corporation at all times since January 1,
1993; and for state income tax purposes, including but not limited to the State
of Florida, Bodden elected to be an S corporation effective for its taxable year
beginning on January 1, 1993 and has been an S corporation at all times since
January 1, 1993.
(g) For federal income tax purposes, SSA elected to be an S
corporation under (S)1362 of the Code effective for its taxable year beginning
on October 1, 1987 and has been an S corporation at all times since October 1,
1987; and for state income tax purposes, including but not limited to the State
of Florida, SSA elected to be an S corporation effective for its taxable year
beginning on October 1, 1987 and has been an S corporation at all times since
October 1, 1987.
(h) As of October 1, 1987, SSA had a net unrealized built-in gain
within the meaning of Code (S)1374(d)(1) of zero.
(i) As of January 1, 1993, Bodden had a net unrealized built-in gain
within the meaning of Code (S)1374(d)(1) of zero.
(j) The Stockholder has no present plan, intention, or arrangement to
dispose of any of the Parent Common Stock received in the SSA Merger in a manner
that would cause the SSA Merger to violate the continuity of interest
requirement set forth in Treasury Regulation (S)1.368-1.
(k) The Stockholder has no present plan, intention, or arrangement to
dispose of any of the Parent Common Stock received in the Bodden Merger in a
manner that would cause the Bodden Merger to violate the continuity of interest
requirement set forth in Treasury Regulation (S)1.368-1.
3.8 Leases. Schedule 3.8 attached hereto lists all of the contracts,
------ ------------
understandings and arrangements, whether written or oral, including any tenancy
at will, under which either SSA or
11
<PAGE>
Bodden is bound or to which either SSA or Bodden is a party which relate to the
placement of the laundry machines (the "Leases"). Schedule 3.8 attached hereto
------------
contains a true, correct and complete list of all Lease locations, Lease
expirations, the number of washers and dryers at each Lease location, vend
prices, net revenues after commission for each Lease location and whether the
terms of such Lease require the consent of or prior notice to any third party as
a result of the consummation of the Mergers. True and correct copies of all the
Leases have been delivered or made available to Parent prior to the date hereof.
Each of the Leases is valid, in full force and effect and binding upon SSA or
Bodden, as the case may be, and the other parties thereto in accordance with its
respective terms. Neither SSA, Bodden nor, to the knowledge of SSA, Bodden and
the Stockholder, any other party is in default under or in arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Lease, nor, to the knowledge of SSA,
Bodden and the Stockholder, does any condition exist that with notice or lapse
of time or both would constitute such a default, and no waiver or indulgence has
been granted by any landlord under any Lease. Neither SSA, Bodden nor the
Stockholder has received notice or has knowledge of any fact which would result
in the termination, repudiation or breach of any Lease. Except as provided on
Schedule 3.6 attached hereto, SSA, Bodden and the Stockholder have obtained the
- ------------
consent and approvals of all other parties to each lease that requires such
consent or approval in connection with the consummation of the transactions
contemplated by this Agreement. After giving effect to the Mergers, each of the
Leases will be valid and effective in accordance with its terms, fully
enforceable by the SSA Surviving Corporation or the Bodden Surviving
Corporation, as the case may be, against the other party thereto.
3.9 Equipment. The laundry machines that are the subject of the Leases
---------
listed on Schedule 3.8 constitute all of the laundry machines which are owned
------------
and/or operated by SSA and Bodden, except for laundry machines held in inventory
as set forth on Schedule 3.9 attached hereto. Schedule 3.9 attached hereto
------------ ------------
includes a true, correct and complete list of all of SSA's and Bodden's
equipment, including but not limited to: (i) all washers and dryers, soap,
bleach and softener dispensers and change machines installed at the Lease
locations listed on Schedule 3.8; (ii) all inventory of new laundry machines,
------------
parts and accessories; (iii) all furniture and office equipment; and (iv) all
other equipment, fixtures, vehicles (whether owned or leased) and other capital
assets of SSA and Bodden (collectively the "Equipment"). Except as set forth on
Schedule 3.9, all of the Equipment described in clause (i) of the preceding
- ------------
sentence has generated revenue within the last 60 days. All of the Equipment,
excluding laundry machines that are being repaired or replaced in the ordinary
course of business, is in good operating condition, ordinary wear and tear
excepted, and the Equipment, and the normal use thereof, complies with all
applicable laws and regulations.
3.1 Title.
-----
(a) Except as set forth on Schedule 3.10 attached hereto, each of
-------------
SSA and Bodden has good and valid title to, or a valid leasehold interest in,
all of its Equipment, Leases and the other properties and assets which are used
in its business or otherwise material to its financial condition, free and clear
of all Liens. The aggregate borrowed money indebtedness of
12
<PAGE>
SSA and Bodden as of the Closing is as set forth on Schedule 3.10 attached
-------------
hereto (the "Indebtedness").
(b) Schedule 3.10 attached hereto sets forth a list of all real
-------------
property owned by SSA and Bodden and any real property in which SSA or Bodden
holds a leasehold interest. SSA and Bodden have delivered to Parent a true,
correct and complete copy of each such lease, as amended to date, and each such
lease is in full force and effect. No party to any such lease has given notice
to SSA or Bodden or made any claim with respect to any breach or default with
respect to any such lease. Neither SSA nor Bodden has granted to any other
person or entity the right to the use, occupancy or enjoyment of such lease.
After giving effect to the Mergers, each such lease will be fully enforceable by
the SSA Surviving Corporation and the Bodden Surviving Corporation, as the case
may be.
3.11 No Litigation; Compliance. Except as set forth on Schedule 3.11
------------------------- -------------
attached hereto, (a) neither SSA nor Bodden is now involved in nor, to the
knowledge of SSA, Bodden and the Stockholder, is SSA or Bodden threatened to be
involved in any litigation or legal or other proceedings and (b) the Stockholder
is not now involved in nor to the knowledge of SSA, Bodden and the Stockholder,
is the Stockholder threatened to be involved in any litigation or legal or other
proceedings relating to the business of SSA or Bodden. To the knowledge of SSA,
Bodden and the Stockholder, each of SSA and Bodden is in compliance with all
laws and governmental (federal, state and local) rules and regulations
applicable to it and its business. Neither SSA, Bodden nor the Stockholder has
been charged nor, to the knowledge of SSA, Bodden and the Stockholder, is SSA,
Bodden or the Stockholder threatened to be charged with any violation of any
provision of any federal, state or local law or administrative rule or
regulation relating to the assets or its business. Each of SSA and Bodden has
at all times possessed and currently possesses and has been and is in compliance
with all governmental permits, licenses and authorizations necessary for the
conduct of its business. All of such permits, licenses and authorizations are,
and upon the consummation of the Mergers will be, valid and in full force and
effect.
3.12 Employee Benefit Programs.
-------------------------
(a) Schedule 3.12 attached hereto lists every Employee Program (as
-------------
defined below) that has been maintained (as defined below) by SSA and/or Bodden
at any time during the three-year period ending on the Closing Date.
(b) Each Employee Program which has ever been maintained by SSA
and/or Bodden and which has at any time been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the IRS regarding its qualification under such section and
has, in fact, been qualified under the applicable section of the Code from the
effective date of such Employee Program through and including the Closing (or,
if earlier, the date that all of such Employee Program's assets were
distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification under the applicable Code section.
13
<PAGE>
(c) SSA and/or Bodden does not know and has no reason to know, of any
failure of any party to comply with any laws applicable to the Employee Programs
that have been maintained by SSA and/or Bodden. With respect to any Employee
Program ever maintained by SSA and/or Bodden, there has occurred no "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Section 4975 of the Code, or
breach of any duty under ERISA or other applicable law (including, without
limitation, any health care continuation requirements or any other tax law
requirements, or conditions to favorable tax treatment, applicable to such
plan), which could result, directly or indirectly, in any taxes, penalties or
other liability to SSA, Bodden, the SSA Surviving Corporation, the Bodden
Surviving Corporation or Parent. No litigation, arbitration, or governmental
administrative proceeding (or investigation) or other proceeding (other than
those relating to routine claims for benefits) is pending or threatened with
respect to any such Employee Program.
(d) Neither SSA or Bodden nor any Affiliate (as defined below) (i)
has ever maintained any Employee Program which has been subject to title IV of
ERISA (including, but not limited to, any Multiemployer Plan (as defined below))
or (ii) has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA) or has ever promised to provide such post-
termination benefits.
(e) With respect to each Employee Program maintained by SSA and/or
Bodden within the three years (3) preceding the Closing, complete and correct
copies of the following documents (if applicable to such Employee Program) have
previously been delivered to Parent: (i) all documents embodying or governing
such Employee Program, and any funding medium for the Employee Program
(including, without limitation, trust agreements) as they may have been amended;
(ii) the most recent IRS determination or approval letter with respect to such
Employee Program under Code Sections 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three most
recently filed IRS Forms 5500, with all applicable schedules and accountants'
opinions attached thereto; (iv) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (v) any insurance policy (including any fiduciary
liability insurance policy) related to such Employee Program; (vi) any documents
evidencing any loan to an Employee Program that is a leveraged employee stock
ownership plan; and (vii) all other materials reasonably necessary for the SSA
Surviving Corporation, Bodden Surviving Corporation and Parent to perform any of
its responsibilities with respect to any Employee Program subsequent to the
Closing (including, without limitation, health care continuation requirements).
(f) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA, and (B) all stock option plans, bonus
14
<PAGE>
or incentive award plans, severance pay policies or agreements, deferred
compensation agreements, supplemental income arrangements, vacation plans,
and all other employee benefit plans, agreements, and arrangements not
described in (A) above. In the case of an Employee Program funded through
an organization described in Code Section 501(c)(9), each reference to such
Employee Program shall include a reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity, or their spouses, dependents, or
beneficiaries.
(iii) An entity is an "Affiliate" of SSA or Bodden if it would
have ever been considered a single employer with SSA or Bodden under ERISA
Section 4001(b) or part of the same "controlled group" as SSA or Bodden for
purposes of ERISA Section 302(d)(8)(C).
3.1 Financial Statements and Projections.
------------------------------------
(a) SSA and Bodden have provided Parent with the following financial
statements, copies of which are attached hereto as Schedule 3.13(a) (the
----------------
"Financial Statements"):
(i) Unaudited consolidated balance sheets of SSA and Bodden as
at December 31, 1996, December 31, 1995 and December 31, 1994 and unaudited
consolidated statements of income, retained earnings and cash flows for
each of the three (3) years then ended. The consolidated balance sheet of
SSA and Bodden as at December 31, 1995 is referred to hereinafter as the
"Base Balance Sheet."
(ii) A statement of the gross revenues and net revenues after
commission of each of SSA and Bodden for each of the last three (3) fiscal
years ended December 31.
(iii) An unaudited consolidated balance sheet of SSA and Bodden
as at February 28, 1997, and statements of income, retained earnings and
cash flows for the period then ended, certified by the Presidents of each
of SSA and Bodden (the "Interim Financial Statements").
The Financial Statements for fiscal year 1996 and the Interim Financial
Statements have been prepared by SSA and Bodden and the Financial Statements for
the fiscal years 1995 and 1994 have been reviewed by Coopers & Lybrand, SSA's
and Bodden's independent certified public accountants. The Financial Statements
(i) have been prepared in accordance with generally accepted accounting
principles applied consistently during the periods covered thereby (except for
the absence of footnotes), (ii) are complete and correct in all material
respects except as set forth on Schedule 3.13(a) attached hereto and (iii)
----------------
present fairly in all material respects the financial
15
<PAGE>
condition of SSA and Bodden at the dates of said statements and the results of
its operations for the periods covered thereby.
(b) Except as set forth on Schedule 3.13(b) attached hereto, as of
----------------
the date hereof, neither SSA nor Bodden has any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including without limitation, liabilities as guarantor or
otherwise with respect to obligations of others, liabilities for Taxes due or
then accrued or to become due, or contingent or potential liabilities relating
to activities of SSA or Bodden or the conduct of their respective businesses
prior to the date hereof regardless of whether claims in respect thereof have
been asserted), except liabilities stated or adequately reserved against on the
Base Balance Sheet, or reflected in Schedules furnished to Parent hereunder as
of the date hereof.
(c) Attached hereto as Schedule 3.13(c) are projected results of SSA
----------------
and Bodden on a consolidated basis for the fiscal year ending December 31, 1997
(the "Projections"). The Projections represent the Stockholder's good faith
estimates of the future performance of SSA and Bodden based upon assumptions
(all of which are set forth in Schedule 3.13(c)) which the Stockholder in good
----------------
faith believes are reasonable as of the date hereof.
3.14 Ordinary Course. Since the date of the Base Balance Sheet, each of
---------------
SSA and Bodden has conducted its business in the normal, usual and customary
manner in the ordinary and regular course of business, consistent with its prior
practices.
3.15 Absence of Certain Changes. Except as disclosed in Schedule 3.15
-------------------------- -------------
attached hereto and in the Financial Statements, since the date of the Base
Balance Sheet there has not been:
(a) Any change in the condition (financial or otherwise), properties,
assets, liabilities, business, operations or prospects of SSA or Bodden, which
change by itself or in conjunction with all other such changes, whether or not
arising in the ordinary course of business, could have a material adverse effect
on the business of SSA or Bodden;
(b) Any amendment or termination or, to the knowledge of SSA, Bodden
and the Stockholder, proposed or threatened amendment or termination, whether
written or oral, of any Contract (as defined in 3.16) or material Lease;
(c) Any contingent liability incurred by SSA or Bodden as guarantor
or otherwise with respect to the obligations of others;
(d) Any mortgage, encumbrance or lien placed on any of the properties
of SSA or Bodden;
(e) Any cancellation of any material debt or claim owing to, or
waiver of a material right of, SSA or Bodden;
16
<PAGE>
(f) Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation liabilities for Taxes due or to become due or
contingent or potential liabilities relating to products or services provided by
SSA or Bodden or the conduct of their respective businesses since the date of
the Base Balance Sheet regardless of whether claims in respect thereof have been
asserted), incurred by SSA or Bodden other than obligations and liabilities
incurred in the ordinary course of business (it being understood that product or
service liability claims shall not be deemed to be incurred in the ordinary
course of business);
(g) Any purchase, sale or other acquisition or disposition, or any
agreement or other arrangement for the purchase, sale or other acquisition or
disposition, of any of the properties or assets of another entity, SSA or
Bodden, other than in the ordinary course of business (including purchases of
new laundry machine inventory from dealers or manufacturers) and excluding any
purchases disclosed on Schedule 3.4 attached hereto;
------------
(h) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of SSA or Bodden;
(i) Any declaration, setting aside or payment of any dividend by SSA
or Bodden, or the making of any other distribution in respect of the capital
stock of SSA or Bodden, or any direct or indirect redemption, purchase or other
acquisition by SSA or Bodden of its own capital stock;
(j) Any labor trouble or claim of unfair labor practices involving
SSA or Bodden. Any change in the compensation payable or to become payable by
SSA or Bodden to any of its officers, employees, agents or independent
contractors other than normal merit increases in accordance with its usual
practices, or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors;
(k) Any change with respect to the officers or management of SSA or
Bodden;
(l) Any payment or discharge of a material lien or liability of SSA
or Bodden which was not shown on the Base Balance Sheet or otherwise in the
ordinary course of business thereafter;
(m) Any obligation or liability incurred by SSA or Bodden to any of
its officers, directors, stockholders or employees, or any loans or advances
made by SSA or Bodden to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to officers
or employees; or
(n) Any change in accounting methods or practices, credit practices
or collection policies used by SSA or Bodden.
3.16 Contracts. Except for contracts, commitments, plans, agreements and
---------
licenses described in Schedule 3.16 attached hereto, true and complete copies of
-------------
which have been delivered
17
<PAGE>
to Parent (and other than the Leases set forth on Schedule 3.8), neither SSA nor
------------
Bodden is a party to or subject to:
(a) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(b) any employment contract or contract for services which is not
terminable within thirty (30) days by SSA or Bodden without liability for any
penalty or severance payment;
(c) any contract or agreement for the purchase of any laundry machine
or other Equipment except purchase orders in the ordinary course not exceeding
$50,000 in the aggregate;
(d) any other contracts or agreements creating any obligations of SSA
or Bodden of $30,000 or more on an individual basis, or $50,000 or more on an
aggregate basis, with respect to any such contract or agreement not specifically
disclosed elsewhere under this Agreement;
(e) any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(f) any contract or agreement which by its terms does not terminate
or is not terminable without penalty by SSA or Bodden or its successors within
one (1) year after the date hereof;
(g) any contract or agreement for the sale or lease of its products
not made in the ordinary course of business;
(h) any contract or arrangement with any sales agent or distributor;
(i) any contract containing covenants limiting the freedom of SSA or
Bodden to compete in any line of business or with any person or entity;
(j) any contract or agreement for the purchase of any fixed asset for
a price in excess of $50,000 whether or not such purchase is in the ordinary
course of business;
(k) any license agreement;
(l) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money; or
(m) any contract or agreement with any officer, employee, director of
SSA or Bodden, the Stockholder or with any persons or organizations controlled
by or affiliated with any of them.
18
<PAGE>
Neither SSA nor Bodden is in default under any such contracts, commitments,
plans, agreements or licenses described in said Schedule (individually a
"Contract" and collectively the "Contracts") and neither SSA nor Bodden has any
knowledge of conditions or facts which with notice or passage of time, or both,
would constitute a default, except where such a default could not reasonably be
expected to, individually or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), properties, assets, liabilities,
business, operations or prospects of SSA or Bodden. Each of the Contracts is
valid and in full force and effect, and will be enforceable by the SSA Surviving
Corporation or the Bodden Surviving Corporation, as the case may be, against the
other party thereto in accordance with its terms, except for any non-competition
provision or agreement limiting the freedom of any party thereto to compete in
any line of business or with any person or entity, the benefits of which run to
SSA or Bodden, the enforceability of which may be limited by the principles
governing the availability of equitable remedies.
3.17 Insurance. The physical properties and assets of SSA and Bodden are
---------
insured to the extent disclosed in Schedule 3.17 attached hereto, and all such
-------------
insurance policies and arrangements are disclosed in said Schedule 3.17. Said
-------------
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and each of SSA and Bodden is in
compliance in all material respects with the terms thereof. Said insurance is
adequate and customary for the business engaged in by SSA and Bodden and is
sufficient for compliance by each of SSA and Bodden with all requirements of law
and all agreements and Leases to which it is a party.
3.18 Approvals; Consents. Except as set forth on Schedule 3.18 attached
------------------- -------------
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by SSA or Bodden in connection with the execution and delivery of this
Agreement and the Company Documents or the consummation of the transactions
contemplated hereby and thereby.
3.19 Banking Relationships. Schedule 3.19 attached hereto contains a list
--------------------- -------------
of all the arrangements and accounts each of SSA and Bodden has with any banking
institution, trust company, savings and loan association or other financial
institution. Schedule 3.19 completely and accurately describes each such
-------------
arrangement, including with respect to the type of account and the persons
authorized to have access thereto. At the Closing, copies of all records,
including signature cards, will be in the possession of the SSA Surviving
Corporation or the Bodden Surviving Corporation, as the case may be.
3.20 Hazardous Materials. Except as permitted by or consistent with
-------------------
applicable Environmental Laws: (i) no Hazardous Material (as defined below) has
ever been generated, transported, used, stored, spilled, released or disposed of
by SSA or Bodden on or under any of the Real Property (as defined below); and
(ii) the operations of SSA and Bodden as currently conducted are, and the Real
Property is, to the knowledge of SSA, Bodden and the Stockholder, in compliance
with all applicable Environmental Laws. For purpose of this Agreement, (A)
"Hazardous Materials" shall mean substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances" in the
Comprehensive Environmental
19
<PAGE>
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S)
9601, et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as
-- ---
amended, 42 U.S.C. (S) 6901, et seq. ("RCRA"), any analogous state and local
-- ---
laws, any substances defined as Hazardous Materials in the regulations adopted
and publications promulgated pursuant to said laws, asbestos and asbestos
containing material and petroleum products, including fuel oil, (B)
"Environmental Laws" means any law, statute, regulation or court order binding
upon SSA or Bodden, consent decree binding upon SSA or Bodden, or settlement
agreement to which SSA or Bodden is a party, which relates to Hazardous
Materials, including CERCLA and RCRA, their implementing regulations or any
other similar federal, state or local statutes or regulations and (C)"Real
Property" means all leaseholds and other interests of every kind in real
property owned or held by SSA or Bodden.
3.21 Intellectual Property.
---------------------
(a) Except as described in Schedule 3.21 attached hereto, neither SSA
-------------
nor Bodden has ownership of, or license to use, any patent, copyright, trade
secret, trademark, or other proprietary rights (collectively, "Intellectual
Property"). To the knowledge of SSA, Bodden and Stockholder, all of the rights
of SSA and Bodden in such Intellectual Property are freely transferable. To the
knowledge of SSA, Bodden and the Stockholder, there are no claims or demands of
any other person pertaining to any of such Intellectual Property and no
proceedings have been instituted, or are pending or threatened, which challenge
the rights of SSA or Bodden in respect thereof. To the knowledge of SSA, Bodden
and the Stockholder, each of SSA and Bodden has the right to use, free and clear
of claims or rights of other persons, all customer lists, designs, manufacturing
or other processes, computer software, systems, data compilations, research
results and other information required for or incident to its products or its
business as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to SSA and Bodden or used or to be used by SSA or Bodden in its
businesses as presently conducted or contemplated, and all other items of
Intellectual Property which are material to the business or operations of SSA or
Bodden, are listed in Schedule 3.21 attached hereto.
-------------
(c) To the knowledge of SSA, Bodden and the Stockholder, the present
and contemplated business, activities and products of SSA and Bodden do not
infringe any Intellectual Property of any other person. No proceeding charging
SSA or Bodden with infringement of any adversely held Intellectual Property has
been filed or, to the knowledge of SSA, Bodden and the Stockholder, is
threatened to be filed. To the knowledge of SSA, Bodden and the Stockholder,
neither SSA nor Bodden is making unauthorized use of any confidential
information or trade secrets of any person, including without limitation, any
former employer of any past or present employee of SSA or Bodden. Except as set
forth in Schedule 3.21 attached hereto, neither SSA or Bodden nor, to the
-------------
knowledge of SSA, Bodden and the Stockholder, any of its employees have any
agreements or arrangements with any persons other than SSA and Bodden related to
confidential information or trade secrets of such persons or restricting any
such employee's ability to engage in
20
<PAGE>
business activities of any nature. The activities of its employees on behalf of
each of SSA and Bodden do not violate any such agreements or arrangements known
to SSA or Bodden.
3.22 Books and Records. The minute and stock record books of SSA and
-----------------
Bodden have been made available to Mac-Gray and Parent and their representatives
and are substantially complete and are correct in all material respects. At the
Closing, all of such books and records will be in the possession of the Parent.
3.23 Transactions with Interested Persons. Except as set forth in
------------------------------------
Schedule 3.23 attached hereto, neither SSA, Bodden, the Stockholder, any
- -------------
officer, supervisory employee or director of SSA or Bodden or, to the knowledge
of SSA, Bodden and the Stockholder, any of their respective spouses or family
members, owns directly or indirectly on an individual or joint basis any
material interest in, or serves as an officer or director or in another similar
capacity of, any competitor or supplier of SSA or Bodden or any other
organization which has a material contract or arrangement with SSA or Bodden.
3.24 No Brokers. Neither the Stockholder, SSA nor Bodden has employed any
----------
broker or finder or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated by this
Agreement or any other document contemplated hereby.
3.25 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the Exhibits and Schedules delivered by SSA, Bodden and
the Stockholder to Parent, Mac-Gray and Sub pursuant to this Agreement do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made.
3.26 Commission Payments. Schedule 3.26 attached hereto lists each
------------------- -------------
obligation or commitment of SSA or Bodden to make guaranteed commission or
similar payments under any Lease or Contract, including the Lease or Contract
which requires each such payment, the due date of each such payment and the
amount of each such payment.
3.27 Labor Matters. Neither SSA, Bodden nor Stockholder is a party to any
-------------
collective bargaining or similar agreement on the date hereof and has complied
in all material respects with all applicable state and federal laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and other laws related to employment of employees by SSA, Bodden or
Stockholder or their respective agents, and there are no arrears in the payment
of wages, withholding of social security taxes, unemployment insurance premiums
or other similar obligations of SSA, Bodden or Stockholder other than in the
ordinary course of business.
3.28 Blue Eagle Leases. Neither SSA nor Bodden is a party to any Lease
-----------------
that is a Blue Eagle Lease ("Blue Eagle Lease"), as that term is defined in the
Agreement between the State of Florida and SSA, dated as of April 27, 1994 (the
"Blue Eagle Agreement"). SSA and Stockholder are in compliance, and have
complied, with all of the terms and conditions of the Blue Eagle Agreement and
have performed all of their respective obligations under the Blue Eagle
Agreement.
21
<PAGE>
SSA and Stockholder as of the date of this Agreement have no continuing or
future obligations under the Blue Eagle Agreement. Neither SSA, Bodden nor the
Stockholder have entered into any leases since the date of the Blue Eagle
Agreement that would violate or conflict with the Blue Eagle Agreement.
SECTION 4. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER.
4.1 Investment Representations. The Stockholder hereby represents and
--------------------------
warrants to and agrees with Parent as follows, and the Stockholder acknowledges
that Parent intends to rely on such representations, warranties and agreements
in connection with the transactions contemplated by this Agreement:
(a) All of the shares of Parent Common Stock to be acquired by the
Stockholder hereunder (the "Parent Shares") will be acquired for investment for
the Stockholder's own account, not as a nominee or agent, and not with a present
view toward distribution of any part thereof, and the Stockholder has no present
intention of selling, granting participation in, or otherwise distributing such
Parent Shares.
(b) The Stockholder acknowledges and understands that the Parent
Shares will not be registered under the Securities Act in reliance on an
exemption from registration under the Securities Act, and that the reliance by
Parent on such exemption is predicated on the representations of the Stockholder
set forth herein.
(c) The Stockholder understands that the Parent Shares may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Parent Shares or an available
exemption from registration under the Securities Act, the Parent Shares must be
held indefinitely. The Stockholder is aware that current information about
Parent is not now publicly available. The Stockholder agrees that, in addition
to any other applicable limitations on the transfer of the Parent Shares, in no
event will he make a transfer, pledge or other disposition of any of the Parent
Shares other than pursuant to an effective registration statement under the
Securities Act, unless and until (i) the Stockholder shall have notified Parent
of the proposed disposition and shall have furnished to Parent a statement of
the circumstances surrounding the disposition, and (ii) at the expense of the
Stockholder or his transferee, the Stockholder shall have furnished to Parent an
opinion of counsel reasonably satisfactory to Parent to the effect that such
transfer, pledge or other disposition may be made without registration under the
Securities Act.
(d) The Stockholder (i) by reason of his business and financial
experience, has such knowledge, sophistication and experience in business and
financial matters as to be capable of evaluating the merits and risks of his
investment in the Parent Shares, and (ii) believes his financial condition and
investments are such that he is able to bear the economic risk of a complete
loss of the Parent Shares. The Stockholder has consulted with his own advisers
with respect to his proposed investment in Parent. The Stockholder represents
and warrants that he has had the opportunity to ask questions and to receive
answers from Parent concerning the financial
22
<PAGE>
condition, operations and prospects of Parent and the terms and conditions of
the Stockholder's investment, as well as the opportunity to obtain any
additional information necessary to verify the accuracy of information furnished
in connection therewith that Parent possesses or can acquire without
unreasonable effort or expense.
(e) The Stockholder is an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act.
(f) The Stockholder's legal domicile for purposes of the applicable
securities laws is the State of Florida.
(g) The Stockholder agrees that any certificate(s) representing the
Parent Shares shall carry substantially the legends set forth in Section 8.12 of
the Stockholder's Agreement (as defined below).
4.2 Agreements. The Stockholder is not a party to any non-competition,
----------
trade secret or confidentiality agreement with any party other than SSA or
Bodden. There are no agreements or arrangements not contained herein or
disclosed in a Schedule hereto, to which such Stockholder is a party relating to
the business of SSA or Bodden or to such Stockholder's rights and obligations as
a stockholder, director, officer or employee of SSA or Bodden. The Stockholder
does not own, directly or indirectly, on an individual or joint basis, any
interest (excluding passive investments in the shares of any enterprise which
are publicly traded, provided his or her holdings therein, together with any
holdings of his or her Affiliates and family members, do not exceed one percent
(1%) of the outstanding shares of comparable interest in such entity) in, or
serve as an officer or director of, any organization which has a contract or
arrangement with SSA or Bodden or which is a direct or indirect competitor of
SSA or Bodden.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT, MAC-GRAY AND SUB.
5.1 For the purposes of this Section 5, references to the "knowledge" or
the "best knowledge" of Parent, Mac-Gray and/or Sub shall mean the collective
actual knowledge of Stewart G. MacDonald, Jr., John S. Olbrych and Patrick A.
Flanagan. As a material inducement to SSA, Bodden and the Stockholder to enter
into this Agreement and consummate the transactions contemplated hereby, Parent,
Mac-Gray (which term, for purposes of this Section 5, shall also include the
Partnership as if the Partnership Merger had occurred as of the effectiveness of
this Agreement) and Sub each hereby represents and warrants to SSA, Bodden and
the Stockholder as follows:
5.2 Organization. Each of Parent, Mac-Gray and Sub is a corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to conduct its business as it
is now conducted and to own, lease and operate its properties and assets. The
copies of Parent's, Mac-Gray's and Sub's respective Certificate of
Incorporation, each as amended to date, and of Parent's, Mac-Gray's and Sub's
respective
23
<PAGE>
by-laws, each as amended to date, heretofore delivered to SSA, Bodden and the
Stockholder, or their counsel, are complete and correct and no amendments
thereto are pending. None of Parent, Mac-Gray and Sub is in violation of any
term of its respective Certificate of Incorporation or by-laws. Each of Parent,
Mac-Gray and Sub is duly qualified to do business as a foreign corporation under
the laws of each jurisdiction in which the nature of its business or the
ownership or leasing of its properties and assets requires such qualification,
except where the absence of such qualification could not reasonably be expected
to, individually, or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), property, assets, liabilities, prospects,
business or operation of Parent, Mac-Gray or Sub.
5.3 Capital Stock; Beneficial Ownership.
-----------------------------------
(a) As of the date hereof and immediately prior to the Closing, the
authorized capital stock of Parent consists of 35,000,000 shares of capital
stock, of which (i) 30,000,000 shares are common stock, $.01 par value per
share, none of which shares are issued and outstanding and 750,000 of which
shares are reserved for issuance under Parent's 1997 Stock Option and Incentive
Plan and (ii) 5,000,000 shares are preferred stock, $.01 par value per share,
none of which shares are issued and outstanding. Except as set forth on
Schedule 5.3(a)(i) attached hereto, there are no outstanding options, warrants,
- ------------------
rights, commitments, preemptive rights or agreements of any kind for the
issuance or sale of, or outstanding securities convertible into, any additional
shares of capital stock of any class of Parent. None of Parent's capital stock
has been issued in violation of any federal or state law. Except as set forth
on Schedule 5.3(a)(i) attached hereto, there are no voting trusts, voting
------------------
agreements, proxies or other agreements, instruments or undertakings with
respect to the voting of capital stock of Parent. Upon the Closing, and after
giving effect to the Mac-Gray Exchanges and the Mergers, the capitalization of
Parent shall be as set forth on Schedule 5.3(a)(ii) attached hereto.
-------------------
(b) The authorized capital stock of Mac-Gray consists of 200,000
shares of common stock, $1.00 par value per share, of which 100,000 shares are
duly and validly issued, outstanding, fully-paid and non-assessable. Schedule
--------
5.3(b) attached hereto lists the beneficial and record owners of the capital
- ------
stock of Mac-Gray immediately prior to the Closing. At the Closing, all of the
issued and outstanding shares of Mac-Gray common stock will be exchanged for
shares of Parent Common Stock pursuant to the Stock Exchange, and Parent will
own beneficially and of record all of the issued and outstanding shares of
capital stock of Mac-Gray, free and clear of any Liens, except for a pledge of
all of such shares to the lenders under Parent's credit facility.
(c) The authorized capital stock of Sub consists of 3,000 shares of
Sub Common Stock, $.01 par value per share, of which 1,000 shares are duly and
validly issued, outstanding, fully-paid and non-assessable. Parent is the
beneficial and record owner of all of the capital stock of Sub. At the Closing,
all of the shares of Sub Common Stock shall be converted into shares of the
common stock of Bodden Surviving Corporation in accordance with Section 2.2
hereof.
5.4 Subsidiaries.
------------
24
<PAGE>
(a) Other than Sub and Sun Services of America, Inc., a Delaware
corporation ("Sub II"), Parent has no direct subsidiaries or investments in any
other corporation or business organization. At the Closing, and after giving
effect to the Mergers and the Mac-Gray Exchanges, Parent will own beneficially
and of record (i) all of the outstanding shares of capital stock of the Bodden
Surviving Corporation, (ii) all of the outstanding shares of capital stock of
Sub II, and (iii) all of the outstanding shares of capital stock of Mac-Gray,
free and clear of any Liens, except for a pledge of all of such shares to the
lenders under Parent's credit facility.
(b) Except as set forth on Schedule 5.4(b) attached hereto, Mac-Gray
---------------
has no subsidiaries or investments in any corporation or business organization.
Mac-Gray owns all of such interests described in Schedule 5.4(b) attached hereto
---------------
free and clear of any Liens.
(c) Neither Sub nor Sub II has any subsidiaries or investments in any
other corporation or business organization.
5.5 Required Action; Authority. All actions and proceedings necessary to
--------------------------
be taken by or on the part of each of Parent, Mac-Gray and Sub in connection
with the transactions contemplated by this Agreement have been duly and validly
taken, and this Agreement has been duly and validly authorized, executed and
delivered by each of Parent, Mac-Gray and Sub. Each of Parent, Mac-Gray and Sub
has full right, authority and power to execute and deliver this Agreement and
each agreement, document and instrument to be executed and delivered by or on
behalf of it pursuant to, or as contemplated by this Agreement (collectively,
the "Mac-Gray Documents") and to carry out the transactions contemplated hereby
and thereby. This Agreement and each other Mac-Gray Document constitutes, or
when executed and delivered will constitute, the legal, valid and binding
obligations of Parent, Mac-Gray and/or Sub, as applicable, enforceable against
Parent, Mac-Gray and/or Sub, as applicable, in accordance with its respective
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium, or other similar laws from time to time
in effect affecting creditor's rights generally or by principles governing the
availability of equitable remedies.
5.6 No Conflicts. The execution, delivery and performance by each of
------------
Parent, Mac-Gray and Sub of this Agreement and each other Mac-Gray Document to
which such entity is a party does not and will not with or without the giving of
notice or the lapse of time or both, (a) violate any provision of the respective
Certificate of Incorporation of Parent, Mac-Gray and Sub, as amended to date,
(b) constitute a violation of, or conflict with or result in any breach of,
acceleration of any obligation under, right of termination under, or default
under, any agreement or instrument to which any of Parent, Mac-Gray and Sub is a
party or by which they are bound, (c) to the knowledge of Parent, Mac-Gray or
Sub violate any judgment, decree, order, statute, law, rule or regulation
applicable to Parent, Mac-Gray and Sub or (d) require any of Parent, Mac-Gray
and Sub to obtain any approval, consent or waiver of, or to make any filing
with, any person or entity (governmental or otherwise) that has not been
obtained or made or (e) result in the creation or imposition of any Lien on any
of property or assets of Parent, Mac-Gray or Sub. Each of the officers who
execute this Agreement and the other Mac-Gray Documents on behalf of Parent,
Mac-Gray and Sub have all requisite power to do so in the name of and on behalf
of such entity.
25
<PAGE>
5.7 No Litigation; Compliance. Neither Parent, Mac-Gray or Sub is now
-------------------------
involved in nor, to the knowledge of Parent, Mac-Gray and Sub, is threatened to
be involved in, any litigation or legal or other proceedings, other than
proceedings that could not reasonably be expected to have a material adverse
effect upon the business, operations or financial condition of Parent, Mac-Gray
and Sub. To the knowledge of Parent, Mac-Gray and Sub, each of Parent, Mac-Gray
and Sub is in compliance with all laws and governmental (federal, state and
local) rules and regulations applicable to each such entity and each such
entities' business. Neither Parent, Mac-Gray or Sub has been charged nor, to
the knowledge of Parent, Mac-Gray and Sub, is threatened to be charged with any
violation of any provision of any federal, state or local law or administrative
rule or regulation relating to its business. Each of Parent, Mac-Gray and Sub
has at all times possessed and currently possesses and has been and is in
compliance with all governmental permits, licenses and authorizations necessary
for the conduct of its business. All of such permits, licenses and
authorizations are valid and in full force and effect.
5.8 Financial Statements. Attached hereto as Schedule 5.8 are copies of
-------------------- ------------
the unaudited combined balance sheets of Mac-Gray as at December 31, 1996 and
December 31, 1995, and unaudited combined statements of operations,
stockholders' equity and cash flows for each of the three (3) years ended
December 31, 1996, 1995 and 1994 (collectively the "Mac-Gray Financial
Statements"). The Mac-Gray Financial Statements (i) have been prepared by Mac-
Gray in accordance with generally accepted accounting principles applied
consistently during the periods covered thereby, (ii) are complete and correct
in all material respects and (iii) present fairly in all material respects the
financial condition of Mac-Gray at the dates of said statements and the results
of its operations for the periods covered thereby. Except as set forth in
Schedule 5.8 attached hereto, as of the date hereof Mac-Gray has no liabilities
- ------------
of any nature, whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown (including without limitation, liabilities as
guarantor or otherwise with respect to obligations of others, liabilities for
Taxes due or then accrued or to become due, or contingent or potential
liabilities relating to activities of Mac-Gray or the conduct of its business
prior to the date hereof regardless of whether claims in respect thereof have
been asserted), except as disclosed in the Mac-Gray Financial Statements or in
any notes thereto, that could materially adversely affect the business,
operations or financial condition of Mac-Gray. Since December 31, 1996, there
has not been a material adverse change in the business, operations or financial
condition of Mac-Gray.
5.9 Taxes.
-----
(a) Each of Parent, Mac-Gray and Sub has paid or caused to be paid all
Taxes required to be paid by it through the date hereof whether disputed or not.
(b) Each of Parent, Mac-Gray and Sub has in accordance with applicable
law filed all federal, state, local and foreign tax returns required to be filed
by it through the date hereof, and all such returns correctly and accurately set
forth the amount of any Taxes relating to the applicable period. No federal,
state, local or foreign income tax return filed with respect to Parent, Mac-Gray
or Sub for any taxable period ended on or after December 31, 1991 has been
audited or is currently the subject of an audit. No extension of time with
respect to any date on which a tax return was or is to be filed by Parent, Mac-
Gray or Sub is in force, and no waiver or
26
<PAGE>
agreement by Parent, Mac-Gray or Sub is in force for the extension of time for
the assessment or payment of any Taxes.
(c) Neither the IRS nor any other governmental authority is now
asserting or, to the knowledge of Mac-Gray, threatening to assert against
Parent, Mac-Gray or Sub any deficiency or claim for additional Taxes. No claim
has ever been made by an authority in a jurisdiction where Parent, Mac-Gray or
Sub does not file reports and returns that Parent, Mac-Gray or Sub is or may be
subject to taxation by that jurisdiction. There are no security interests on
any of the assets of Parent, Mac-Gray and Sub that arose in connection with any
failure (or alleged failure) to pay any Taxes. None of Parent, Mac-Gray or Sub
has entered into a closing agreement pursuant to Section 7121 of the Code.
(d) None of Parent, Mac-Gray or Sub has ever been (or has ever had any
liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Except as set forth in
Schedule 5.9 attached hereto, none of Parent, Mac-Gray or Sub has ever filed,
- ------------
and has never been required to file, a consolidated, combined or unitary tax
return with any other entity. Except as set forth in Schedule 5.9, none of
------------
Parent, Mac-Gray or Sub owns and has never owned a direct or indirect interest
in any trust, partnership, corporation or other entity. Except as set forth in
Schedule 5.9 attached hereto, none of Parent, Mac-Gray or Sub is a party to any
- ------------
tax sharing agreement.
(e) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
(f) It is the present intention of Parent to continue at least one
significant historic business line of SSA, or to use at least a significant
portion of SSA's historic business assets in a business, in each case within the
meaning of Treasury Regulation (S)1.368-1(d).
(g) It is the present intention of Parent to continue at least one
significant historic business line of Bodden, or to use at least a significant
portion of Bodden's historic business assets in a business, in each case within
the meaning of Treasury Regulation (S)1.368-1(d).
(h) Parent has no present plan or intention to transfer any of the
assets received from SSA in such a manner that the transfer would cause the
reorganization to be treated as other than a tax free reorganization under
(S)368 of the Code.
(i) Parent has no present plan or intention to cause Bodden to
transfer any of the assets of Bodden in such a manner that the transfer would
cause the reorganization to be treated as other than a tax free reorganization
under (S)368 of the Code.
(j) Parent has no present plan or intention to make a QSSS election,
as permitted under (S)1361 of the Code, with respect to Bodden.
27
<PAGE>
5.10 Leases. All of the material contracts, understandings and
------
arrangements, whether written or oral, including any tenancy at will, under
which Mac-Gray is bound or to which Mac-Gray is a party which relate to the
placement of the laundry machines (the "Mac-Gray Leases") is valid, in full
force and effect and binding upon Mac-Gray and the other parties thereto in
accordance with its respective terms. Neither Mac-Gray nor, to the knowledge
of Mac-Gray, any other party is in default under or in arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Mac-Gray Lease, nor, to the knowledge of
Mac-Gray, does any condition exist that with notice or lapse of time or both
would constitute such a default, and no waiver or indulgence has been granted by
any landlord under any Mac-Gray Lease. Mac-Gray has not received notice and has
no knowledge of any fact which would result in the termination, repudiation or
breach of any Mac-Gray Lease. Mac-Gray has obtained the consent and approvals
of all other parties to each Mac-Gray Lease that requires such consent or
approval in connection with the consummation of the transactions contemplated by
the Mergers.
5.11 Assets; Title.
-------------
(a) Except as set forth on Schedule 5.11 attached hereto, each of
-------------
Parent, Mac-Gray and Sub has good and valid title to, or a valid leasehold
interest in, all of such entities' assets and other properties which are
material to its financial condition, free and clear of all Liens.
(b) Schedule 5.11 attached hereto sets forth a list of all real
-------------
property owned by Parent, Mac-Gray and Sub and any real property in which
Parent, Mac-Gray or Sub holds a leasehold interest, other than the Mac-Gray
Leases. No party to any such lease has given notice to Parent, Mac-Gray or Sub
or made any claim with respect to any breach or default with respect to any such
lease. Parent, Mac-Gray and Sub have not granted to any other person or entity
the right to the use, occupancy or enjoyment of such lease.
5.12 Employee Benefit Programs.
-------------------------
(a) Schedule 5.12(a) attached hereto lists every Employee Program (as
----------------
defined below) that has been maintained (as defined below) by Mac-Gray at any
time during the three-year period ending on the Closing Date.
(b) Except as set forth on Schedule 5.12(b) attached hereto, each
----------------
Employee Program which has ever been maintained by Mac-Gray and which has at any
time been intended to qualify under Section 401(a) or 501(c)(9) of the Code has
received a favorable determination or approval letter from the IRS regarding its
qualification under such section and has, in fact, been qualified under the
applicable section of the Code from the effective date of such Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has occurred
which would cause any such Employee Program to lose its qualification under the
applicable Code section.
28
<PAGE>
(c) Mac-Gray does not know and has no reason to know, of any failure
of any party to comply with any laws applicable to the Employee Programs that
have been maintained by Mac-Gray. With respect to any Employee Program ever
maintained by Mac-Gray, there has occurred no "prohibited transaction," as
defined in Section 406 of ERISA or Section 4975 of the Code, or breach of any
duty under ERISA or other applicable law (including, without limitation, any
health care continuation requirements or any other tax law requirements, or
conditions to favorable tax treatment, applicable to such plan), which could
result, directly or indirectly, in any taxes, penalties or other liability to
Mac-Gray. No litigation, arbitration, or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither Mac-Gray nor any Affiliate (as defined below) (i) has ever
maintained any Employee Program which has been subject to title IV of ERISA
(including, but not limited to, any Multiemployer Plan (as defined below)) or
(ii) has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by part 6
of subtitle B of title I of ERISA) or has ever promised to provide such post-
termination benefits.
(e) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are
not subject to ERISA, and (B) all stock option plans, bonus or incentive
award plans, severance pay policies or agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and all other
employee benefit plans, agreements, and arrangements not described in (A)
above. In the case of an Employee Program funded through an organization
described in Code Section 501(c)(9), each reference to such Employee
Program shall include a reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise
covers employees of such entity, or their spouses, dependents, or
beneficiaries.
(iii) An entity is an "Affiliate" of Mac-Gray if it would have
ever been considered a single employer with the Company under ERISA Section
4001(b) or part of the same "controlled group" as the Company for purposes
of ERISA Section 302(d)(8)(C).
29
<PAGE>
5.13 Ordinary Course. Since December 31, 1996, Mac-Gray has conducted
---------------
business in the normal, usual and customary manner in the ordinary and regular
course of business, consistent with its prior practices.
5.14 Absence of Certain Changes. Except as disclosed in Schedule 5.14
-------------------------- -------------
attached hereto and the Mac-Gray Financial Statements, since December 31, 1996,
there has not been:
(a) Any change in the condition (financial or otherwise), properties,
assets, liabilities, business, operations or prospects of Parent, Mac-Gray or
Sub, which change by itself or in conjunction with all other such changes,
whether or not arising in the ordinary course of business, could have a material
adverse effect on the business of such entity;
(b) Any amendment or termination or, to the knowledge of Mac-Gray,
proposed or threatened amendment or termination, whether written or oral, of any
material Mac-Gray Lease or Material Mac-Gray Contract (as defined in 5.15);
(c) Any contingent liability incurred by Parent, Mac-Gray or Sub as
guarantor or otherwise with respect to the obligations of others;
(d) Any mortgage, encumbrance or lien placed on any of the properties
of Parent, Mac-Gray or Sub;
(e) Any cancellation of any material debt or claim owing to, or waiver
of a material right of, Parent, Mac-Gray or Sub;
(f) Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation liabilities for Taxes due or to become due or
contingent or potential liabilities relating to products or services provided by
Parent, Mac-Gray and Sub or the conduct of the business of Parent, Mac-Gray and
Sub since December 31, 1996, regardless of whether claims in respect thereof
have been asserted), incurred by Parent, Mac-Gray or Sub other than obligations
and liabilities incurred in the ordinary course of business (it being understood
that product or service liability claims shall not be deemed to be incurred in
the ordinary course of business);
(g) Any purchase, sale or other acquisition or disposition, or any
agreement or other arrangement for the purchase, sale or other acquisition or
disposition, of any of the properties or assets of another entity or Parent,
Mac-Gray or Sub, other than in the ordinary course of business;
(h) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, assets or business
of Parent, Mac-Gray or Sub;
(i) Any declaration, setting aside or payment of any dividend by
Parent, Mac-Gray or Sub, or the making of any other distribution in respect of
the capital stock of Parent, Mac-
30
<PAGE>
Gray or Sub, or any direct or indirect redemption, purchase or other acquisition
by Parent, Mac-Gray or Sub of its own capital stock;
(j) Any labor trouble or claim of unfair labor practices involving
Parent, Mac-Gray or Sub. Any change in the compensation payable or to become
payable by Parent, Mac-Gray or Sub to any of its officers, employees, agents or
independent contractors, or any bonus payment or arrangement made to or with any
of such officers, employees, agents or independent contractors, in each case
except in the ordinary course of business;
(k) Any change with respect to the officers or management of Parent,
Mac-Gray or Sub;
(l) Any payment or discharge of a material lien or liability of
Parent, Mac-Gray or Sub which was not shown on the Mac-Gray Financial Statements
as of December 31, 1996, or otherwise in the ordinary course of business
thereafter;
(m) Any obligation or liability incurred by Parent, Mac-Gray or Sub to
any of its officers, directors, stockholders or employees, or any loans or
advances made by Parent, Mac-Gray or Sub to any of its officers, directors,
stockholders or employees, except normal compensation and expense allowances
payable to officers or employees; or
(n) Any change in accounting methods or practices, credit practices or
collection policies used by Mac-Gray.
5.15 Contracts. Except as set forth on Schedule 5.15 attached hereto, Mac-
--------- -------------
Gray is not a party to (a) any individual contract which obligates Mac-Gray for
more than $200,000 on an annual basis or (b) any contract, commitment, plan,
agreement or license which is material to the business or financial condition of
Parent, Mac-Gray and Sub taken as a whole (individually a "Material Mac-Gray
Contract" and collectively the "Material Mac-Gray Contracts"). Each Material
Mac-Gray Contract is valid, in full force and effect and enforceable against the
parties thereto in accordance with its terms, except for any non-competition
provision or agreement limiting the freedom of any party thereto to compete in
any line of business or with any person or entity, the benefits of which run to
Mac-Gray, the enforceability of which may be limited by the principles governing
the availability of equitable remedies. Neither Parent, Mac-Gray nor Sub is in
default under any such Material Mac-Gray Contract or has any knowledge of
conditions or facts which with notice or passage of time, or both, would
constitute a default, except where such a default could not reasonably be
expected to, individually or in the aggregate, have a material adverse effect on
the condition (financial or otherwise), properties, assets, liabilities,
business, operations or prospects of Parent, Mac-Gray and Sub.
5.16 Insurance. The physical properties and assets of Parent, Mac-Gray and
---------
Sub are insured to the extent disclosed in Schedule 5.16 attached hereto, and
-------------
all such insurance policies and arrangements are disclosed in said Schedule
--------
5.16. Said insurance policies and arrangements are in full force and effect,
- ----
all premiums with respect thereto are currently paid, and Parent, Mac-Gray and
Sub, as applicable, is in compliance in all material respects with the terms
thereof. Said
31
<PAGE>
insurance is adequate and customary for the business engaged in by Parent, Mac-
Gray and Sub, as applicable, and is sufficient for compliance by such entity
with all requirements of law and all agreements to which such entity is a party.
5.17 Approvals; Consents. Except as set forth on Schedule 5.17 attached
------------------- -------------
hereto, no approval, consent, authorization or exemption from or filing with any
person or entity not a party to this Agreement is required to be obtained or
made by any of Parent, Mac-Gray or Sub in connection with the execution and
delivery of this Agreement and the Mac-Gray Documents or the consummation of the
transactions contemplated hereby and thereby.
5.18 Hazardous Materials. Except as permitted by or consistent with
-------------------
applicable Environmental Laws: (i) no Hazardous Material (as defined below) has
ever been generated, transported, used, stored, spilled, released or disposed of
by Mac-Gray on or under any of the Real Property (as defined below); and (ii)
the operations of Mac-Gray as currently conducted are, and the Real Property is,
to the knowledge of Mac-Gray, in compliance with all applicable Environmental
Laws. For purpose of this Agreement, (A) "Hazardous Materials" shall mean
substances defined as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances" in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601, et seq.
-- ---
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
(S) 6901, et seq. ("RCRA"), any analogous state and local laws, any substances
-- ---
defined as Hazardous Materials in the regulations adopted and publications
promulgated pursuant to said laws, asbestos and asbestos containing material and
petroleum products, including fuel oil, (B) "Environmental Laws" means any law,
statute, regulation or court order binding upon Mac-Gray, consent decree binding
upon Mac-Gray or settlement agreement to which Mac-Gray is a party, which
relates to Hazardous Materials, including CERCLA and RCRA, their implementing
regulations or any other similar federal, state or local statutes or regulations
and (C) "Real Property" means all leaseholds and other interests of every kind
in real property owned or held by Parent, Mac-Gray or Sub.
5.19 Transactions with Interested Persons. Except as set forth in Schedule
------------------------------------ --------
5.19 attached hereto, neither Mac-Gray nor any officer, supervisory employee or
- ----
director of Mac-Gray, to the knowledge of Mac-Gray, any of their respective
spouses or family members, owns directly or indirectly on an individual or joint
basis any material interest in, or serves as an officer or director or in
another similar capacity of, any competitor or supplier of Mac-Gray or any other
organization which has a material contract or arrangement with Mac-Gray.
5.20 No Brokers. None of Parent, Mac-Gray or Sub has employed any broker
----------
or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated by this Agreement
or any other document contemplated hereby.
5.21 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the Exhibits and Schedules delivered by Parent, Mac-
Gray and Sub to SSA, Bodden and the Stockholder pursuant to this Agreement do
not contain any untrue statement of a material fact, and, when taken together,
do not omit to state a material fact required to be stated
32
<PAGE>
therein or necessary in order to make such representations, warranties or
statements not misleading in light of the circumstances under which they were
made.
5.22 Books and Records. The minute and stock books of Mac-Gray have been
-----------------
made available to SSA and Bodden and their respective representatives and are
substantially complete and are correct in all material respects.
5.23 Intellectual Property.
---------------------
(a) Except as described in Schedule 5.23(a) attached hereto, Mac-Gray
----------------
does not have ownership of, or license to use, any patent, copyright, trade
secret, trademark, or other proprietary rights that are material to the
condition (financial or otherwise) or business of Mac-Gray (collectively, "Mac-
Gray Intellectual Property"). To the knowledge of Mac-Gray, all of the rights
of Mac-Gray in such Mac-Gray Intellectual Property are freely transferable. To
the knowledge of Mac-Gray, there are no claims or demands of any other person
pertaining to any of such Mac-Gray Intellectual Property and no proceedings have
been instituted, or are pending or threatened, which challenge the rights of
Mac-Gray in respect thereof. To the knowledge of Mac-Gray, Mac-Gray has the
right to use, free and clear of claims or rights of other persons, all customer
lists, designs, manufacturing or other processes, computer software, systems,
data compilations, research results and other information required for or
incident to its products or its business as presently conducted or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to Mac-Gray or used or to be used by Mac-Gray in its businesses as
presently conducted or contemplated, and all other items of Mac-Gray
Intellectual Property which are material to the business or operations of Mac-
Gray, are listed in Schedule 5.23(b) attached hereto.
----------------
(c) To the knowledge of Mac-Gray, the present and contemplated
business, activities and products of Mac-Gray do not infringe any Intellectual
Property of any other person. No proceeding charging Mac-Gray with infringement
of any adversely held Intellectual Property has been filed or, to the knowledge
of Mac-Gray, is threatened to be filed. To the knowledge of Mac-Gray, Mac-Gray
is not making unauthorized use of any confidential information or trade secrets
of any person, including without limitation, any former employer of any past or
present employee of Mac-Gray. Except as set forth in Schedule 5.23 attached
-------------
hereto, neither Mac-Gray nor, to the knowledge of Mac-Gray, any of its employees
have any agreements or arrangements with any persons other than Mac-Gray related
to confidential information or trade secrets of such persons or restricting any
such employee's ability to engage in business activities of any nature. The
activities of its employees on behalf of Mac-Gray do not violate any such
agreements or arrangements known to Mac-Gray.
5.24 Labor Matters. Neither Parent, Mac-Gray nor Sub is a party to any
-------------
collective bargaining or similar agreement on the date hereof and has complied
in all material respects with all applicable state and federal laws respecting
employment and employment practices, terms and conditions of wages and hours and
other laws related to employment of employees by Parent,
33
<PAGE>
Mac-Gray or Sub or their respective agents, and there are no arrears in the
payment of wages, withholding of Social Security taxes, unemployment insurance
premiums or other similar obligations of Parent, Mac-Gray and Sub other than in
the ordinary course of business.
SECTION 6. DELIVERIES AT THE CLOSING.
The obligation of the parties to close the transactions contemplated by
this Agreement is subject to the delivery and satisfaction at the Closing of the
following:
6.1 Deliveries by the Company and the Stockholder. At the Closing, SSA,
---------------------------------------------
Bodden and the Stockholder shall deliver to Parent, Mac-Gray and Sub the
following:
(a) Certificates representing the shares of SSA Stock and Bodden Stock
to be canceled in accordance herewith, with appropriate stock powers duly
endorsed in blank;
(b) Certified resolutions of the Board of Directors of SSA and Bodden
and the Stockholder of SSA and Bodden approving the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby;
(c) Governmental certificates evidencing that each of SSA and Bodden
is duly organized and in good standing in the State of Florida;
(d) Certificate of the Secretary of each of SSA and Bodden attesting
as to the incumbency of each officer who shall execute this Agreement and any
other Company Document on behalf of SSA or Bodden and certifying as to the by-
laws and charter of SSA and Bodden;
(e) Instruments (including UCC-3 termination statements) releasing any
and all Liens on any of the assets of SSA or Bodden;
(f) An opinion of Foley & Lardner, counsel to SSA, Bodden and the
Stockholder, in the form of Exhibit 6.1(f) attached hereto;
--------------
(g) Evidence reasonably satisfactory to counsel to Mac-Gray that the
SSA Surviving Corporation or the Bodden Surviving Corporation, as the case may
be, has succeeded to, or is the lawful assignee of, all of the Acquisition
Rights of SSA and Bodden;
(h) Payoff letter or other evidence with respect to the discharge of
the Stockholder's personal guarantees with respect to the Indebtedness of SSA
and Bodden;
(i) Letters of resignation for all officers and directors of SSA and
Bodden, effective at the Closing;
(j) An IRS Form 2553, Election by a Small Business Corporation, with
respect to the S-Corporation election of Parent;
34
<PAGE>
(k) Stock record and minute books of each of SSA and Bodden;
(l) Such other certificates and documents as may be required hereby or
are reasonably requested by Parent at the Closing; and
(m) All consents and approvals necessary to consummate the Merger and
to vest in the SSA Surviving Corporation and the Bodden Surviving Corporation
good title to the assets of SSA and Bodden (including the Leases and Equipment).
6.2 Deliveries by Parent, Mac-Gray and Sub. At the Closing, Parent, Mac-
--------------------------------------
Gray and Sub shall have delivered to SSA, Bodden and the Stockholder the
following:
(a) Certificate representing the Parent Shares;
(b) Wire transfer of $1,940,000;
(c) Certified resolutions of the Board of Directors of Parent, Mac-
Gray and Sub approving the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby;
(d) Governmental certificates evidencing that each of Parent, Mac-Gray
and Sub is duly organized and in good standing in the State of Delaware;
(e) Certificate of the Secretary of each of Parent, Mac-Gray and Sub
attesting as to the incumbency of each officer who shall execute this Agreement
and any other Mac-Gray Document on behalf of such entity and certifying as to
the by-laws and charter of such entity;
(f) An opinion of Goodwin, Procter & Hoar LLP, counsel to Parent,
Mac-Gray and Sub in the form attached hereto as Exhibit 6.2(f);
--------------
(g) The Letter of Credit (as defined in the Stockholders' Agreement
(as defined below));
(h) Evidence that the personal guarantees of the Stockholder related
to the Indebtedness have been discharged; and
(i) Such other certificates and documents as may be required hereby or
are reasonably requested by SSA, Bodden or the Stockholder at the Closing.
6.3 Joint Deliveries of the Parties. The parties shall jointly provide
-------------------------------
the following at the Closing:
(a) The SSA Certificate and the Bodden Certificate shall be duly and
properly filed with the Secretary of State of the State of Delaware and the SSA
Articles and the Bodden
35
<PAGE>
Articles shall be duly and properly filed with the Secretary of State of the
State of Florida and each of such documents shall be effective under the DGCL
and the FBCA, as the case may be;
(b) The Stockholder and Parent shall have executed a Consulting
Agreement in the form attached hereto as Exhibit 6.3(b);
--------------
(c) The Stockholder and Parent shall have executed and delivered a
Noncompetition Agreement in the form attached hereto as Exhibit 6.3(c);
--------------
(d) Parent, the Stockholder and the other stockholders of Parent shall
have executed a Stockholders' Agreement in the form attached hereto as Exhibit
-------
6.3(d) (the "Stockholders' Agreement").
- ------
6.4 Other Actions. Each of the Stock Exchange and the LP Exchange shall
-------------
be consummated.
SECTION 7. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
7.1 Survival of Warranties. Each of the representations, warranties,
----------------------
agreements, covenants and obligations herein or in any schedule, exhibit,
certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto; provided, however, that such representations
-------- -------
and warranties shall expire on the same dates as and to the extent that the
rights to indemnification with respect thereto under Section 8 shall expire.
SECTION 8. INDEMNIFICATION.
8.1 Indemnification by the Stockholder. The Stockholder agrees subsequent
----------------------------------
to the Closing to indemnify and hold the SSA Surviving Corporation, the Bodden
Surviving Corporation, Parent, Mac-Gray, Sub and their respective subsidiaries
and affiliates and persons serving as officers, directors, partners or employees
thereof (individually a "Mac-Gray Indemnified Party" and collectively the "Mac-
Gray Indemnified Parties") harmless from and against any damages, liabilities,
losses, taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be
sustained, suffered or incurred by or made against any of them arising out of or
based upon any of the following matters:
(a) fraud, intentional misrepresentation or a deliberate or wilful
breach by SSA, Bodden or the Stockholder of any of their representations,
warranties or covenants under this Agreement or in any certificate, schedule or
exhibit delivered pursuant hereto;
36
<PAGE>
(b) any other breach of any representation, warranty or covenant of
SSA, Bodden or the Stockholder under this Agreement or in any certificate,
schedule or exhibit delivered pursuant hereto (exclusive of any claims for
indemnification for Taxes or based upon or related to a breach of any
representation, warranty or covenant with respect to Taxes or tax related
matters which are governed by subsections (c) and (d) below; and exclusive of
any claims for indemnification with respect to (i) the Blue Eagle Leases or the
Blue Eagle Agreement or related matters, (ii) the Judgment Liens (as defined
below), (iii) the Split Dollar Policies (as defined below), (iv) the Vehicles
Matters (as defined below), (v) the Coachman Crossing Matters (as defined
below), (vi) the Coin Laundry Leasing Matters (as defined below), (vii) the
Assigned Lawsuits (as defined below), (viii) the Transaction Expenses (as
defined below), and (ix) the Checks Matters (as defined below) which shall all
be governed by subsection (e) below);
(c) any liability of SSA or Bodden for Taxes attributable to the
periods, or portions thereof, ending on or before the Closing (which has not
been paid or provided for or reserved against by SSA or Bodden in the Balance
Sheet included in the Interim Financial Statements) or as a result of any breach
of any representation, warranty or covenant with respect to Taxes or tax related
matters (including, without limitation, any representations made pursuant to
Sections 1.7 or 3.7 hereof), but excluding the Florida sales tax matters
governed by Subsection 8.1(d) below;
(d) any liability of SSA or Bodden for Florida state sales taxes (i)
attributable to the periods, or portions thereof, ending on or before the
Closing (which has not been paid or provided for or reserved against by SSA or
Bodden in the Balance Sheet included in the Interim Financial Statements) or
(ii) as a result of or relating to any breach of any representation, warranty or
covenant with respect to Taxes or tax related matters (including without
limitation, any representations made pursuant to Sections 1.7 or 3.7 hereof);
and
(e) (i) any breach of any representation or warranty contained in
Section 3.28 hereof, (ii) any liability or obligation arising out of, relating
to or resulting from the Peppertree Village Condominium Association, Inc.'s
lawsuit against SSA (as shown in Schedule 3.10 attached hereto and officially
-------------
known as Case No. 88-15942-13) and the judgment lien related thereto, and the
Goldkind Family Trust's lawsuit against SSA (as shown in Schedule 3.10 attached
-------------
hereto and officially known as Case No. 96-3958-CO-42) and the judgment lien
related thereto (the "Judgment Liens"), (iii) any liability or obligation
arising out of, relating to or resulting from the Split Dollar Life Insurance
Policies maintained by SSA and/or Bodden, including the policies maintained at
any time with respect to Kenneth Martin and Cindy Hesterman (the "Split Dollar
Policies"), (iv) any liability or obligation arising out of, relating to or
resulting from the vehicles, including any vehicles leases, to be retained by
the Stockholder as set forth on Schedule 3.9 (the "Vehicles Matters"), (v) any
------------
liability arising out of, relating to or resulting from (w) the lawsuit entitled
Commercial Laundry Corp. vs. David A. Sherman, as Trustee under the Land Trust
- ------------------------------------------------------------------------------
Agreement dated December 4, 1992 vs. Decade Properties, Inc., Case No. 90-
- ------------------------------------------------------------
003809-CI-007, (x) the Indemnity Addendum to the Laundry Lease Agreement Between
Benj. E. Sherman & Sons, Inc. As Agent For David A. Sherman, Not Personally But
As Trustee U/A/D 12/4/92 and SSA, dated as of April 9, 1993, for Coachman
Crossing Apartments, 2481 N.E. Coachman Road, Clearwater, FL, and (y) the
lawsuit entitled David A. Sherman, as Trustee under the Land Trust
-------------------------------------------------
37
<PAGE>
Agreement dated December 4, 1992 vs. Sun Services of America, Inc., Case No.
- -------------------------------------------------------------------
97-2423-CI-20 (collectively, the "Coachman Crossing Matters"), (vi) any
liability or obligation in excess of $245,000 arising out of, relating to or
resulting from the SSA Promissory Note in the principal amount of $350,000
payable in favor of Coin Laundry Leasing Corp. or Assign (the "Coin Laundry
Leasing Matters"), (vii) any obligation or liability arising out of, relating
to or resulting from the lawsuits entitled Sun Services of America, Inc. vs.
---------------------------------
Days Inn Main Gate West & Gateway Tours, Case No. 96-5648 and Sun Services of
- --------------------------------------- ---------------
America, Inc. vs. Dianis Properties, Case No. 95-6861-CI-7 (the "Assigned
- -----------------------------------
Lawsuits"), (viii) any liability or obligation for any expenses of SSA, Bodden
or the Stockholder relating in any way to the Mergers or the transactions
contemplated by this Agreement, including, without limitation, legal, accounting
or other professional expenses, to the extent that the aggregate amount of such
expenses exceed $110,000 (the "Transaction Expenses"), and (ix) (y) all
commission checks payable by SSA, Bodden, Atlantic Coin Laundry, Coin Operated
Apartment Laundries, Coin Laundry Leasing, M&M Laundry Equipment and/or
Certified Coin Laundries dated on or prior to April 17, 1997 (the "Commission
Checks") and (z) any other checks payable by SSA, Bodden and/or any other entity
referenced in the immediately preceding clause (y) hereof dated on or prior to
April 14, 1997 (the "Other Checks") to the extent that the aggregate amount of
the Commission Checks and the Other Checks exceed $322,829.15 in the aggregate
(the "Checks Matters").
8.2 Limitations on Indemnification by the Stockholder. Notwithstanding
-------------------------------------------------
the foregoing, the right of Mac-Gray Indemnified Parties to indemnification
under Section 8.1 shall be subject to the following provisions:
(a) No indemnification shall be payable pursuant to Subsection 8.1(b)
above to any Mac-Gray Indemnified Party, unless the total of all claims for
indemnification pursuant to Section 8.1 shall exceed $25,000 in the aggregate,
whereupon only the amount in excess of $25,000 shall be recoverable in
accordance with the terms hereof;
(b) No indemnification shall be payable to a Mac-Gray Indemnified
Party with respect to claims asserted pursuant to Subsection 8.1(b) after the
first anniversary of the date of this Agreement (the "Expiration Date");
provided, however, that if on or prior to the Expiration Date a specific state
- -------- -------
of facts shall have become known which may give rise to a claim for
indemnification under Subsection 8.1(b) and a Mac-Gray Indemnified Party shall
have given written notice to the Stockholder of such facts known by such Mac-
Gray Indemnified Party at such time, then the right to indemnification with
respect to such claim shall remain in effect without regard to when such matter
shall be finally determined and disposed of;
(c) No indemnification shall be payable to a Mac-Gray Indemnified
Party with respect to a claim asserted pursuant to Subsection 8.1(c) or 8.1(d)
after 60 days after the expiration of the statute of limitations (if any)
applicable to such claim and the relevant governmental authorities, whether
foreign, federal, state or local, are no longer able to assess and enforce
liability with respect to such claim against any of the Mac-Gray Indemnified
Parties;
(d) The indemnification obligations of the Stockholder hereunder with
respect to claims asserted by a Mac-Gray Indemnified Party pursuant to
Subsection 8.1(b) shall be limited in
38
<PAGE>
the aggregate to $1,500,000 with respect to claims asserted by the Mac-Gray
Indemnified Parties on or prior to the date 6 months after the date of this
Agreement;
(e) The indemnification obligations of the Stockholder hereunder with
respect to claims asserted by a Mac-Gray Indemnified Party pursuant to
Subsection 8.1(b) or 8.1(d) shall be limited in the aggregate to $750,000 with
respect to claims asserted by Mac-Gray Indemnified Parties after the expiration
of 6 months from the date of this Agreement; and
(f) Payment for any indemnification obligation under Section 8.1 shall
be made by Stockholder (i) first, by surrendering to Parent that number of duly
endorsed shares of Parent Common Stock (which shares shall be delivered free and
clear of any and all Liens), valued at a per share price of $14.54, which price
shall be subject to appropriate adjustment for any stock dividend, stock split,
recapitalization or similar transaction, equal to the total amount of such
indemnification obligation and (ii) second, in the event that the Stockholder
cannot deliver such number of shares of Parent Common Stock, in cash.
The limitations contained in this Section 8.2 shall not apply to the
indemnification obligations arising under Sections 8.1(a) or 8.1(e).
8.3 Indemnification by Parent, Mac-Gray and Sub. Each of Parent, Mac-Gray
-------------------------------------------
and Sub agrees to indemnify and hold the Stockholder harmless from and against
any damages, liabilities, losses and expenses (including, without limitation,
reasonable fees of counsel) of any kind or nature whatsoever (whether or not
arising out of third-party claims and including all amounts paid in
investigation, defense or settlement of the foregoing) which may be sustained or
suffered by the Stockholder arising out of or based upon any of the following
matters:
(a) fraud, intentional misrepresentation or a deliberate or wilful
breach by Parent, Mac-Gray and Sub of any of their representations, warranties
or covenants under this Agreement or in any certificate, schedule or exhibit
delivered pursuant hereto; and
(b) any other breach of any representation, warranty or covenant made
by any of Parent, Mac-Gray and Sub in this Agreement or in any certificate
delivered by Parent, Mac-Gray and Sub hereunder.
8.4 Limitation on Indemnification by Parent, Mac-Gray and Sub.
---------------------------------------------------------
Notwithstanding the foregoing, the right of the Stockholder to indemnification
under Section 8.3 shall be subject to the following provisions:
(a) No indemnification pursuant to Subsection 8.3(b) shall be payable
to the Stockholder, unless the total of all claims for indemnification pursuant
to Subsection 8.3(b) shall exceed $25,000 in the aggregate, whereupon only the
amount in excess of $25,000 shall be recoverable in accordance with the terms
hereof;
(b) No indemnification shall be payable to the Stockholder with
respect to claims asserted pursuant to Subsection 8.3(b) above after the
Expiration Date; provided, however,
-------- -------
39
<PAGE>
that if on or prior to the Expiration Date a specific state of facts shall have
become known which may give rise to a claim for indemnification under Subsection
8.3(b) and the Stockholder shall have given written notice to Parent of such
facts known by the Stockholder at such time, then the right to indemnification
with respect to such claim shall remain in effect without regard to when such
matter shall be finally determined and disposed of; and
(c) The indemnification obligation of Parent, Mac-Gray and Sub with
respect to claims asserted by the Stockholder under Subsection 8.3(b) shall be
(i) limited in the aggregate to $1,500,000 with respect to claims asserted by
the Stockholder on or prior to the date 6 months after the date of this
Agreement and (ii) limited in the aggregate to $750,000 with respect to claims
asserted by the Stockholder thereafter.
8.5 Notice; Defense of Claims. An indemnified party may make claims for
-------------------------
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall summarize the bases for the claim for
indemnification and any claim or liability being asserted by a third party.
Within twenty (20) days after receiving such notice the indemnifying party shall
give written notice to the indemnified party stating whether it disputes the
claim for indemnification and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice that it disputes an indemnification claim within twenty (20) days
after receipt of notice thereof, it shall be deemed to have accepted and agreed
to the claim, which shall become immediately due and payable. The indemnifying
party shall be entitled to direct the defense against a third party claim or
liability with counsel selected by it (subject to the consent of the indemnified
party, which consent shall not be unreasonably withheld) as long as the
indemnifying party is conducting a good faith and diligent defense. The
indemnified party shall at all times have the right to fully participate in the
defense of a third party claim or liability at its own expense directly or
through counsel; provided, however, that if the named parties to the action or
proceeding include both the indemnifying party and the indemnified party and the
indemnified party is advised by its counsel that representation of both parties
by the same counsel would be inappropriate under applicable standards of
professional conduct, the indemnified party may engage separate counsel at the
expense of the indemnifying party. If no such notice of intent to dispute and
defend a third party claim or liability is given by the indemnifying party, or
if such good faith and diligent defense is not being or ceases to be conducted
by the indemnifying party, the indemnified party shall have the right, at the
expense of the indemnifying party, to undertake the defense of such claim or
liability (with counsel selected by the indemnified party), and to compromise or
settle it, exercising reasonable business judgment. If the third party claim or
liability is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available such
information and assistance as the indemnifying party may reasonably request and
shall cooperate with the indemnifying party in such defense, at the expense of
the indemnifying party.
40
<PAGE>
8.6 Exclusive Remedy. The Indemnification provided for in Sections 8.1
----------------
and 8.3 shall be the sole and exclusive remedy of the Mac-Gray Indemnified
Parties and the Stockholder, respectively, against the other party for matters
arising out of the representations, warranties, covenants and agreements of such
party set forth in the Agreement.
SECTION 9. MISCELLANEOUS.
9.1 Fees and Expenses. Each of Parent, Mac-Gray and Sub on the one hand,
-----------------
and the Stockholder on the other hand, shall bear its or his own expenses and
costs in connection with the preparation and negotiation of this Agreement and
the consummation of the transactions contemplated hereby. The Stockholder
expressly represents, acknowledges and agrees that any expenses of SSA, Bodden
or the Stockholder relating in any way to the Mergers and the transactions
contemplated hereby, including, without limitation, legal, accounting or other
professional expenses, which are borne by SSA or Bodden have been paid by SSA or
Bodden on or prior to the Closing and are included in the Indebtedness.
9.2 Governing Law. This Agreement shall be construed under and governed
-------------
by the internal laws of the State of Florida (without giving effect to choice or
conflict of laws provisions the effect of which would cause the application of
the domestic substantive law of any other jurisdiction); provided that the
General Corporation Law of the State of Delaware shall, to the extent
applicable, also govern the provisions of this Agreement relating to the
effectuation of the Mergers.
9.3 Notices. All notice and other communications required to be given
-------
hereunder, or which may be given pursuant to or relative to the provisions
hereof, shall be in writing and shall be deemed to have been given when
delivered in hand or mailed, postage prepaid, by first class United States mail,
certified return receipt requested as follows:
If to SSA, Bodden or to
-----------------------
the Stockholder: c/o Sun Services of America, Inc.
---------------
6301 Benjamin Center Dr., #101
Tampa, FL 33634
Attention: Jeffrey C. Huenink
With a copy to: Foley & Lardner
P.O. Box 3391
Tampa, FL 33601-391
Attention: David L. Robbins, Esq.
100 North Tampa Street
Suite 2700
Tampa, FL 33602
41
<PAGE>
If to Parent, Mac-Gray c/o Mac-Gray Co., Inc.
----------------------
or Sub: 22 Water Street
------
Cambridge, Massachusetts 02141
Attention: Stewart G. MacDonald, Jr.
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: Stuart M. Cable, Esq.
9.4 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement relied upon
by either party hereto have been expressed herein or in such Schedules or
Exhibits or in such other writings.
9.5 Assignability; Binding Effect. This Agreement may not be assigned by
-----------------------------
any party hereto without the prior written consent of each other party hereto.
This Agreement shall be binding upon and enforceable by, and shall inure to the
benefit of, the parties hereto and any permitted successors and assigns.
9.6 Captions and Gender. The captions in this Agreement are for
-------------------
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
9.7 Execution in Counterparts. For the convenience of the parties and to
-------------------------
facilitate execution, this Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one (1) and the same document.
9.8 Amendments. This Agreement may not be amended or modified, nor may
----------
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
9.9 Publicity and Disclosures. No press releases or public disclosure,
-------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made by any party to this Agreement without the prior knowledge and
written consent of Parent, or Mac-Gray, on the one hand and SSA, or Stockholder,
on the other hand.
9.10 Covenant of Parent, Mac-Gray and Sub. Parent, Mac-Gray and Sub agree
------------------------------------
not to contact, or solicit any inquiries from, the Department of Revenue of the
State of Florida with the
42
<PAGE>
intention of causing any audit or investigation relating to any pre-closing
state sales tax liabilities of SSA or Bodden.
9.11 Covenant of Stockholder. The Stockholder hereby agrees to pay,
-----------------------
perform and discharge when due all of the obligations and liabilities of SSA and
Bodden, if any, arising from and after the Closing under the Vehicles Matters
and the Split Dollar Policies. The Stockholder covenants and agrees that, as
promptly as possible after the Closing, he shall (a) have assigned to him and
shall assume the obligations of SSA and Bodden under, the Split Dollar Policies
and any Vehicles Matters which are not solely in the Stockholder's name and (b)
obtain insurance coverage for each of the vehicles subject to the Vehicles
Matters. From and after the Closing, the Stockholder shall execute and deliver
or cause to be executed and delivered such documents and take such other actions
as may be requested by Parent, Sub or Mac-Gray to ensure that title to the
assets used in the business of SSA and Bodden, other than assets being assumed
by or transferred to the Stockholder pursuant to the terms of this Agreement, is
fully and effectively transferred to Parent, Mac-Gray and/or Sub, as the case
may be.
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43
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement and Plan
of Merger to be executed as of the date set forth above by their duly authorized
representatives.
MAC-GRAY II, INC.
By: /s/ John S. Olbrych
---------------------------------------
Name: John S. Olbrych
Title: CFO
MAC-GRAY CO., INC.
By: /s/ John S. Olbrych
---------------------------------------
Name: John S. Olbrych
Title: CFO
MAC-GRAY ACQUISITION CORP.
By: /s/ John S. Olbrych
---------------------------------------
Name: John S. Olbrych
Title: CFO
SUN SERVICES OF AMERICA, INC.
By: /s/ Jeffrey C. Huenink
---------------------------------------
Name: Jeffrey C. Huenink
Title: President
R. BODDEN COIN-OP-LAUNDRY, INC.
By: /s/ Jeffrey C. Huenink
---------------------------------------
Name: Jeffrey C. Huenink
Title: President
STOCKHOLDER:
/s/ Jeffrey C. Huenink
-------------------------------------------
Jeffrey C. Huenink
Agreement and Plan of Merger
44
<PAGE>
EXHIBIT 10.4
CREDIT AGREEMENT
----------------
STATE STREET BANK AND TRUST COMPANY
(FOR ITSELF AND AS AGENT FOR)
CORESTATES BANK, N.A.
AND
MAC-GRAY II, INC., MAC-GRAY CO., INC., SUN SERVICES OF AMERICA, INC.
AND MAC- GRAY ACQUISITION CORP. (AND ITS SUCCESSOR-IN-INTEREST,
R. BODDEN COIN-OP LAUNDRY, INC.)
$50,000,000 SENIOR SECURED CREDIT FACILITIES
($45,000,000 REVOLVING CREDIT AND TERM LOAN FACILITY)
($5,000,000 REVOLVING WORKING CAPITAL LINE OF CREDIT FACILITY)
APRIL 17, 1997
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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PAGE
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<S> <C>
ARTICLE I - THE CREDIT FACILITIES...................................................... 1
1.01. The Credit Facilities........................................................... 1
(a) Revolving Line of Credit and Term Loan Facility; Revolving
Loans........................................................................... 1
(b) Revolving Working Capital Line of Credit Facility; Working Capital
Loans........................................................................... 2
(c) Request for Loans............................................................... 2
(d) Repayment of Principal; Premium................................................. 2
(e) Interest Payments............................................................... 3
(f) Commitment Fee.................................................................. 3
(g) Use of Loan Proceeds............................................................ 3
(h) Letters of Credit............................................................... 3
1.02. Interest Rate Options........................................................... 4
(a) Interest Rate Options........................................................... 4
(b) Rate Quotations................................................................. 4
1.03. Interest Periods................................................................ 5
1.04. Interest After Default.......................................................... 5
1.05. LIBOR Unascertainable........................................................... 5
1.06. Selection of Interest Rate Options.............................................. 6
1.07. Payments........................................................................ 6
1.08. Pro Rata Treatment of Banks..................................................... 7
1.09. Availability.................................................................... 7
1.10. Charges Against Accounts........................................................ 7
1.11. Payment on Non-Business Days.................................................... 7
1.12. Security Documents.............................................................. 7
1.13. Additional Compensation in Certain Circumstances................................ 8
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital
Adequacy Requirements, Expenses, Etc............................................ 8
(b) Indemnity....................................................................... 9
1.14. Renewal......................................................................... 9
ARTICLE II - CONDITIONS................................................................ 10
2.01. Conditions to Closing........................................................... 10
(a) Documents....................................................................... 10
(b) Warranties, Covenants True...................................................... 10
(c) Closing Certificate............................................................. 10
(d) Results of Searches............................................................. 10
(e) Insurance....................................................................... 10
</TABLE>
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<TABLE>
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(f) Financial Statements............................................................. 10
(g) Acquisition Documents and Approvals.............................................. 11
(h) Other Documents.................................................................. 11
(i) No Adverse Change................................................................ 12
(j) Closing Fee...................................................................... 12
(k) Legal Expenses................................................................... 12
(l) Legal Opinion.................................................................... 12
2.02. Conditions of Making Loans....................................................... 12
(a) Representations and Warranties................................................... 12
(b) Performance...................................................................... 12
ARTICLE III - REPRESENTATIONS AND WARRANTIES............................................ 13
3.01. Organization..................................................................... 13
3.02. Authority........................................................................ 13
3.03. Approvals........................................................................ 14
3.04. Valid Obligations................................................................ 14
3.05. Security Interest................................................................ 14
3.06. Assets........................................................................... 14
3.07. Agreements....................................................................... 14
3.08. Insurance........................................................................ 15
3.09. Litigation; Claims............................................................... 15
3.10. Labor Matters.................................................................... 15
3.11. ERISA............................................................................ 15
3.12. Financial Statements............................................................. 16
3.13. Taxes............................................................................ 16
3.14. Investments...................................................................... 17
3.15. Investment Company............................................................... 17
3.16. Indebtedness..................................................................... 17
3.17. Environmental Protection......................................................... 17
3.18. Margin Stock..................................................................... 18
3.19. Representations Accurate......................................................... 18
ARTICLE IV - COVENANTS.................................................................. 18
4.01. Affirmative Covenants Other Than Financial Covenants and Reporting Requirements.. 18
(a) Property; Insurance.............................................................. 18
(b) Maintain Rights.................................................................. 19
(c) Books and Records; Inspection.................................................... 19
(d) Operating Accounts............................................................... 19
</TABLE>
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<TABLE>
<S> <C>
(e) Conduct of Business.............................................................. 19
(f) Financing Statements............................................................. 19
4.02. Negative Covenants............................................................... 19
(a) Indebtedness..................................................................... 20
(b) Liens............................................................................ 20
(c) Guaranties....................................................................... 21
(d) Transfers........................................................................ 21
(e) Mergers.......................................................................... 21
(f) Investments...................................................................... 21
(g) Principal Office................................................................. 22
(h) Write Up of Assets............................................................... 22
(i) Dividends........................................................................ 23
(j) Environmental Matters............................................................ 23
(k) ERISA............................................................................ 23
(l) Waiver of Rights................................................................. 23
(m) Sale Leaseback................................................................... 23
(n) Subsidiaries..................................................................... 23
(o) Agreements with Affiliated Person................................................ 23
4.03. Financial Covenants.............................................................. 24
(a) Maximum Leverage................................................................. 24
(b) Minimum Shareholders Equity...................................................... 24
(c) Capital Expenditures............................................................. 24
(d) Minimum Quarterly EBITDA......................................................... 24
(e) Minimum Fixed Charge Coverage Ratio.............................................. 24
(f) Minimum Annual Net Income........................................................ 24
(g) Excess Cash Flow Recapture....................................................... 25
4.04. Reporting Requirements........................................................... 25
(a) Financial Reports................................................................ 25
(b) Other Financial Reports.......................................................... 26
(c) Notices.......................................................................... 26
ARTICLE V - EVENTS OF DEFAULT; REMEDIES................................................. 27
5.01. Events of Default................................................................ 27
(a) Representations and Warranties................................................... 27
(b) Covenants........................................................................ 27
(c) Security Documents............................................................... 27
(d) Other Defaults................................................................... 28
(e) Displacement of Management....................................................... 28
(f) Liens............................................................................ 28
(g) Seizure of Assets................................................................ 28
(h) Judgments........................................................................ 28
(i) Insolvency....................................................................... 28
(j) Loss; Material Adverse Change.................................................... 28
(k) ERISA............................................................................ 28
(l) Security Interest................................................................ 28
(m) Management....................................................................... 29
</TABLE>
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<TABLE>
<S> <C>
5.02. Remedies......................................................................... 29
5.03. Set-off.......................................................................... 30
ARTICLE VI - AGENCY..................................................................... 30
6.01. Authorization of Agent and Relationship.......................................... 30
6.02. Disclaimer of Agent.............................................................. 31
6.03. Bank's Funding Obligations....................................................... 31
6.04. Payments by the Borrowers........................................................ 32
6.05. Payments by Agent................................................................ 33
6.06. Direct Payments.................................................................. 33
6.07. Administration of the Loans...................................................... 34
6.08. Unanimous Consent of Banks....................................................... 34
6.09. Reliance by Borrowers............................................................ 35
6.10. Rights of Agent.................................................................. 35
6.11. Acknowledgments, Representations and Covenants of Banks.......................... 36
6.12. Collective Action of the Banks................................................... 37
6.13. Successor Agent.................................................................. 37
6.14. Provisions Operative Between Banks and Agent Only................................ 38
ARTICLE VII - MISCELLANEOUS............................................................. 38
7.01. Further Assurances............................................................... 38
7.02. Right to Cure.................................................................... 39
7.03. Environmental Matters............................................................ 39
7.04. Waivers; Release of Pledge Agreements of Certain Stockholders.................... 39
7.05. Delays........................................................................... 40
7.06. Notices.......................................................................... 40
7.07. Jurisdiction..................................................................... 40
7.08. Execution........................................................................ 41
7.09. Governing Law.................................................................... 41
7.10. Fees............................................................................. 41
7.11. Binding Nature................................................................... 41
7.12. Severability..................................................................... 41
7.13. Under Seal....................................................................... 41
</TABLE>
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<TABLE>
<S> <C>
ARTICLE VIII - DEFINITIONS.............................................................. 41
8.01. Definitions...................................................................... 41
8.02. Use of Defined Terms............................................................. 47
8.03. Accounting Terms................................................................. 47
</TABLE>
EXHIBITS
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Exhibit A Form of Notes
Exhibit B Form of Security Agreement
Exhibit C Form of Corporate Pledge Agreement
Exhibit D Form of Individual and Trust Pledge Agreement
Exhibit E Landlord's Waiver
SCHEDULES
- ---------
Schedule 3.01 Foreign Qualifications
Schedule 3.03 Required Authorizations
Schedule 3.05 Liens
Schedule 3.06 Locations
Schedule 3.07 Agreements with Affiliates
Schedule 3.08 Insurance
Schedule 3.09 Litigation; Claims
Schedule 3.12 Financial Statements
Schedule 3.14 Investments
Schedule 3.16 Indebtedness
Schedule 3.17 Environmental Protection
Schedule 4.02(c) Guaranties
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<PAGE>
This Credit Agreement (the "Agreement") is made as of April 17, 1997
between STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company with
its Principal Office at 225 Franklin Street, Boston, Massachusetts 02110, for
itself and as agent for the Banks (as hereinafter defined), CORESTATES BANK,
N.A., a national banking association with its head office at 1345 Chestnut
Street, Philadelphia, Pennsylvania, 19107 (each, a "Bank" and collectively, the
"Banks") and MAC-GRAY II, INC., MAC-GRAY CO., INC., SUN SERVICES OF AMERICA,
INC. AND MAC-GRAY ACQUISITION CORP. (AND ITS SUCCESSOR-IN-INTEREST, R. BODDEN
COIN-OP LAUNDRY, INC.), each a Delaware corporation with their designated
Principal Office at 22 Water Street, Cambridge, Massachusetts, 02141 (each a
"Borrower" and collectively the "Borrowers").
WHEREAS, each Borrower has requested that the Banks provide, and subject to
the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Banks have agreed to provide, to the Borrowers
senior secured credit facilities (the "Credit Facilities") of up to $50,000,000
to provide for the financing of acquisitions, restructurings and working capital
requirements of the Borrowers.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Borrowers, in
order to induce the Banks to provide the Credit Facilities, and intending to be
legally bound, hereby jointly and severally agree with the Banks as follows:
ARTICLE I
THE CREDIT FACILITIES
1.01. The Credit Facilities. The Credit Facilities shall consist of
---------------------
(i) a revolving line of credit and term loan facility; and (ii) a revolving
working capital line of credit facility pursuant to which the Banks may from
time to time make Loans to the Borrowers and/or issue Letters of Credit on
behalf of the Borrowers.
(a) Revolving Line of Credit and Term Loan Facility; Revolving
----------------------------------------------------------
Loans. Subject to the terms and conditions hereinafter set forth, the Banks
shall make loans to the Borrowers under the Revolving Line of Credit and Term
Loan Facility (the "Revolving Loans") to the Borrowers and/or issue Letters of
Credit on behalf of the Borrowers at the Principal Office of the Agent, on any
Business Day prior to the Termination Date, in such amounts as the Borrowers may
request; provided, however, that the aggregate of all Revolving Loans and all
Letters of Credit outstanding shall at no time exceed $45,000,000. Within the
foregoing limits, subject to the terms and conditions of this Agreement, the
Borrowers may obtain Revolving Loans and/or Letters of Credit, repay Revolving
Loans in whole or in part and obtain Revolving Loans again on one or more
occasions. Each Revolving Loan advanced upon the Prime Rate Option shall be in
the principal amount of Ten Thousand Dollars ($10,000) or an integral multiple
thereof. Each Revolving Loan advanced upon the LIBOR Option shall be in the
principal amount of Ten Thousand Dollars ($10,000) or an integral multiple
thereof. The Revolving Loans shall be evidenced by the Revolving Note of the
Borrowers, dated as of the date on which the initial Revolving Loan is made. The
Borrowers hereby irrevocably authorize each Bank to make or cause to be made, on
a schedule attached to the Revolving Note or on the books of each Bank, at or
following the time of making each Revolving Loan and of receiving any payment of
principal, an appropriate notation
<PAGE>
reflecting such transaction and the then aggregate unpaid principal balance of
the Revolving Loans. The amount so noted shall constitute prima facie evidence
as to the amount owed by the Borrowers with respect to principal of the
Revolving Loans. Failure of any Bank to make any such notation shall not,
however, affect any obligation of the Borrowers hereunder or under the Revolving
Note.
(b) Revolving Working Capital Line of Credit Facility; Working
----------------------------------------------------------
Capital Loans. Subject to the terms and conditions hereinafter set forth, the
- -------------
Agent shall, upon the request of the Borrower pursuant to the terms hereof, make
Working Capital ("WC") Loans to the Borrower pursuant to a Five Million
($5,000,00) Revolving Working Capital Line of Credit (the "Working Capital Line
of Credit" or "WC Line of Credit") at the Principal Office of the Agent on any
Business Day prior to the Termination Date in such amounts as the Borrower may
so request; provided, that the aggregate of all WC Loans outstanding shall at no
--------
time exceed $5,000,000. Within the foregoing limit, subject to the terms and
conditions of this Agreement, the Borrower may obtain WC Loans, repay WC Loans
in whole or in part and obtain WC Loans again on one or more occasions. Each WC
Loan shall be in the principal amount of Ten Thousand Dollars ($10,000) or an
integral multiple thereof. The WC Loans shall be evidenced by the Working
Capital Line of Credit Note ("WC Note") of the Borrower, dated as of the date on
which the initial WC Loan is made. The Borrower hereby irrevocably authorizes
each Agent to make or cause to be made, on a schedule attached to the WC Credit
Note or on the books of each Agent, at or following the time of making each WC
Loan and of receiving any payment of principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid principal balance of
the WC Loans. The amount so noted shall constitute presumptive evidence as to
the amount owed by the Borrower with respect to principal of the WC Loans.
Failure of either Agent to make any such notation shall not, however, affect any
obligation of the Borrower hereunder or under the WC Credit Note.
(c) Request for Loans. The Borrowers will give the Agent two (2)
-----------------
Business Days' prior telephonic or written notice for LIBOR Loans, each such
notice specifying the amount, date and Interest Rate Option (and for a LIBOR
Loan, the LIBOR Interest Period) of each Loan requested. Any telephonic notice
given under this Section will be followed by written notice given not later than
the next following Business Day. The Agent may rely in good faith in the
identity and authority of any person providing such telephonic notice.
(d) Repayment of Principal; Premium. The Borrowers shall repay in
-------------------------------
full all Loans and all interest thereon and all other changes incurred in
connection therewith upon the Termination Date except for any Loans converted to
a six-year amortization schedule as provided in Section 1.01(i). The Borrowers
may prepay, at any time, without penalty, the whole or any portion of any Prime
Rate Loan except for any Loans converted to a six-year amortization schedule as
provided in Section 1.01(i); provided that each such prepayment, if less than
the aggregate amount of all Prime Rate Loans then outstanding, shall be in the
amount of Ten Thousand Dollars ($10,000) or an integral multiple thereof and on
the last day of the applicable LIBOR Interest Period with respect to Loans to
which a LIBOR Option applies. In the event that at any time the Loans
outstanding are in an amount which exceeds the aggregate amount of all Loans and
Letters of Credit permissible hereunder, the Borrowers will forthwith prepay so
much of the Loans as may be required so that the aggregate of all Loans and
Letters of Credit outstanding will not exceed the amount permissible hereunder.
The Banks may, at their discretion, renew the senior secured credit facility
described in this Agreement by extending the Termination Date. Neither the
inclusion in this Agreement of financial covenants relating to periods after the
Termination Date or any other terms and provisions hereof, however, will be
deemed to create any implication that the Banks are required to renew such
revolving line of credit. In the event that Borrowers prepay all
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principal and all interest outstanding under these credit facilities using the
proceeds of any transaction other than the sale to the public of Mac-Gray II,
Inc.'s equity securities, or otherwise terminate these facilities prematurely
without the express consent of the Banks, then, in such event, a premium shall
be due and payable as follows:
(i) If prepaid within first year of the Closing Date, two
percent (2%) of the aggregate amount of the combined facilities;
(ii) If prepaid within the second year after the Closing Date,
one percent (1%) of the aggregate amount of the combined facilities.
(e) Interest Payments. The Borrowers will pay interest on the
-----------------
principal amount of the aggregate Loans outstanding from time to time, from the
date of the initial Loan until payment of all Loans and the Notes in full and
the termination of this Agreement, such interest to be payable monthly in
arrears on each Payment Date, commencing with the first such Payment Date after
the date of this Agreement, and at the end of each LIBOR Interest Period, but
not less than quarterly, with regard to LIBOR Loans, and on the date of payment
of the Loans in full.
(f) Commitment Fee. The Borrowers shall pay to the Agent, in
--------------
connection with the establishment and maintenance of the revolving line of
credit, a commitment fee (the "Commitment Fee") equal to one-half of one percent
(0.5%) per annum of the average daily unused portion of both facilities during
the preceding calendar quarter (or such shorter period as has elapsed from the
Closing Date to the end of the current calendar quarter). The Commitment Fee
shall be payable in arrears, on the first day of each of the months of April,
July, October and January in each year, commencing April 1, 1997.
(g) Use of Loan Proceeds. The proceeds of each Revolving Loan
--------------------
will be used by the Borrowers solely to (i) refinance the secured indebtedness
of Mac-Gray, Co., Mac-Gray, L.P. and Mac-Gray II, Inc.; (ii) fund the
acquisition of Sun Services of America, Inc. and R. Bodden Coin-Op Laundry,
Inc.; (iii) fund one or more standby letters of credit; (iv) support general
working capital needs; and (v) for Permitted Acquisitions. The proceeds of the
WC Line of Credit shall be used for the Borrowers' short-term working capital
purposes but for no other purpose absent the prior consent of the Banks.
(h) Letters of Credit. As part of the Credit Facility, the Agent
-----------------
will issue on behalf of the Borrowers, at the request of the Borrowers, one or
more standby letters of credit; provided, however, that (a) each such letter of
credit issued by the Agent on behalf of the Borrower (individually a "Letter of
Credit" and collectively the "Letters of Credit") shall by its terms expire no
later than the earlier of (i) one year from the date of issuance thereof or (ii)
30 days prior to the Termination Date, and (b) the aggregate amount of
outstanding Letters of Credit shall not exceed $15,000,000 at any time. Upon the
issuance of any Letter of Credit in an amount greater than $50,000 by the Agent,
the Agent will promptly notify each Bank of the date of issuance, amount and
expiration date of each such Letter of Credit. As a condition of the issuance of
each such Letter of Credit, the Borrowers shall (1) execute the Agent's
prevailing letter of credit documentation, as in effect from time to time, and
(2) pay to the Agent the Agent's prevailing letter of credit issuance,
maintenance, commission and negotiation fee(s), as in effect from time to time.
Any and all amounts which the Agent is required to advance pursuant to the
Letters of Credit shall become, at the time the amounts are advanced, Prime Rate
Loans from the Banks. The
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Agent will notify the Banks of the amount required to be advanced pursuant to
the Letters of Credit. Before 12:00 noon (Boston time) on the date of any
advance that the Agent is required to make pursuant to the Letters of Credit,
each Bank shall make available such Bank's Proportionate Share of such advance
in immediately-available funds to the Agent. The Borrowers agree to be bound by
the terms of the Agent's application and/or agreement for Letters of Credit and
the Agent's written regulations and customary practices relating to Letters of
Credit.
(i) Amortization. Beginning on the second anniversary of the
------------
Closing, the principal amounts of any and all Revolving Loans then outstanding
shall be converted to a six-year amortization schedule. On and after such
conversion, the Borrowers will retain the right to select Interest Rate Options
in accordance with Section 1.02.
1.02. Interest Rate Options. The Borrowers shall pay interest in respect
---------------------
of the outstanding unpaid principal amount of the Loans as selected by it at the
Prime Rate Option or LIBOR Option set forth below applicable to the Loans. The
Agent's determination of a rate of interest and any change therein shall in the
absence of manifest error be conclusive and binding upon all parties hereto. If
at any time the designated rate applicable to any Loan made by any Bank exceeds
such Bank's highest lawful rate, the rate of interest on such Bank's Loan shall
be limited to such Bank's highest lawful rate.
(a) Interest Rate Options. The Borrowers shall have the right to
---------------------
select from the following Interest Rate Options applicable to the Loans:
(i) Prime Rate Option: A fluctuating rate per annum
------------------
(computed on the basis of a year of 360 days, as the case may be, and actual
days elapsed) equal to the Prime Rate plus 0.5%, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Prime Rate.
(ii) LIBOR Option: A rate per annum (computed on the basis
-------------
of a year of 360 days and actual days elapsed) equal to LIBOR plus two hundred
and fifty basis points.
(iii) Notwithstanding the foregoing clauses (i) and (ii), if
Mac-Gray II, Inc. shall close a public offering of its capital stock and receive
net proceeds in such offering of $15,000,000 or more prior to the second
anniversary of the Closing Date, then, upon and after such event, the interest
rate for the Prime Rate Option shall be reduced to the Prime Rate minus 0.5%
(with the rate to be adjusted and calculated as described in clause (i)) and the
interest rate for the LIBOR Option Loans advanced subsequent to such event shall
be reduced to LIBOR plus two hundred basis points (with the rate to be
calculated as described in clause (ii)).
(b) Rate Quotations. The Borrowers may call the Agent on or before
---------------
the date on which a Loan request is to be delivered to receive an indication of
the rates then in effect, but it is acknowledged that such indication shall not
be binding on the Agent or the Banks nor affect the rate of interest which
thereafter is actually in effect when the election is made.
1.03. Interest Periods. At any time when the Borrowers shall select,
----------------
convert to or renew a LIBOR Loan, the Borrowers shall notify the Agent thereof
at least two (2) Business Days prior to the effective date of such LIBOR Loan by
submitting a Loan request. The loan request shall specify an
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<PAGE>
interest period during which such LIBOR Loan Option shall apply, such periods to
be one, two, three, four, five, six, twelve, eighteen, and twenty-four months
("LIBOR Interest Period"), provided, that:
(a) any LIBOR Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such LIBOR Interest Period shall end on the next preceding Business Day;
(b) any LIBOR Interest Period which begins on the last day of a
calendar month for which there is no numerically corresponding day in the
subsequent calendar month during which such LIBOR Interest Period is to end
shall end on the last Business Day of such subsequent month;
(c) the Borrowers shall not select, convert to or renew a LIBOR
Interest Period for any portion of the Loans that would end after the
Termination Date; and
(d) in the case of the renewal of a LIBOR Loan at the end of a
LIBOR Interest Period, the first day of the new LIBOR Interest Period shall be
the last day of the preceding LIBOR Interest Period, without duplication in
payment of interest for such day.
1.04. Interest After Default. To the extent permitted by applicable law,
----------------------
upon the occurrence and during the continuation of an Event of Default, any
principal, interest, fee or other amount payable hereunder shall bear interest
for each day thereafter until paid in full (before and after judgment) at a rate
per annum which shall be equal to four percentage points (4%) above the rate of
interest otherwise applicable with respect to such amount or the Prime Rate if
no rate of interest is otherwise applicable, but in no event in excess of the
highest rate permitted under applicable law. The Borrowers acknowledge that such
increased interest rate reflects, among other things, the fact that such Loans
or other amounts have become a substantially greater risk given their default
status and that the Banks are entitled to additional compensation for such risk.
1.05. LIBOR Unascertainable. If
---------------------
(a) on any date on which LIBOR would otherwise be determined,
either Bank shall have determined (which determination shall be conclusive
absent manifest error) that:
(i) adequate and reasonable means do not exist for
ascertaining LIBOR, or
(ii) a contingency has occurred which materially and adversely
affects the London interbank market relating to LIBOR, or
(b) if at any time any Bank shall have determined (which
determination shall be conclusive absent manifest error) that:
(i) the making, maintenance or funding of any LIBOR Loan has
been made impracticable or unlawful by compliance by such Bank in good faith
with any law or any interpretation or application thereof by any official body
or with any request or directive of any such official body (whether or not
having the force of law), or
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<PAGE>
(ii) LIBOR will not adequately and fairly reflect the cost to
such Bank of the establishment or maintenance of any LIBOR Loan, or
(iii) after making all reasonable efforts, deposits of the
relevant amount in U.S. Dollars for the relevant LIBOR Interest Period for a
LIBOR Loan are not available to such Bank with respect to a proposed LIBOR Loan
in the London interbank market,
(iv) then in the case of any event specified in subsection (a)
above, either Bank shall promptly so notify the Agent and the Borrowers thereof
and in the case of any event specified in subsection (b) above, such Bank shall
promptly so notify the Agent in writing as to the specific circumstances of such
event, and the Agent shall promptly send copies of such notice to the other
Banks and the Borrowers. Upon such date as shall be specified in such notice
(which shall not be earlier than the date such notice is given) the obligation
of (A) the Banks in the case of such notice given by the Agent or (B) such Bank
in the case of such notice given by such Bank the right of the Borrowers to
select, convert to or renew a LIBOR Loan shall be suspended until the Agent
shall have later notified the Borrowers or such Bank shall have later notified
the Agent, of the Agent's or such Bank's, as the case may be, determination
(which determination shall be conclusive absent manifest error) that the
circumstances giving rise to such previous determination no longer exist. If at
any time the Agent makes a determination under subsection (a) or (b) of this
Section 1.05, and the Borrowers have previously notified the Agent of their
selection of, conversion to or renewal of a LIBOR Loan and such LIBOR Loan has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Prime Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Agent of a
determination under subsection (b) of this Section 1.05, the Borrowers shall,
subject to the Borrowers' indemnification obligations under Section 1.13(b), as
to any LIBOR Loan of the Banks on the date specified in such notice either
convert such LIBOR Loan to a Prime Rate Loan otherwise available with respect to
such Loan or prepay such Loan in accordance with the provisions of this
Agreement. Absent due notice from the Borrower of conversion or prepayment such
Loan shall automatically be converted to a Prime Rate Loan upon such specified
date.
1.06. Selection of Interest Rate Options. If the Borrowers fail to
----------------------------------
select a LIBOR Interest Period in accordance with the provisions of Section 1.03
in the case of renewal of a LIBOR Loan, the Borrowers shall be deemed to have
converted such Loan or portion thereof to a Prime Rate Loan commencing upon the
last day of that LIBOR Interest Period. If an Event of Default shall occur and
be continuing, the Agent may in its discretion limit the Borrowers to the Prime
Rate Option.
1.07. Payments. All payments and prepayments to be made in respect
--------
of principal, interest, commitment fees, closing fee, Letter of Credit fees,
Agent's fees or other fees or amounts due from the Borrowers hereunder shall be
payable prior to 12:00 noon (Boston time) on the date when due without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Borrowers, and without setoff, counterclaim or other
deduction of any nature. Such payments shall be made to the Agent at the
Principal Office of the Agent for the ratable accounts of the Banks with respect
to the Loans in U.S. dollars and in immediately available funds, and the Agent
shall promptly distribute such amounts to the Banks in immediately available
funds in accordance with Section 6.04 hereunder. All monies received by the
Banks hereunder shall be applied (i) first to reasonable fees, charges, costs
and expenses payable to the Banks under this Agreement, any of the Security
Documents or any Letter of Credit documents; (ii) next to interest then accrued
on account of the Loans; and only thereafter (iii) to principal of the Loans;
and finally (iv) to any and all other obligations and liabilities owing to
either
-6-
<PAGE>
Bank by the Borrower, however or whenever arising. Interest shall be calculated
on the basis of the actual number of days and a year of 360 days.
1.08. Pro Rata Treatment of Banks. Each borrowing, and each selection
---------------------------
of, conversion to or renewal of any Loan or Interest Rate Option and each
payment or prepayment by the Borrower with respect to principal, interest,
commitment fees, closing fee, Letter of Credit fees, or other fees or amounts
due from the Borrower hereunder to the Banks with respect to the Loans, except
for the Agent's fees, shall be made in proportion to the Loans outstanding from
each Bank and if no such Loans are then outstanding, in proportion to the
Proportionate Share of each Bank.
(a) Pursuant to Section 1.01(d) and except as otherwise provided
herein, the Borrower shall have the right at its option from time to time to
prepay the Loans in whole or part.
(i) at any time with respect to any Loan to which the Prime
Rate Option applies, provided that such prepayment, if less than the aggregate
of all Prime Rate Loans, shall be in the amount of $10,000 or an integral
multiple thereof;
(ii) on the last day of the applicable LIBOR Interest Period
with respect to Loans to which a LIBOR Option applies.
1.09. Availability. The proceeds of all Loans shall be credited by the
------------
Agent to a general deposit account of any of the Borrowers with the Agent.
1.10. Charges Against Accounts. The Agent may charge any general deposit
------------------------
account of any of the Borrowers at the Agent with the amount of all payments of
interest, principal and other sums due, from time to time, under this Agreement,
the Notes and/or any Letter of Credit or documents relating thereto and will
thereafter notify the Borrowers of the amount so charged. The failure of the
Agent so to charge any account or to give any such notice shall not affect the
obligation of the Borrowers to pay interest, principal or other sums as provided
herein, in the Notes and/or any Letter of Credit or documents relating thereto.
1.11. Payment on Non-Business Days. Whenever any payment to be made to
----------------------------
to the Agent or any Bank hereunder or under the Notes shall be stated to be due
on a day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and interest payable on each such date shall include
the amount thereof which shall accrue during the period of such extension of
time.
1.12. Security Documents. Payment of the principal and interest
------------------
under the Notes and of all other obligations of the Borrower under this
Agreement or any Letter of Credit documents shall be secured by the following:
(a) A security interest in all assets now or hereafter owned by the
Borrowers, as more fully set forth in a Security Agreement substantially in the
form of Exhibit B hereto;
---------
(b) A pledge of the capital stock owned by Mac-Gray II, Inc. of
each of the other Borrowers, as more fully set forth in the Pledge Agreement
substantially in the form of Exhibit C hereto;
---------
-7-
<PAGE>
(c) A pledge of the capital stock owned by each of the stockholders
(except for Mr. J. Heunink) of the Borrowers, as more fully set forth in the
Pledge Agreement substantially in the form of Exhibit D hereto;
---------
(d) A landlord's waiver, in substantially the form of Exhibit E
---------
hereto (the "Landlord's Waiver"), which each Borrower shall use its best efforts
to cause the Landlord of each Borrower's Principal Office to execute and deliver
to the Agent within ninety (90) days after the closing date, and such other
consents, UCC financing statements, and other documents as the Banks or their
counsel may reasonably request to permit, secure, and perfect the security
interests provided for hereunder; and
(e) All such other security agreements or assignments, if any, with
respect to patents, copyrights, trademarks, and other intellectual property of
the Borrowers and any of its subsidiaries, as the Bank may now or hereafter
reasonably request to create and perfect its security interest therein.
(Collectively, all of the foregoing documents now or hereafter delivered
pursuant to the terms of this Section 1.12, together with the Notes, being
referred to herein as the "Security Documents").
1.13. Additional Compensation in Certain Circumstances.
------------------------------------------------
(a) Increased Costs or Reduced Return Resulting From Taxes,
------------------------------------------------------
Reserves, Capital Adequacy Requirements, Expenses, Etc.. If any Law,
- -------------------------------------------------
guideline or interpretation or any change in any Law, guideline or
interpretation or application thereof by any official body charged with the
interpretation or administration thereof or compliance with any request or
directive (whether or not having the force of Law) of any central bank or other
official body:
(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the Loans or payments by the
Borrower of principal, interest, commitment fees, or other amounts due from the
Borrower hereunder or under the Notes (except for taxes on the overall net
income of such Bank), imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any Bank, or
(ii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement, and
(iii) the result of any of the foregoing is to increase the
cost to, reduce the income receivable by, or impose any expense (including loss
of margin) upon any Bank with respect to this Agreement, the Notes or the
making, maintenance or funding of any part of the Loans (or, in the case of any
capital adequacy or similar requirement, to have the effect of reducing the rate
of return on any Bank's capital, taking into consideration such Bank's customary
policies with respect to capital adequacy) by an amount which such Bank in its
reasonable discretion deems to be material, such Bank shall from time to time
notify the Borrower and the Agent of the amount determined in good faith (using
-8-
<PAGE>
any averaging and attribution method employed in good faith) by such Bank (which
determination shall be conclusive absent manifest error) to be necessary to
compensate such Bank for such increase in cost, reduction of income or
additional expense. Such notice shall set forth in reasonable detail the basis
for such determination. Such amount shall be due and payable by the Borrower to
such Bank ten (10) Business Days after such notice is given.
(b) Indemnity. In addition to the compensation required by
---------
subsection (a) of this Section 1.13, the Borrower shall indemnify each Bank
against all liabilities, losses or expenses (including loss of margin, any loss
or expense incurred in liquidating or employing deposits from third parties and
any loss or expense incurred in connection with funds acquired by a Bank to fund
or maintain LIBOR Loans subject to the LIBOR Option) which such Bank sustains or
incurs as a consequence of any
(i) payment, prepayment, conversion or renewal of any LIBOR
Loan on a day-other than--the last day of the corresponding LIBOR Interest
Period -(whether or not such payment or prepayment is mandatory, voluntary or
automatic and whether or not such payment or prepayment is then due),
(ii) attempt by the Borrowers to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
requests or prepayments; or
(iii) default by the Borrowers in the performance or observance
of any covenant or condition contained in this Agreement or any other Loan
Document, including without limitation any failure of the Borrowers to pay when
due (by acceleration or otherwise) any principal, interest, commitment fee or
any other amount due hereunder.
(iv) If any Bank sustains or incurs any such loss or expense
it shall from time to time notify the Borrowers and the Agent of the amount
determined in good faith by such Bank (which determination shall be conclusive
absent manifest error and may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrowers to such
Bank ten (10) Business Days after such notice is given.
1.14. Renewal. The Banks may, at their discretion, renew the revolving
-------
line of credit described in this Agreement by extending the Termination Date.
Neither the inclusion in this Agreement of financial covenants relating to
periods after the Termination Date or any other terms and provisions hereof,
however, will be deemed to create any implication that the Banks are required to
renew such revolving line of credit.
-9-
<PAGE>
ARTICLE II
CONDITIONS
2.01. Conditions to Closing. The obligations of the Banks to perform any
---------------------
of their obligations under this Agreement, any Security Documents or any Letter
of Credit documents is subject to the satisfaction of all of the following
conditions:
(a) Documents. The Agent shall have received this Agreement and
---------
all of the Security Documents, duly executed and delivered by all parties
thereto, and all actions contemplated by the foregoing documents shall have been
accomplished to the reasonable satisfaction of the Agent and its special
counsel.
(b) Warranties, Covenants True. All representations and
--------------------------
warranties of the Borrowers in this Agreement and the Security Documents shall
be true and accurate on the Closing Date in all material respects as if then
given, and the Borrowers shall have performed or observed all of the terms,
covenants, conditions and obligations under this Agreement and the Security
Documents which are required to be performed or observed by it or them on or
prior to the Closing Date.
(c) Closing Certificate. The Agent shall have received a
-------------------
certificate, dated as of the Closing Date and executed by the Chief Financial
Officer of each Borrower, in form and content satisfactory to the Bank, stating
the substance of Section 2.01(b).
(d) Results of Searches. The Agent shall have received written
-------------------
results of searches of the records of filing offices, dated as of a date as
close to the Closing Date as practicable, stating that with respect to each
jurisdiction in which Collateral is kept or maintained and with respect to each
filing office where a filing is required to perfect the Banks' security interest
in the Collateral or where a filing may be made which may affect the priority of
the Banks' security interest in such Collateral, there are no financing
statements, assignments or notices of tax liens on file against or with respect
to any such Collateral, other than financing statements in which the Banks are
named as the secured party, and financing statements as to leased equipment
disclosed on Schedule 3.05 hereto.
-------------
(e) Insurance. The Agent shall have received insurance binders or
---------
certificates of insurance coverage indicating that each Borrower has obtained
insurance as required by Section 4.01(c) of this Agreement.
(f) Financial Statements. Each Bank shall have received copies of
--------------------
the unaudited consolidated balance sheet of Mac-Gray Co., Inc. as at December
31, 1996, together with the related unaudited consolidated statement of income
for the two-month period ended February 28, 1997, with such unaudited statement,
certified by the chief financial officer or treasurer of the Borrowers as
presenting fairly the financial condition and results of operations of the
Borrowers, in conformity with GAAP (subject to normal year-end audit adjustments
and to the fact that the unaudited financial statements may be condensed and may
not include footnotes).
(g) Acquisition Documents and Approvals. The Agent shall have
-----------------------------------
received (i) approval of the proposed mergers between Mac-Gray II, Inc. and Sun
Services of America, Inc. and Mac-Gray Acquisition Corp. and R. Bodden Coin-Op
Laundry, Inc. by the Board of Directors or
-10-
<PAGE>
Shareholders as applicable of each party to the respective mergers; and (ii)
documents satisfactory to counsel for the Banks substantiating the completion of
the mergers and acquisitions.
(h) Other Documents. The Agent shall have received all other
---------------
documents and assurances required hereunder or which it may have heretofore
reasonably requested in connection with the transactions contemplated by this
Agreement, and such documents shall be certified, when appropriate, by the
proper authorities or corporate officers, including without limitation the
following, and all such documents and all proceedings to be taken in connection
with such transactions shall be reasonably satisfactory in form and substance to
the Agent and its special counsel:
(i) Certified copies of the resolutions of the Board of
Directors of each Borrower (and its subsidiaries) evidencing approval of this
Agreement, the Security Documents and the other matters contemplated hereby and
certified copies of all documents evidencing other necessary corporate action or
approvals, if any, with respect to this Agreement, the Security Documents and
such other matters, including, without limitation, any required approvals of
governmental authorities and other persons or entities.
(ii) A certificate, signed by the Secretary or Assistant
Secretary of each Borrower, setting forth the names of the officers of such
Borrower authorized to sign this Agreement, the Security Documents and any and
all certificates, notices and reports referred to herein; such certificate shall
contain the true signatures of such officers.
(iii) A copy of the By-laws of each Borrower, as amended to
date, as certified by its Secretary; certificates of corporate legal existence
and good standing for each Borrower (and each of its subsidiaries) issued as of
a recent date by the appropriate public officials of the State of Delaware, the
Commonwealth of Massachusetts, and other appropriate authorities, as the case
may be.
(iv) Uniform Commercial Code financing statements and any such
other documents as shall be reasonably requested by the Banks to vest in the
Banks a first priority security interest in and to all of the Collateral subject
only to Permitted Liens.
(v) Such documents which, in the reasonable opinion of the
Banks or their special counsel, are required to be obtained in connection with
the Loans under the revolving line of credit by reason of the provisions of any
law or regulation applicable to the Banks (including, without limitation,
executed Forms U-1), and the statements made in such documents shall be such as,
in the opinion of the Banks, will permit such Loans in accordance with such laws
and regulations.
(vi) A certificate from the chief financial officer of Mac-
Gray II, Inc. certifying that as of the Closing Date, that the Borrowers (on a
consolidated basis) (A) have Shareholder's Equity in excess of $23,000,000,
assuming, on a pro forma basis, the acquisition of Sun Services of America, Inc.
and R. Bodden Coin-Op Laundry, Inc.; and (B) a certificate from the chief
financial officer of each Borrower certifying that as of the Closing Date each
Borrower has paid all applicable material taxes then due and owing or has duly
obtained extensions with respect thereto.
(i) No Adverse Change. There shall have occurred no material
-----------------
adverse change in the business, properties or financial condition of the
Borrowers on a consolidated basis, since the earlier of their respective date of
organization or December 31, 1996.
-11-
<PAGE>
(j) Closing Fee. At the Closing, the Borrowers shall have paid
-----------
to the Banks, or authorized the Agent to charge against their accounts, (i) a
closing fee in the amount of $250,000 which is to be distributed to the Banks
based upon their Proportionate Share; and (ii) an Agent's fee in the amount of
$50,000 and $25,000 each year hereafter.
(k) Legal Expenses. At the Closing, the Borrowers shall have paid
--------------
to the Banks, or authorized the Agent to charge against any of their accounts,
all reasonable costs and expenses (including reasonable legal fees and
disbursements of the Banks' special counsel) of the Banks in connection with the
preparation and execution of this Agreement and the Security Documents.
(l) Legal Opinion. All legal matters incident to this Agreement
-------------
shall be reasonably satisfactory to the Banks' special counsel, and the Bank
shall have received at the Closing the legal opinion of Goodwin, Procter & Hoar
LLP, counsel to the Borrowers, in form and substance reasonably satisfactory to
the Banks and their special counsel.
2.02. Conditions of Making Loans. The obligation of the Banks to make any
--------------------------
Loans or issue any Letters of Credit on or subsequent to the Closing Date is
subject to the satisfaction of the following conditions precedent on or before
the date of making each such Loan or issuing each such Letter of Credit (the
"Borrowing Date"):
(a) Representations and Warranties. The representations and
------------------------------
warranties contained in Article III hereof and in the Security Documents and
otherwise made by the Borrowers in writing in connection with the transactions
contemplated by this Agreement shall have been correct in all material respects
as of the date on which made and shall also be correct in all material respects
at and as of such Borrowing Date with the same effect as if made at and as of
such time, except as may have been disclosed in writing to the Banks by the
Borrowers and to which the Banks have consented in writing and to the extent
that the facts upon which such representations and warranties are based may in
the ordinary course be changed by the transactions permitted or contemplated
hereby.
(b) Performance. The Borrowers shall have performed and complied
-----------
in all material respects with all terms and conditions herein required to be
performed or complied with by it prior to or on such Borrowing Date, and on such
Borrowing Date there shall exist no Event of Default or condition which would,
with either or both the giving of notice or the lapse of time, result in an
Event of Default upon consummation of the subsequent Loan to be made or Letter
of Credit to be issued on such Borrowing Date.
Each request by the Borrowers for a Loan or the issuance of a Letter of
Credit subsequent to the Closing Date shall constitute certification by the
Borrowers that the conditions specified in this Section 2.02 will be duly
satisfied on the date of the making of such Loan or the issuance of such Letter
of Credit.
-12-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrowers incorporate herein all of the representations and warranties
set forth in the Security Documents. In addition, the Borrowers represent and
warrant, jointly and severally, to the Banks as follows:
3.01. Organization. Each Borrower is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware.
Each Borrower: (i) is duly qualified to do business and in good standing in each
jurisdiction where such qualification is required, except those jurisdictions
where the failure to so qualify will not have a material adverse effect on the
Borrowers' business, prospects or financial condition, on a consolidated basis,
(a list of the jurisdictions where each Borrower is so qualified as of the date
hereof being set forth on Schedule 3.01 hereto); (ii) and it has all requisite
-------------
corporate power and authority to conduct its business as presently being
conducted and as proposed to be conducted after the Closing and to own its
properties now and after the Closing; and (iii) and it has all requisite
corporate power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and the other Loan Documents.
3.02. Authority. The execution, delivery and performance by each Borrower
---------
of this Agreement and the other Loan Documents: (i) have been duly authorized by
all necessary corporate action; (ii) do not contravene any provision of such
Borrower's Certificate of Incorporation or by-laws, each as amended to date;
(iii) do not violate any provision of any law, rule or regulation or any
judgment, determination or award applicable to such Borrower; (iv) do not and
will not result in a material breach or constitute a material default (or
constitute an event which with the passage of time or giving of notice or both
could constitute an event of default) under any agreement to which such Borrower
is a party or by which any of its properties are bound, including, without
limitation, any loan or credit agreement, lease, indenture, debt instrument or
mortgage; and (v) do not and will not result in or require the creation or
imposition of any lien, security interest, mortgage, deed of trust, pledge or
other charge or encumbrance of any nature upon or with respect to any of the
properties of such Borrower, except the security interests and liens granted to
the Banks under the Security Documents. Each Borrower is not in default in any
material respect under any law, rule or regulation, order, writ, judgment,
injunction, decree, determination or award referred to above, or to such
Borrower's knowledge under any loan or credit agreement, lease, indenture, debt
instrument or mortgage referred to above, and such Borrower will not be in any
such default which would have a material adverse effect on the Borrowers'
business or financial condition, on a consolidated basis, by virtue of the
transactions to be entered into at the Closing.
3.03. Approvals. No authorization, consent, approval, license or
---------
exemption of, or filing a registration with, any court or governmental
department or commission, board, bureau, agency, instrumentality or other person
or entity, domestic or foreign, is or will be necessary for the valid execution,
delivery or performance by each Borrower of this Agreement or any of the other
Loan Documents, other than filings which have already been made and consents or
approvals which have already been received, and filings required to perfect
under applicable law the security interests and liens granted to the Banks
pursuant to the Security Documents. Set forth on Schedule 3.03 hereto is a list
-------------
of all material licenses, permits, certificates and other governmental
authorizations required as of the date hereof for the conduct of the business of
each Borrower. As of the date hereof, each Borrower is the lawful holder of the
licenses, permits, certificates and governmental authorizations set forth on
such Schedule 3.03. Each Borrower has no reason to believe that any such
-------------
material license, permit, certificate
-13-
<PAGE>
or other governmental authorization will be revoked, canceled, rescinded,
terminated, modified or lost to the extent such revocation, cancellation,
rescission, termination, modification or loss would have a material adverse
effect on the Borrowers' business or financial condition, on a consolidated
basis.
3.04. Valid Obligations. This Agreement and the other Loan Documents
-----------------
have been duly executed and delivered by each Borrower and constitute legal,
valid and binding obligations of such Borrower, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.
3.05. Security Interest. The Banks' security interest in the
-----------------
Collateral has been duly perfected to the extent that such security interest may
be perfected by filing UCC-1 financing statements with the Secretary of State of
the Commonwealth of Massachusetts and the Clerk of the City of Cambridge,
Massachusetts. Except as set forth on Schedule 3.05 hereto, no security
-------------
interest, lien, mortgage, deed of trust, pledge, levy, attachment, claim or
other charge or encumbrance shall exist at the Closing with respect to any of
the assets or properties of any Borrower (including, without limitation, the
Collateral), other than the security interests granted to the Banks under the
Security Documents or Permitted Liens.
3.06. Assets. Each Borrower has good and valid title to all of its
------
assets and properties (including without limitation, the Collateral), in each
case subject to no security interests, lien, mortgage, pledge, lease,
encumbrance, charge, easement, or encroachment except for Permitted Liens and
for defects and claims which, in the aggregate, could not have a material
adverse effect on the business, operations, property or financial condition of
the Borrowers, on a consolidated basis. Each Borrower enjoys peaceful and
undisturbed possession under all leases under which it is operating, and all
said leases are valid and subsisting and in full force and effect in all
material respects. Each Borrower's principal place of business is maintained at
the designated Principal Office at the location indicated in the preamble to
this Agreement. Attached as Schedule 3.06 is a complete list of all locations
-------------
where each Borrower keeps or maintains its assets, properties, books and/or
records other than equipment loaned or consigned to customers or prospective
customers in the ordinary course of such Borrower's business.
3.07. Agreements.
----------
(a) Attached as Schedule 3.07 hereto is a list of all material
-------------
agreements (including all amendments thereto), oral or written, in effect as of
the date hereof between each Borrower and any director, officer, shareholder or
Affiliated Person of such Borrower, including without limitation, all leases and
management, maintenance, brokerage, supply and service contracts and any
contract, agreement or other arrangement providing for the employment of,
furnishing of services to or by, rental of real or personal property to or from
or otherwise requiring payments to or by such Borrower, any director, officer or
shareholder thereof, or any affiliate of any of the foregoing. True, correct
and complete copies of all of the agreements (including all amendments, exhibits
and schedules thereto) set forth on Schedule 3.07 have previously been made
-------------
available to the Bank and its special counsel.
(b) Each Borrower is not in violation of any term of its charter or
by-laws, as now in effect, or of any material term of any mortgage, indenture,
judgment, decree, order, instrument, contract or agreement or, to its knowledge,
of any term of any statute, ordinance, administrative determination, or
-14-
<PAGE>
governmental rule or regulation applicable to it where such violation would have
a material adverse effect on the Borrowers' business or financial condition, on
a consolidated basis.
3.08. Insurance. Attached hereto as Schedule 3.08 is a complete and
--------- -------------
accurate list of all insurance policies of the Borrowers covering their
respective properties and assets as of the date hereof. Each Borrower has
previously made available or on the Closing Date shall make available to the
Agent complete and accurate copies of all insurance policies (or certificates of
insurance) listed on Schedule 3.08. All insurance policies listed on Schedule
------------- --------
3.08 are in full force and effect, with the premiums due thereon paid, and no
- ----
Borrower is in default with respect to any such policy.
3.09. Litigation; Claims. Except as set forth on Schedule 3.09 hereto,
------------------ -------------
as of the date hereof, there are no actions, suits, proceedings or
investigations pending or, to any Borrower's knowledge, threatened against any
Borrower before any court or any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could prevent or
hinder the consummation of the transactions contemplated hereby or purport by
its terms to challenge the validity or enforceability of this Agreement, any of
the other Loan Documents or any action taken or to be taken in connection with
the transactions contemplated hereby or thereby, or which in any single case or
in the aggregate is likely to result in any material adverse change in the
business, condition, affairs or operation of the Borrowers, on a consolidated
basis, or any material impairment of the right or ability of the Borrowers, on a
consolidated basis, to carry on their operations as now conducted or proposed to
be conducted.
3.10. Labor Matters. Each Borrower is not a party to any collective
-------------
bargaining or similar agreement on the date hereof and has complied in all
material respects with all applicable state and federal laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and other laws related to employment of employees of such Borrower,
and there are no arrears in the payment of wages, withholding or social security
taxes, unemployment insurance premiums or other similar obligations of such
Borrower other than in the ordinary course of business where such arrears would
have a material adverse effect on the Borrowers' consolidated business or
financial condition.
3.11. ERISA.
-----
(a) Each "employee pension benefit plan" and "employee welfare
benefit plan" of each Borrower has been maintained and operated in compliance in
all material respects with its terms and with applicable provisions of ERISA,
the Code, all regulations, rulings and other authority issued thereunder, and
all other applicable governmental laws and regulations, including without
limitation bonding requirements and requirements for the filing of applicable
reports, documents, and notices with the Secretary of Labor or the Secretary of
the Treasury and the furnishing of documents to the participants and
beneficiaries of each such plan (as each of the quoted terms is defined or used
in ERISA, and the Code) except where the failure to be in compliance therewith
would not have a material adverse effect on such Borrower's business or
financial condition.
(b) No "prohibited transaction" or "accumulated funding deficiency" or
"reportable event" has occurred with respect to any "single employer plan" of
such Borrower which would have a material adverse effect on such Borrower's
business or financial condition. No Borrower, predecessor to the Borrowers or
"commonly controlled entity" has ever been included in a "multiemployer plan" as
to which such Borrower or any "commonly controlled entity" would have liability
if such Borrower or any
-15-
<PAGE>
"commonly controlled entity" were to withdraw therefrom (as each of the quoted
terms is defined or used in ERISA and the Code) which would have a material
adverse effect on such Borrower's business or financial condition.
3.12. Financial Statements. Attached as Schedule 3.12 hereto are the
-------------------- -------------
the unaudited consolidated financial statements of Mac-Gray Co., Inc., including
consolidated balance sheets, statements of income and retained earnings and cash
flows (collectively, together with the financial statements to be delivered by
the Borrower pursuant to Section 2.01(f) hereof, the "Financial Statements") for
the fiscal year ended December 31, 1996 (the "Statement Dates"). The Financial
Statements are complete and accurate in all material respects and fairly present
the financial performance and condition of Mac-Gray Co., Inc. through and as of
the respective Statement Dates, in accordance with GAAP consistently applied,
provided that the Financial Statements are subject to normal year-end audit
adjustments. Mac-Gray Co., Inc. has no liability, contingent or otherwise, not
disclosed in the Financial Statements or in any notes thereto that could
materially adversely affect the financial condition of the Borrowers. Since the
last Statement Date there has not been a material adverse change in the business
or operations of Mac-Gray Co., Inc.
3.13. Taxes. Each Borrower has filed all federal, foreign state,
-----
local and other tax returns, reports and estimates which are required to be
filed and has paid all taxes, fees and other governmental charges shown on such
returns, reports and estimates and on all assessments received by it, to the
extent that such taxes have become due, except for any tax or assessment which
is being contested by such Borrower in good faith and by appropriate proceedings
and such Borrower has set aside on its books sufficient reserves with respect
thereto or with respect to which such Borrower has duly obtained an extension.
All of such tax returns are accurate and complete in all material respects. All
other taxes and assessments of any nature with respect to which such Borrower is
obligated and which have become due are being paid or adequate accruals have
been set up therefor. Each Borrower is not delinquent in the payment of any
material tax, assessment or governmental charge and such Borrower has not
requested any extension of time within which to file any tax return, which
return has not since been filed, and no deficiencies for any material tax,
assessment or governmental charge have been asserted or assessed, and such
Borrower knows of no material liability or basis therefor.
3.14. Investments. Except as set forth on Schedule 3.14, as of the
----------- -------------
date hereof, each Borrower does not own any securities or other equity or debt
interests in any corporation, partnership or other business entity. To the best
of each Borrower's knowledge, all of the Affiliated Persons of such Borrower as
of the date hereof are set forth on Schedule 3.14.
-------------
3.15. Investment Company. Each Borrower is not an "investment company"
------------------
(as defined in the Investment Company Act of 1940, as amended).
3.16. Indebtedness. Attached as Schedule 3.16 hereto is a list of all
------------ -------------
material Indebtedness of the Borrowers as of the Closing Date indicating, as
applicable, the outstanding principal amount of each borrowing or debt, the
current amount due thereon, the terms and schedule for payments in respect
thereof and the security given therefor or in connection therewith.
-16-
<PAGE>
3.17. Environmental Protection. Except as disclosed in Schedule
------------------------ --------
3.17,
- ----
(a) To their knowledge, each Borrower has not caused or allowed the
generation, use, transportation, treatment, storage, release or disposal of any
Hazardous Substances (as defined below) in connection with the operations of its
business or otherwise, at any real property that such Borrower owns, leases, or
otherwise occupies or uses (the "Premises"), nor has such Borrower released,
disposed of or transported or contracted with any party for the disposal or
transport of any Hazardous Substances at sites other than the Premises, in each
such case except in compliance with all Environmental Laws (as defined below),
except where the failure to so comply results from a minor infraction which will
not give rise to the assessment of any fine or penalty against such Borrower or
the imposition of any lien against any of the properties or assets of such
Borrower, and which could not have a material adverse effect on the business,
operations, property or financial condition of the Borrowers, on a consolidated
basis.
(b) To their knowledge, each Borrower has not received any
citation, directive, letter or other communication, written or oral, or any
notice of any proceedings, claims or lawsuits under any Environmental Laws (each
an "Environmental Complaint"), from any person, entity or governmental authority
arising out of the ownership, occupation, or conduct of its operations on the
Premises, nor is it aware of any basis therefor.
(c) Each Borrower has obtained and maintained in full force and
effect all necessary permits, licenses and approvals required by any
Environmental Laws applicable to the business operations conducted on the
Premises and is in compliance with all such permits, licenses and approvals,
except where the failure to so comply will not give rise to the imposition of
any lien against any of the properties or assets of such Borrower and which
could not have a material adverse effect on the business, operations, property
or financial condition of the Borrowers, on a consolidated basis.
The term "Environmental Laws" shall mean any federal, foreign, state, local
or other law, ordinance or regulation pertaining to the protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., Massachusetts Oil and Hazardous Material Release Prevention and Response
Act, M.G.L. Chapter 21E, and Massachusetts Hazardous Waste Management Act,
M.G.L. Chapter 21C.
The term "Hazardous Substance" includes oil and petroleum products,
asbestos, polychlorinated biphenyls and urea formaldehyde, and any other
materials classified as hazardous or toxic under any Environmental Laws.
3.18. Margin Stock. Each Borrower is not engaged in the business of
------------
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Notes will be used to purchase or
carry any margin security or to extend credit to others for the purpose of
purchasing or carrying any margin security or in any other manner which would
involve a violation of any of the regulations of the Board of Governors of the
Federal Reserve System.
3.19. Representations Accurate. No representation or warranty made by
------------------------
each Borrower herein or in any other Loan Document contains any
misrepresentation of a material fact or omits to state any
-17-
<PAGE>
material fact necessary to make such representation or warranty not misleading
when made. Each Borrower is not aware of any condition specific to the business
of the Borrowers, on a consolidated basis, which materially adversely affects,
or which is likely in the future to materially adversely affect, the business,
operations, property or financial condition of such Borrower, and which has not
been set forth in this Agreement or in the other Loan Documents or otherwise
disclosed in writing to the Banks on or prior to the date hereof.
ARTICLE IV
COVENANTS
4.01. Affirmative Covenants Other Than Financial Covenants and
--------------------------------------------------------
Reporting Requirements. Without limiting any other covenants and provisions
- ----------------------
hereof, each Borrower covenants and agrees that, so long as the Notes, any Loan
or any obligation of any Borrower to the Banks, in any capacity, remains unpaid
or any Letter of Credit remains outstanding:
(a) Property; Insurance. Each Borrower will keep all of its
-------------------
property reasonably necessary for the continued operation of its business in
good working order and condition, ordinary wear and tear excepted. Each Borrower
will maintain with financially sound and reputable insurance companies insurance
thereon in at least such amounts and with such deductibles and against at least
such risks (including hazard) as may be reasonably requested by the Banks from
time to time, and such Borrower will furnish to the Banks, upon its written
request, full information with respect to any insurance carried. All property
damage insurance policies maintained by such Borrower shall name the Agent as
loss payee as its interest may appear. No such policy may be terminated without
at least 20 days' prior written notice to the Agent.
(b) Maintain Rights. Each Borrower (and R. Bodden Coin-Op Laundry,
---------------
Inc. the proposed successor-in-interest to Mac-Gray Acquisition Corp.) will,
except in contemplation of any Permitted Acquisition:
(i) keep in full force and effect its corporate existence;
(ii) keep in full force and effect all material rights,
licenses, leases and franchises reasonably necessary to the conduct of its
business except for such rights, licenses, leases and franchises the loss of
which would not have a material adverse effect on such Borrower's business or
financial condition; provided that nothing in this Section 4.01(d)(ii) shall
prevent the abandonment or termination of any right, license, lease or
franchise, if such Borrower shall have determined that such abandonment or
termination is in the best interest of such Borrower and not disadvantageous to
the Banks; and
(iii) duly observe and conform to all applicable material laws,
statutes, regulations, decrees, judgments, orders, writs and other requirements
of all governmental authorities in any way relating to it or the conduct of its
business, except where the failure to so comply would not have a material
adverse affect on the business, operations, property or financial condition of
such Borrower.
-18-
<PAGE>
(c) Books and Records; Inspection. Each Borrower will (i) keep
-----------------------------
proper books of record and account in which entries therein are full, true and
correct in all material respects in conformity with GAAP and all requirements of
law, and (ii) permit representatives of either Bank to visit and inspect any of
its properties and to examine and make abstracts from any of its books of record
and account upon reasonable notice, at any reasonable time during normal
business hours and as often as may reasonably be desired, and to discuss the
business, operations, properties and financial condition of such Borrower with
its officers and authorized employees and with its independent certified public
accountants.
(d) Operating Accounts. Each Borrower will maintain the Agent as
------------------
its principal bank of deposit and account.
(e) Conduct of Business. Each Borrower will conduct in the
-------------------
ordinary course the business in which it is presently engaged. Each Borrower
will not enter into any other lines of business, businesses or ventures which
are not related to its existing business.
(f) Financing Statements. Each Borrower, at its expense, shall
--------------------
execute, file and record all such further instruments, and perform such other
acts, as the Agent may reasonably determine are necessary or advisable to
maintain the priority of the liens and security interests in favor of the Banks
purported to be created by the Security Documents to which the Borrower is a
party on all property subject thereto.
4.02. Negative Covenants. Without limiting any other covenants and
------------------
provisions hereof, each Borrower covenants and agrees that, so long as any
Notes, Loan, Letter of Credit or any obligation of any Borrower to the Banks, in
any capacity, has not been fully performed:
(a) Indebtedness. Each Borrower will not create, incur, assume,
------------
agree to purchase or repurchase or provide funds in respect of or otherwise
become or be or remain liable with respect to any Indebtedness of any type
whatsoever owed to any person or entity, except:
(i) with respect to any Indebtedness incurred pursuant to the
terms of this Agreement or outstanding on the date hereof and listed on Schedule
--------
3.16 hereto;
- ----
(ii) Indebtedness of such Borrower for taxes, assessments and
governmental charges or levies, to the extent payment thereof shall not at the
time be required under this Agreement;
(iii) unsecured Current Liabilities of such Borrower (other
than for money borrowed or for the deferred purchase of property) incurred upon
customary terms in the ordinary course of business;
(iv) Indebtedness for capital leases in a maximum cumulative
aggregate amount not to exceed $4,000,000;
(v) Indebtedness for the purchase price of capital assets
incurred in the ordinary course of business, exclusive of capital assets and
indebtedness associated with capital leases referred to in Section 4.02 (a)(iv)
hereof, and any extensions or renewals thereof, provided that such Indebtedness
is either unsecured or secured only by the capital assets so purchased, and
provided further
-19-
<PAGE>
that the aggregate amount of such Indebtedness outstanding does not exceed
$2,000,000 in any twelve-month period; and
(vi) guaranties permitted under this Agreement.
(b) Liens. Each Borrower will not create, incur, assume or suffer
-----
to exist any security interest, lien, mortgage, deed of trust, pledge, levy,
attachment, claim or other charge or encumbrance of any nature whatsoever upon
or with respect to any of its property, assets or revenues, whether now owned or
hereafter acquired, or assign or otherwise convey any right to receive income,
except for the following ("Permitted Liens"):
(i) liens in favor of the Banks;
(ii) liens existing on the assets or properties of such
Borrower as of the date hereof and identified on Schedule 3.05 attached hereto;
-------------
(iii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's or other like liens arising in the ordinary course of
business in respect of obligations not overdue for a period of more than 60 days
or which are being contested in good faith by appropriate proceedings in a
manner which will not jeopardize or diminish the interest of the Banks in any of
the Collateral subject to the Security Documents;
(iv) liens arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, social security, retirement benefits
or similar legislation;
(v) liens for taxes or assessments or governmental charges or
levies that are either not due and payable or that are being contested in
accordance with this Agreement, so long as the enforcement of such lien is
effectively stayed within fifteen days of its imposition;
(vi) liens or encumbrances securing capital leases permitted
by Section 4.02(a)(iv) or the purchase price of capital assets to the extent
such purchase is permitted by Section 4.02(a)(v) hereof, provided that (a) each
such lien or encumbrance is given solely to secure the purchase price of such
property, does not extend to any other property, and (b) the Indebtedness
secured thereby does not exceed the cost of such property; and
(vii) attachments, seizures or levies aggregating less than
$500,000 and which remain undischarged for not longer than sixty (60) days after
filing unless the Borrower shall be proceeding diligently and in good faith to
obtain discharges thereof.
(c) Guaranties. Except as set forth on Schedule 4.02(c), each
----------
Borrower will not assume, guarantee, endorse or otherwise become directly or
contingently liable (including without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payments, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) in connection with any Indebtedness of any other person or entity,
except guaranties by endorsement or similar transactions such as bid or
performance bonds in the ordinary course of business.
-20-
<PAGE>
(d) Transfers. Except in the case of Permitted Acquisitions, each
---------
Borrower will not sell, lease, transfer or otherwise dispose of any material
portion of the Collateral or any other assets necessary for the effective or
efficient operation or proper maintenance of its business, except (i) for sales
of inventory and obsolete, returned, replaced or worn-out equipment in the
ordinary course of such Borrower's business; and (ii) transfers of Collateral by
and between such Borrower. Each Borrower will not waste or destroy or suffer
the waste or destruction of the Collateral or any material portion thereof; and
such Borrower will not use any of the Collateral in violation of any policy of
insurance thereon. Each Borrower will not sell, assign (other than an
assignment to the Banks), discount or dispose in any way of any Receivables with
or without recourse, except for an assignment for collection in ordinary course
of business.
(e) Mergers. Except in the case of Permitted Acquisitions, each
-------
Borrower will not enter into any transaction of merger or consolidation, or
liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution); nor will such Borrower acquire by purchase or otherwise, all or
substantially all of the business, property or fixed assets of, or stock or
other evidence of beneficial ownership of, any person or entity, without the
prior written consent of the Banks.
(f) Investments. Except in the case of Permitted Acquisitions,
-----------
each Borrower will not make or permit to exist any investments or loans,
directly or indirectly (in the form of any acquisition of assets other than in
the ordinary course of business or in the form of any acquisition of stock,
securities, indebtedness or obligation of, or any loan, advance, capital
contribution or transfer of property to, or any guarantee or other commitment on
behalf of, any person, or otherwise), other than:
(i) marketable direct full faith and credit obligations of,
and marketable obligations guaranteed by, the United States of America, or any
agency or instrumentality thereof, which mature within one year from the date of
acquisition thereof;
(ii) marketable direct full faith and credit obligations of
any state of the United States of America, or any county, city, town, township
or other governmental subdivision of any such state, which mature within one
year from the date of acquisition thereof, provided that such obligations are
accorded a rating within one of the three highest graded by Moody's Investors
Service, Inc. or Standard & Poor's Inc.;
(iii) certificates of deposit, notes, acceptance and repurchase
agreements having a maturity of not more than one year from the date of
acquisition issued by the Banks or by any bank organized in the United States
having capital, surplus and undivided profits of at least $10,000,000,000 and
interest-bearing accounts in the Banks or any such other bank;
(iv) commercial paper which has received one of the three
highest categories of ratings from either Moody's Investors Services, Inc. or
Standard & Poor's, Inc.;
(v) accounts in any "money market" mutual fund having total
assets in excess of $1,000,000,000;
(vi) advances to the officers, employees, and salesman of the
Borrower with respect to reasonable expenses incurred by such officers,
employees and salesmen which expenses are properly reimbursable by such
Borrower;
-21-
<PAGE>
(vii) other loans and advances to the employees of such
Borrower which do not exceed $250,000 in the aggregate outstanding at any one
time;
(viii) guarantees permitted by this Agreement;
(ix) contributions to the capital of and loans to
subsidiaries of the Borrower; and
(x) investments of such Borrower existing on the date hereof
and identified on Schedule 3.14 hereto.
-------------
(g) Principal Office. Each Borrower will not move its Principal
----------------
Office until no less than ten days after delivery of written notice thereof to
the Agent, provided that such Borrower shall furnish to the Agent all
documentation that the Agent reasonably requests as being necessary or desirable
to obtain, maintain, perfect and confirm the first priority security interests
granted herein.
(h) Write Up of Assets. Each Borrower will not write up (by
------------------
creating an appraisal surplus or otherwise) the value of its assets above their
cost to such Borrower less the depreciation regularly allowable thereon, without
the prior written consent of the Agent, which shall not be unreasonably
withheld.
(i) Dividends. Mac-Gray II, Inc. will not declare, make or pay any
---------
dividend or other distribution on any shares of its capital stock (except
dividends payable solely in shares of capital stock or rights to acquire its
capital stock), or any payment on account of the purchase, redemption,
retirement or acquisition of any shares of its capital stock or any option or
warrant therefor absent the prior written consent of the Banks, provided,
however, that it may repurchase or redeem shares or options therefor from its
employees upon termination of employment as permitted under its 1997 Stock
Option and Incentive Plan, and provided, further that notwithstanding the
foregoing, so long as Mac-Gray II, Inc. is an "S" corporation for federal
Internal Revenue Code and/or state taxation purposes Mac-Gray II, Inc. may make
distributions from earnings in an amount necessary to satisfy the federal and
state income tax obligations, as the case may be, of its shareholders with
respect to such earnings.
(j) Environmental Matters. Each Borrower will not store,
---------------------
transport, release or dispose of any Hazardous Materials on the Premises except
in compliance in all material respects with all Environmental Laws. Each
Borrower shall promptly after obtaining knowledge thereof provide the Agent with
written notice of each of the following: (i) any potential or known release or
threat of release of any Hazardous Material at or from the Premises, and (ii)
any incurrence of any expense or loss by any governmental authority in
connection with the assessment, containment or removal of any Hazardous Material
for which expense or loss the Borrower may be liable.
(k) ERISA. Each Borrower will not establish any new pension or
-----
defined benefit plan or materially modify any such existing plan for employees
subject to ERISA, which plan provides any benefits based on past service,
without the prior written consent of the Banks to the amount of the aggregate
past service liability thereby created.
-22-
<PAGE>
(l) Waiver of Rights. Each Borrower will not waive any material debt
----------------
or claim, except in the ordinary course of its business.
(m) Sale Leaseback. Each Borrower will not enter into any sale
--------------
leaseback transaction without the prior written consent of the Bank, which shall
not be unreasonably withheld.
(n) Subsidiaries. Except as set forth on Schedule 4.02(o) hereto,
------------
each Borrower will not organize or form any new subsidiaries, or become a member
of any new partnership or joint venture without the prior written consent of the
Agent, which shall not be unreasonably withheld.
(o) Agreements with Affiliated Person. Except as set forth on
---------------------------------
Schedule 3.07, each Borrower shall not enter into any material agreement of any
nature whatsoever with any director, officer, shareholder or Affiliated Person
of such Borrower, including without limitation any agreement which constitutes
or effects a material modification of any agreement to which such Borrower is a
party as of the date hereof, other than in the ordinary course of its business
unless such agreement is on terms and conditions that are not substantially less
favorable than those that such Borrower could obtain from an unrelated third
party at such time.
4.03. Financial Covenants. Without limiting any other covenants and
-------------------
provisions hereof, each Borrower covenants and agrees that, so long as any Loan
or Letter of Credit is outstanding or any obligation of any Borrower to the
Banks, in any capacity, remains unpaid:
(a) Maximum Leverage. The Borrowers, on a consolidated basis, shall
----------------
maintain at all times a ratio of Senior Liabilities to EBITDA, measured as of
the end of each fiscal quarter for the prior four consecutive fiscal quarters
then completed of the Borrowers, of not more than 3.5:1 throughout fiscal year
1997, declining to 2.5:1 beginning as of the end of the first quarter of fiscal
year 1998.
(b) Minimum Shareholders Equity. The Borrowers, on a consolidated
---------------------------
basis and measured as of the end of each fiscal quarter within each fiscal year,
shall have a Minimum Shareholders Equity of $23,000,000 as of December 31, 1996
(assuming, on a pro forma basis, the acquisition of Sun Services of America,
Inc.), increasing by $4,000,000 per fiscal year to $43,000,000 in fiscal year
2001.
(c) Capital Expenditures. The aggregate Capital Expenditures of the
--------------------
Borrowers, on a consolidated basis, for each of its fiscal years beginning with
fiscal year 1997, during the term of this Agreement, shall not exceed the
following:
<TABLE>
<S> <C>
Fiscal 1996 $7,000,000
Fiscal 1997 $8,000,000
Fiscal 1998 and thereafter $9,000,000
</TABLE>
(d) Minimum Quarterly EBITDA. The Borrowers, on a consolidated basis,
------------------------
shall have minimum EBITDA of $4,000,000 per quarter during fiscal year 1996 and
during each fiscal year thereafter, measured as of the end of each fiscal
quarter thereafter.
(e) Minimum Fixed Charge Coverage Ratio. Borrowers will achieve on an
-----------------------------------
annualized and consolidated basis, tested on the last day of each fiscal quarter
of the Borrowers (each a "Determination Date") a ratio of (x) EBITDA for the
prior four consecutive fiscal quarters then
-23-
<PAGE>
completed to (y) the sum of all scheduled principal payments plus all interest
on any Indebtedness paid or payable by the Borrowers during such period, which
ratio shall not be less than:
<TABLE>
<CAPTION>
Quarters During
Fiscal Year Ratio
----------------- -------
<S> <C>
1996 1.3:1
1997 1.1:1
1998 and thereafter 1.3:1
</TABLE>
(f) Minimum Annual Net Income. The Borrowers shall, on a consolidated
-------------------------
basis, have an Annual Net Income of at least $4,000,000, in each fiscal year
beginning in fiscal year 1996, to be measured annually at the end of each such
fiscal year.
(g) Excess Cash Flow Recapture. Beginning on April 1, 2000, the
--------------------------
Borrowers, on a consolidated basis, shall calculate their combined Excess Cash
Flow for the preceding fiscal year and shall pay over to the Banks fifty percent
(50%) of such Excess Cash Flow, and such amounts will be applied, at the
discretion of the Banks, to maturities in inverse order.
4.04. Reporting Requirements. So long as any Loan or Letter of Credit
----------------------
shall be outstanding or any other obligation of any Borrower to the Banks, in
any capacity, shall remain unpaid, each Borrower shall furnish to each Bank the
following reports and information:
(a) Financial Reports. Each Borrower will furnish to each Bank:
-----------------
(i) as soon as available, but in any event within 90 days after
the end of each fiscal year of such Borrower, a copy of the audited consolidated
and unaudited consolidating balance sheet of such Borrower as at the end of such
fiscal year and the related audited consolidated statements of income,
stockholders' equity and cash flows for such fiscal year, in each case setting
forth in comparative form the figures for the previous year, reported on without
exception or qualification as to the scope of the audit by Price Waterhouse or
other independent certified public accountants of nationally recognized standing
or otherwise reasonably acceptable to the Bank, together with any letter from
the management of the Borrower prepared in connection with such Borrower's
annual audit report;
(ii) as soon as available, but in any event within 30 days after
the end of each month, copies of the unaudited consolidated and unaudited
consolidating balance sheet of such Borrower as at the end of such month,
together with the related unaudited consolidated statement of income for such
month and for the portion of the fiscal year of such Borrower through such
month; all such financial statements to be complete and correct in all material
respects and prepared in reasonable detail and in conformity with GAAP applied
consistently throughout the periods reflected therein;
(iii) as soon as available, but in any event within 45 days after
the beginning of each fiscal year of such Borrower, a budget for such fiscal
year, together with a projected consolidated and unaudited consolidating balance
sheet, projected consolidated cash flow statement and projected consolidated
profit and loss statement of such Borrower for the forthcoming fiscal year, in
all cases setting forth such financial information on a month by month basis for
such forthcoming fiscal year; and
-24-
<PAGE>
(iv) On or before June 30, 1997, the Borrowers shall deliver the
audited consolidated financial statements of Mac-Gray Co., Inc., including
consolidated balance sheets, statements of income, and retained earnings and
cash flows (the "Financial Statements") for the fiscal year ended December 31,
1996, as at December 31, 1996. The Financial Statements for the fiscal year
ended December 31, 1996 shall have been audited by and shall include the
unqualified opinion of Price Waterhouse, certified public accountants.
(b) Other Financial Reports. Each Borrower will also furnish to
-----------------------
each Bank :
(i) concurrently with the delivery of each set of the quarterly
financial statements referred to above, a certificate of the Chief Financial
Officer of such Borrower stating that, to the best of such person's knowledge,
during the period covered by such set of financial statements such Borrower has
observed or performed in all material respects all of its covenants and
agreements contained in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that such Chief Financial Officer
has obtained no knowledge of any default or Event of Default (except as
specified in such certificate);
(ii) promptly after the same are sent and received, copies of
all financial statements, reports and notices which such Borrower sends to
holders of any class of capital stock of such Borrower generally;
(iii) promptly, such additional financial and other information
as the Bank may from time to time reasonably request; and
(iv) as soon as available, a copy of each other report submitted
to such Borrower by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower.
(c) Notices. Each Borrower will give notice to the Agent, within five
-------
days of knowledge thereof, of:
(i) the occurrence of any Event of Default under this
Agreement;
(ii) any default or event of default under any other contractual
obligations of any Borrower which, if not paid or remedied by such Borrower
within 30 days of such default or event of default or waived by the obligee
thereon, could result in liability to such Borrower in excess of $200,000 in any
single instance or $750,000 in the aggregate;
(iii) any pending or threatened litigation, investigation or
proceeding of which any Borrower has knowledge which may exist at any time
between any Borrower and any other party (including without limitation any
governmental authority) which may have a material adverse effect on the
business, operations, property or financial condition of the Borrowers, on a
consolidated basis, or any litigation or proceeding affecting any Borrower which
may have a material adverse effect upon the Borrowers, on a consolidated basis;
(iv) the following events, as soon as possible and in any event
within 15 days after any Borrower knows thereof: (x) the occurrence of any
"reportable event" with respect to any
-25-
<PAGE>
"single employer plan" which in the reasonable judgment of any Borrower could be
expected to have a material adverse effect on any Borrower or its business, (y)
the institution of proceedings or the taking or expected taking of any other
action by any Borrower or any "commonly controlled entity" to terminate any
"single employer plan" with respect to which there exists any vested unfunded
pension liabilities at the time of such termination, or (z) the "reorganization"
or "insolvency" of any "multiemployer plan" which may reasonably be expected to
have a material adverse effect on the business, operations, property or
financial condition of the Borrowers, on a consolidated basis, (as each of the
quoted terms is defined or used in ERISA or the Code);
(v) a material adverse change in the business, operations,
property or financial condition of any Borrower;
(vi) the revocation, expiration or loss of any material license,
permit or other governmental authorization of any Borrower which would have a
material adverse effect on any Borrowers' consolidated business or financial
condition;
(vii) the issuance, grant or award to or on behalf of any
Borrower of any patent or letters patent, or the registration in the name of or
on behalf of any Borrower of any copyright, trademark trade name or any other
form of intellectual property whatsoever, or the filing, recording or approval
of any application by or on behalf of any Borrower for any of the foregoing; and
(viii) each notice pursuant to paragraphs (i) through (vii) of
this Section 4.04 to be accompanied by a statement of the chief financial
officer of any Borrower setting forth details of the occurrence referred to
therein and stating what action, if any, any Borrower proposes to take with
respect thereto.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
5.01. Events of Default. The occurrence of each of the following shall
-----------------
constitute an Event of Default under this Agreement and under the Security
Documents:
(a) Representations and Warranties. Any representation or warranty
------------------------------
made by any Borrower in this Agreement or in any other Loan Document shall prove
to have been incorrect in any material respect when made, or any information
furnished in writing, whether in this Agreement or in any other Loan Document
shall prove to be untrue in any material respect on the date on which it is or
was given.
(b) Covenants. Any Borrower shall fail to perform or observe any
---------
covenant or condition contained or referred to in this Agreement, including
without limitation the failure to make any payment of principal or interest on
the Notes when due or any payment of the Commitment Fee hereunder when due;
provided, however, that any failure to perform under any of Sections 4.01(b),
(c), (d), (e), (f), 4.02 (b) (with respect to involuntary encumbrances only),
4.02(k), , 4.02(a), 4.02(g), 4.02(o), and 404 hereof shall not constitute an
Event of Default under this Agreement until such failure shall have continued
uncured for thirty days.
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<PAGE>
(c) Security Documents. Any default or event of default shall occur
------------------
under any of the Security Documents, which default or event of default is not
otherwise described in this Section 5.01 and is continuing for thirty (30) days.
(d) Other Defaults. Any default shall exist and remain unwaived or
--------------
uncured for a period of thirty days or more with respect to Indebtedness of any
Borrower in excess of $400,000 in the aggregate, or any event occurs which
permits the acceleration of the maturity of any such Indebtedness.
(e) Displacement of Management. There shall occur any seizure,
--------------------------
vesting or intervention by or under the authority of a governmental authority or
other entity by which the management of any Borrower is displaced or its
authority in the conduct of its business is materially curtailed.
(f) Liens. Any involuntary lien, levy or assessment (other than a
-----
Permitted Lien) is filed or recorded with respect to the assets of any Borrower
valued at $250,000 or more and is not released, canceled, revoked, removed,
repealed or otherwise terminated within thirty (30) days after such filing or
recording.
(g) Seizure of Assets. Any material portion of the Collateral becomes
-----------------
the subject of an attachment or comes within the lawful possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
(h) Judgments. Any judgment, order or writ in excess of $500,000 is
---------
rendered or entered against any Borrower and not paid, satisfied or otherwise
discharged within 90 days of the date such judgment, order or writ becomes final
and non-appealable.
(i) Insolvency. Any Borrower shall be generally unable to pay its
----------
debts as they become due; the dissolution, termination of existence, cessation
of normal business operations or insolvency of any Borrower; the appointment of
a receiver of any material part of the property of, legal or equitable
assignment, conveyance or transfer of property for the benefit of creditors by,
or the commencement of any proceedings under any bankruptcy or insolvency laws
by or against, any Borrower, provided that any Borrower shall have 45 days after
the commencement thereof to obtain a dismissal or stay of any involuntary
proceedings against such Borrower under any bankruptcy laws.
(j) Loss; Material Adverse Change. The Borrowers, on a consolidated
-----------------------------
basis, shall suffer a material adverse change in their business, properties, or
financial condition since the date of this Agreement.
(k) ERISA. Any Borrower shall fail to meet its minimum funding
-----
requirements under ERISA with respect to any employee benefit plan (or other
class of benefit which the Pension Benefit Guaranty Corporation has elected to
insure) or any such plan shall be the subject of termination proceedings
(whether voluntary of involuntary) and there shall result from such termination
proceedings a liability of such Borrower to the Pension Benefit Guaranty
Corporation which in the reasonable opinion of the Bank has material adverse
effect upon the business, operations or financial condition of any Borrower.
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<PAGE>
(l) Security Interest. The security interest and lien of the Banks in
-----------------
and on any of the Collateral shall not be in full force and effect as a fully
perfected first priority lien except as otherwise expressly permitted herein or
in the Security Agreement.
(m) Management. The Chief Executive Officer of Mac-Gray II, Inc. shall
----------
cease to hold such office or a similar executive-level position with such
Borrower and a suitable replacement, satisfactory to the Banks has not been
appointed within a 90-day period.
5.02. Remedies. Upon the occurrence of any Event of Default and at any
--------
time thereafter so long as such Event of Default continues uncured or unwaived,
in addition to any other rights and remedies available to the Agent on behalf of
the Banks hereunder or otherwise, the Agent on behalf of the Banks may exercise
any one or more of the following rights and remedies (all of which shall be
cumulative):
(a) Declare the entire unpaid principal amount of the Notes then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this Agreement, and all other Indebtedness of the Borrower to the
Banks, forthwith due and payable, whereupon the same shall become forthwith due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower.
(b) Terminate the revolving line of credit established by Section
1.01 of this Agreement.
(c) Exercise all of the rights and remedies of a secured party under
the Uniform Commercial Code. The Agent may enter upon the Premises or any of
same and may take physical possession of the Collateral or render the Collateral
unusable by process of law or peaceably without process of law. Each Borrower
shall peaceably surrender the Collateral and shall upon the request from the
Agent assemble it and make it available to the Agent at a place or places
designated by the Agent which is or are reasonably convenient to such Borrower
and the Agent. To the extent permitted by law, the Agent may maintain
possession of any Collateral on any property owned, leased by or licensed to
such Borrower, or remove same or any part thereof to such place or places as the
Bank may elect. The Borrowers will also deliver to the Agent upon request all
documents of title and other instruments relating to the Collateral. Each
Borrower waives all rights which it would otherwise have had under law to
prohibit entry to any premises or to require notice of any replevin or retaking,
all to the extent that the same is permitted by law. The Agent may with only
such demand, advertising or notice as may be required by law, sell and deliver
any and all Collateral held by it for its account at any time or times in one or
more private or public sales, for cash or credit or otherwise, at such price and
upon such terms as the Agent deems advisable in its sole discretion. Notice of
any public sale shall be sufficient if it describes the Collateral to be sold in
general terms, stating the amounts thereof and the location and nature of the
properties covered by the security interests and the prior liens thereon, and is
published, at least once, not less than ten (10) days prior to the sale in any
newspaper of general circulation in the greater Boston, Massachusetts
metropolitan area and such other metropolitan area which the Agent may elect.
All requirements of reasonable notice to the Borrowers shall be met if such
notice is sent to the Borrower, in the manner provided in this Agreement below,
at least ten (10) days before the time of such sale or disposition. The Banks
may be the purchasers at any such sale, if it is public, free from any right of
redemption. The proceeds of sale shall be applied first to the costs of
retaking, refurbishing, storing and selling any Collateral hereunder and to
other costs of collection, and then to the payment of
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obligations of the Borrowers to the Banks. The Banks shall be entitled to apply
any collections on account of the Notes first to reasonable fees, costs and
charges accrued to the date of receipt, next to accrued interest and only
thereafter to principal. Any excess shall be returned to the Borrowers, and the
Borrowers shall remain jointly and severally liable for any deficiency.
(d) Enforce the provisions of this Agreement by appropriate legal
proceedings, and the Banks may recover damages caused by any breach by any
Borrower of the provisions of this Agreement, including court costs, reasonable
attorneys' fees and other reasonable costs and expenses incurred in the
enforcement of the obligations of any Borrower hereunder.
(e) Exercise all rights and remedies hereunder, under each of the
other Loan Documents and under any other agreement with the Banks; and exercise
all other rights and remedies which the Banks may have under applicable law.
(f) Notwithstanding anything to the contrary contained herein, upon
the occurrence of an Event of Default, described in Section 5.01(i) hereof, the
entire unpaid principal amount of the Notes then outstanding, together with all
interest accrued and unpaid on all such amounts, and all other amounts payable
under this Agreement, shall be immediately due and payable without presentment,
demand, protest, or notice of any kind.
5.03. Set-off. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any rights, upon the occurrence
and continuance of any Default by any Borrower, the Banks are hereby authorized
at any time or from time to time, without presentment, demand, protest or other
notice of any kind to any Borrower or to any other person or entity, all of
which are hereby expressly waived, to set off and to appropriate and apply any
and all deposits and any other Indebtedness at any time held or owing by either
Bank to or for the credit or the account of any Borrower against and on account
of the obligations and liabilities of any Borrower to either Bank under this
Agreement or otherwise, irrespective of whether or not the Bank shall have made
any demand hereunder and although said obligations, liabilities or claims, or
any of them, may then be contingent or unmatured and without regard for the
availability or adequacy of other Collateral. Each Borrower also grants to the
Banks a security interest in and to all its deposits and all securities or other
property in the possession of the Banks from time to time, to secure the prompt
and full payment and performance of any and all obligations to the Banks, and,
upon the occurrence of any Event of Default, the Banks may exercise all rights
and remedies of a secured party under the Uniform Commercial Code.
ARTICLE VI
AGENCY
6.01. Authorization of Agent and Relationship. Each Bank hereby appoints
---------------------------------------
State Street Bank and Trust Company as Agent and State Street Bank and Trust
Company hereby accepts such appointment. The appointment may only be terminated
as expressly provided in this Agreement. Each Bank hereby authorizes the Agent
to take all action on its behalf and to exercise such powers and perform such
duties under this Agreement as are expressly delegated to the Agent by its
terms, together with all powers reasonably incidental hereto. The Agent shall
have only those duties and responsibilities which are of a solely mechanical and
administrative nature and which are expressly specified in this Agreement, and
it may perform such duties by or through its agents or employees, but shall not
by reason
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<PAGE>
of this Agreement have a fiduciary duty in respect of any Bank. As to any
matters not expressly provided for by this Agreement, the Agent is not required
to exercise any discretion or to take any action, but is required to act or to
refrain from acting (and is fully protected in so acting or refraining from
acting) upon the instructions of the Banks, as the case may be. Those
instructions shall be binding upon all Banks, but the Agent is not required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law.
Without limiting the foregoing, each of the Banks hereby grants to the
Agent a power of attorney, and also grants to the Agent the right to delegate
its authority as attorney to any other person, whether or not an officer or
employee of the Agent.
6.02. Disclaimer of Agent. The Agent makes no representation or
-------------------
warranty, and assumes no responsibility with respect to the due execution,
legality, validity, sufficiency, enforceability or collectability of this
Agreement or any other Security Document. The Agent assumes no responsibility
for the financial condition of the Borrower, or for the performance of the
obligations of the Borrower under this Agreement or any other Security Document.
The Agent assumes no responsibility with respect to the accuracy, authenticity,
legality, validity, sufficiency or enforceability of any documents, papers,
materials or other information furnished by the Borrower to the Agent on behalf
of the Banks. The Agent shall not be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained herein or as to the use of the proceeds of the Loans or
(unless the officers or employees of the Agent acting in their capacity as
officers or employees on the Borrower's accounts have actual knowledge thereof,
or have been notified thereof in writing by the Borrower) of the existence or
possible existence of any Event of Default. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them as Agent under or in connection with the
Agreement except for its or their own negligence or willful misconduct. The
Agent shall have the same rights and powers hereunder as any other Bank, and may
exercise the same as though it were not performing the duties and functions
delegated to it as Agent hereunder.
6.03. Bank's Funding Obligations.
--------------------------
(a) Each Bank shall advance to the Agent prior to 12:00 p.m. (Boston
time), in immediately-available funds, such Bank's Proportionate Share in the
portion of the Loan to be advanced by the Agent. If such funds are not received
at such time, but all applicable conditions set forth in Article I hereof have
been satisfied, each Bank authorizes and requests the Agent to advance for the
Bank's account, pursuant to the terms hereof, the Bank's respective
Proportionate Share in such portion of the Loan and agrees to reimburse the
Agent in immediately-available funds for the amount thereof prior to 2:00 p.m.
(Boston time) on the day any portion of the Loan is advanced hereunder;
provided, however, that the Agent is not authorized to make any such advance for
the account of any Bank who has previously notified the Agent in writing that
such Bank will not be performing its obligations to make further advances
hereunder; and provided, further, that the Agent shall be under no obligation to
make any such advance.
(b) Unless the Agent has actual knowledge that a Bank has not made or
will not make available to the Agent the applicable loan amount required from
such Bank, the Agent shall be entitled to assume that such amount has been or
will be received from such Bank when so due and the Agent may (but shall not be
obligated to), in reliance upon such assumption, make available to the
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<PAGE>
Borrower a corresponding amount. If such amount is not in fact received by the
Agent from such Bank and the Agent has made available a corresponding loan
amount to the Borrower as aforesaid, such Bank shall pay to the Agent on demand
an amount equal to the product of (i) the Prime Rate per annum multiplied by
(ii) the amount that should have been paid to the Agent by such Bank on such
Loan Date and was not, multiplied by (iii) a fraction, the numerator of which is
the number of days that have elapsed from and including such Loan Date to but
excluding the date on which the amount is received by the Agent from such Bank
and the denominator of which is 360. A certificate of the Agent containing
details of the amount owing by a Bank under this Section shall be binding and
conclusive in the absence of manifest error.
(c) Notwithstanding the provisions of Section 6.03(b), if any Bank
fails to make available to the Agent its Proportionate Share of any Loan (such
Bank being herein called the "Defaulting Bank"), the Agent shall forthwith give
notice of such failure by the Defaulting Bank to the Borrower and the other
Banks. The Agent shall then forthwith give notice to the other Banks that any
Bank may make available to the Agent all or any portion of the Defaulting Bank's
Proportionate Share of such Loan in the place of the Defaulting Bank, but in no
way shall any other Bank or the Agent be obligated to do so. If more than one
Bank gives notice that it is prepared to make funds available in the place of a
Defaulting Bank in such circumstances and the aggregate of the funds which such
Banks (herein collectively called the "Contributing Banks") and individually
called the "Contributing Bank") are prepared to make available exceeds the
amount of the Loan which the Defaulting Bank failed to make, then each
Contributing Bank shall be deemed to have given notice that it is prepared to
make available its Proportionate Share of such Loan based on the Contributing
Banks' relative commitments to advance in such circumstances. If any
Contributing Bank makes funds available in the place of a Defaulting Bank in
such circumstances, then the Defaulting Bank shall pay to any Contributing Bank
making the funds available in its place, forthwith on demand, any amount
advanced on its behalf together with interest thereon at the rate applicable to
such Loan from the date of advance to the date of payment, against payment by
the Contributing Bank making the funds available of all interest received in
respect of the Loan from the Borrower. The failure of any Bank to make
available to the Agent its Proportionate Share of any Loan as required herein
shall not relieve any other Bank of its obligations to make available to the
Agent is Proportionate Share of any Loan as required herein.
6.04. Payments by the Borrowers. All payments (except the Agent's
-------------------------
fees) made by or on behalf of the Borrowers pursuant to this Agreement shall be
made to and received by the Agent and shall be distributed by the Agent to the
Banks as soon as possible upon receipt by the Agent and in any event within five
(5) business days of receipt. Subject to Section 6.05, the Agent shall
distribute:
(a) payments of interest in accordance with each Bank's Proportionate
Share of the Loans;
(b) repayments of principal in accordance with each Bank's
Proportionate Share of the Loans; or
(c) all other payments received by the Agent (except the Agent's fees)
including, without limitation, amounts received upon the realization of
Collateral, in accordance with each Bank's Proportionate Share of the Loans
provided, however, that with respect to proceeds of realization, no Bank shall
receive an amount in excess of the amounts owing to it in respect of the
Obligations.
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<PAGE>
6.05. Payments by Agent. The following provisions shall apply to any and
-----------------
all payments made by the Agent to the Banks hereunder:
(a) the Agent shall be under no obligation to make any payment
(whether in respect of principal, interest, fees or otherwise) to any Bank until
an amount in respect of such payment has been received by the Agent from the
Borrowers;
(b) If the Agent receives less than the full amount of any payment of
principal, interest, fees or other amount owing by the Borrowers under this
Agreement, the Agent shall have no obligation to remit to each Bank any amount
other than such Bank's Proportionate Share of that amount which is the amount
actually received by the Agent;
(c) if any Bank advances more or less than its Proportionate Share of
the Loans, such Bank's entitlement to such payment shall be increased or
reduced, as the case may be, in proportion to the amount actually advanced by
such Bank;
(d) the Agent acting reasonably in good faith shall, after
consultation with the Banks in the case of any dispute, determine in all cases
the amount of all payments to which each Bank is entitled and such determination
shall, in the absence of manifest effort, be binding and conclusive; and
(e) upon request, the Agent shall deliver a statement detailing any of
the payments to the Banks referred to herein.
Unless the Agent has actual knowledge that the Borrowers have not made or
will not make a payment to the Agent for value on the date in respect of which
such Borrower has notified the Agent that the payment will be made, the Agent
shall be entitled to assume that such payment has been or will be received from
such Borrower when due and the Agent may (but shall not be obliged to), in
reliance upon such assumption, pay the Banks corresponding amounts. If the
payment by such Borrower is in fact not received by the Agent on the required
date and the Agent has made available corresponding amounts to the Banks, the
Borrowers shall, without limiting their other obligations under this Agreement,
indemnify the Agent against any and liabilities, obligations, losses, damages,
penalties, costs, expenses or disbursements of any kind or nature whatsoever
that may be imposed on or incurred by the Agent as a result. A certificate of
the Agent with respect to any amount owing by any Borrower under this Section
shall be prima facie evidence of the amount owing in the absence of manifest
error.
6.06. Direct Payments. The Banks agree among themselves that, except as
---------------
otherwise provided for in this Agreement, all sums received by a Bank relating
to this Agreement by virtue of the Collateral, whether received by voluntary
payment, by the exercise of the right of set-off or compensation or by
counterclaim, cross-action or as proceeds of realization of any Collateral or
otherwise, shall be shared by each Bank in its Proportionate Share under the
Loans and each Bank undertakes to do all such things as may be reasonable
required to give full effect to this Section, including without limitation, the
purchase from other Banks of such notes or a portion thereof by the Bank who has
received an amount in excess of the Proportionate Share under the Loans as shall
be necessary to cause such purchasing Bank to share the excess amount ratably in
its Proportionate Share under the Loans with the other Banks. If any such which
is so shares is later recovered from the Banks who originally received it, the
Bank shall restore its Proportionate Share under the Loans of such sum to such
Banks, without interest. If any Bank (a "Receiving Bank") shall obtain any
payment of monies due under this Agreement as referred to above,
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<PAGE>
the Receiving Bank shall forthwith remit such payment to the Agent and, upon
receipt, the Agent shall distribute such payment in accordance with the
provisions of Section 6.05.
6.07. Administration of the Loans. The Agent may take the following
---------------------------
actions upon notice to the Banks, unless otherwise specified in this Agreement:
(a) subject to Section 6.08, exercise any and all rights of approval
conferred upon the Banks by this Agreement;
(b) give prompt and timely written notice to the Borrowers in respect
of any amounts due or overdue under the terms of this Agreement and of any other
matter in respect of which notice may be required, permitted, necessary or
desirable in accordance with or pursuant to this Agreement;
(c) amend, modify or waive any of the terms of this Agreement
(including waiver of an Event of Default) if such amendment, modification or
waiver would not have a material adverse effect on the rights of the Banks
thereunder and if such action is not otherwise provided for in Section 6.08.1;
(d) engage a professional as permitted by Section 6.10(a);
(e) decide to accelerate the amounts outstanding under this Agreement
or the Security Documents as permitted thereby; and
(f) pay insurance premiums, taxes and any other sums as may be
reasonably required to protect the interests of the Banks.
6.08. Unanimous Consent of Banks. The Agent may take the following
--------------------------
actions only if the prior unanimous consent of the Banks is obtained, unless
otherwise specified herein:
(a) amend, modify, discharge, terminate or waive any of the terms of
this Agreement or the Security Documents if such amendment, modification,
discharge, termination or waiver would have a material adverse effect on the
Collateral or on the rights of the Banks under this Agreement or the Security
Agreement;
(b) amend, modify, discharge, terminate or waive any of the term of
this Agreement if such amendment, modification, discharge, termination or waiver
would increase the amount of a Loan, amend the purpose of a Loan, reduce the
interest rate applicable to a Loan, reduce the fees payable with respect to a
Loan, extend any date fixed for payment of principal or interest relating to a
Loan or extend the Maturity Date of the Loan;
(c) amend Section 6.08; and
(d) declare an Event of Default or take action to enforce performance
of the Obligations of the Borrower and to realize upon the Collateral including
the appointment of a receiver, lease or sale given by the Security Agreement or
by law and take foreclosure proceedings and/or pursue any other legal remedy
necessary provided, however, that in the event the Banks are unable to agree
-------- -------
unanimously upon any of the foregoing actions, either Bank, fifteen days
subsequent to such Bank's
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<PAGE>
notification to all other Banks of such Bank's intention to so act, may, subject
to all applicable provisions to this Agreement or, any of the Security
Documents, proceed unilaterally with any of the items described in this Section
6.08 absent the unanimous consent of the Banks.
6.09. Reliance by Borrowers. As between the Borrowers, on the one hand,
---------------------
and the Agent and the Banks, on the other hand:
(a) all statements, certificates, consents and other documents which
the Agent purports to deliver on behalf of the Banks shall be binding on each of
the Banks, and the Borrower shall not be required to ascertain or confirm the
authority of the Agent in delivering such documents;
(b) all certificates, statements, notices and other documents which
are delivered by the Borrower to the Agent in accordance with this Agreement
shall be deemed to have been duly delivered to each of the Banks;
(c) all payments which are delivered by the Borrower to the Agent in
accordance with this Agreement shall be deemed to have been duly delivered to
each of the Banks;
(d) unless an Event of Default has occurred and is continuing, the
Borrower's consent to the appointment of any Successor Agent must be obtained,
but the Borrower's consent shall not be unreasonably withheld.
6.10. Rights of Agent.
----------------
(a) In administering the Loans, the Agent may retain, at the expense
of the Banks if such expenses are not recoverable from the Borrowers, such
counsel, auditors and other experts and agents as the Agent may select, in its
sole discretion, acting reasonably and in good faith after consultation with the
Banks.
(b) The Agent shall be entitled to rely on any communication,
instrument or document believed by it to be genuine and correct and to have been
signed by the proper individual or individuals, and shall be entitled to rely
and shall be protected in relying as to legal matters upon opinions of
independent legal advisors selected by it. The Agent may also assume that any
representation made by the Borrowers is true and that no Event of Default has
occurred unless the officers or employees of the Bank acting as Agent, acting in
their capacity as officers or employees responsible for the Borrowers' accounts
have actual knowledge to the contrary or have received notice to the contrary
from any other party to this Agreement.
(c) The Agent may, without any liability to account, accept deposits
from and lend money to and generally engage in any kind of banking, or other
business with the Borrower, as if it were not the Agent.
(d) Except in its own right as a Bank, the Agent shall not be required
to advance its own funds for any purpose, and in particular shall not be
required to pay with its own funds insurance premiums, taxes or public utility
charges or the cost of repairs or maintenance with respect to the assets which
are the subject matter of the Security Agreement, nor shall it be required to
pay with its own funds the fees of counsel, auditors, experts or agents engaged
by it as permitted hereby.
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<PAGE>
(e) The Agent shall be entitled to receive a fee for acting as Agent,
as agreed between the Agent and the Borrowers from time to time.
6.11. Acknowledgments, Representations and Covenants of Banks.
-------------------------------------------------------
(a) It is acknowledged and agreed by each Bank that it has itself
been, and will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
property, affairs, status and nature of the Borrowers. Accordingly, each Bank
confirms to the Agent that it has not relied, and will not hereafter rely, on
the Agent (a) to check or inquire on its behalf into the adequacy or
completeness of any information provided by the Borrowers under or in connection
with this Agreement or the transactions herein contemplated (whether or not such
information has been or is hereafter distributed to such Bank by the Agent) or
(b) to assess to keep under review on its behalf the financial condition,
creditworthiness, property, affairs, status or nature of the Borrowers.
(b) Each Bank represents and warrants that it has the legal capacity
to enter into this Agreement pursuant to its charter and any applicable law and
has not violated its charter, bylaw or other documents or any applicable law by
so doing.
(c) Each Bank agrees to indemnify the Agent (to the extent not
reimbursed by the Borrowers), ratably according to its Proportionate Share from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or related
Documents or the transactions therein contemplated, provided that no Bank shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limiting the
generality of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its Proportionate Share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preservation of any
rights of the Agent or the Banks under, or the enforcement of, or legal advice
in respect of rights or responsibilities under this Agreement, to the extent
that the Agent is not reimbursed for such expenses by the Borrowers. The
obligation of the Banks to indemnify the Agent shall survive the termination of
this Agreement.
(d) Each of the Banks acknowledges and confirms that in the event the
Agent does not receive payment in accordance with this Agreement, it shall not
be the obligation of the Agent to maintain the Loans in good standing nor shall
any Bank have recourse to the Agent in respect of any amounts owing to such Bank
under this Agreement.
(e) Each Bank acknowledges and agrees that its obligation to advance
its Proportionate Share of Loans in accordance with the terms of this Agreement
is independent and in no way related to the obligation of any other Bank
hereunder.
(f) Except to the extent recovered by the Agent from the Borrowers,
promptly following demand therefor, each Bank shall pay to the Agent an amount
equal to such Bank's Proportionate Share of any and all reasonable costs,
expenses, claims, losses and liabilities incurred by
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<PAGE>
the Agent in connection with this Agreement and the Security Documents
(including, without limitation, the collection or enforcement thereof), except
for those incurred by reason of the Agent's negligence or willful misconduct.
(g) Notwithstanding any provisions of this Credit Agreement to the
contrary, the Banks (other than the Agent) shall not be entitled to participate
to the full extent of their Proportionate Share with respect to any Revolving
Loan arising from any Letter of Credit issued for the account of the Borrowers
in an amount less than $50,000. The Banks further agree that any Letter of
Credit fees paid by the Borrowers to the Agent on account of that certain
standby Letter of Credit issued in favor of Jeff Heunink for the account of the
Borrowers shall be shared by the Banks as follows: Agent shall receive and
retain a fee equal to 25 basis points (as an additional Agent's fee), and the
remaining basis points shall be distributed to the Banks in accordance with
their Proportionate Share.
6.12. Collective Action of the Banks. Except as otherwise provided
------------------------------
herein, each of the Banks hereby acknowledges that to the extent permitted by
applicable law, the Security Agreement and the remedies provided under the
Security Documents to the Banks are for the benefit of the Banks collectively
and acting together and not severally and further acknowledges that its rights
hereunder and under the Security Agreement are to be exercised not severally,
but by the Agent upon the decision of the Banks as required by this Agreement.
Accordingly, notwithstanding any of the provisions contained herein or in the
Security Agreement, each of the Banks hereby covenants and agrees that it shall
not be entitled to take any action hereunder or thereunder including, without
limitation, any declaration of default hereunder or thereunder but that any such
action shall be taken only by the Agent with the prior written agreement of the
Banks. Each of the Banks hereby further covenants and agrees that upon any such
written agreement being given by the Banks, it shall co-operate fully with the
Agent to the extent requested by the Agent. Notwithstanding the foregoing, in
the absence of instructions from the Banks and where in the sole opinion of the
Agent, acting reasonably and in good faith, the exigencies of the situation
warrant such action, the Agent may without notice to or consent of the Banks
take such action on behalf of the Banks as it deems appropriate or desirable in
the interest of the Banks.
6.13. Successor Agent. Subject to the appointment and acceptance of a
---------------
Successor Agent as provided in this Section, and subject to Section 6.07.4, the
Agent may resign at any time by giving 30 days' written notice thereof to the
Banks and the Borrowers, and may be removed at any time by the Banks upon 30
days' written notice. Upon receipt of notice by the Banks of the resignation of
the Agent, or upon giving notice of termination to the Agent, the Banks may,
within 21 days, appoint a successor from among the Banks or, if no Bank is
willing to accept such an appointment, from among other institutions which each
have combined capital and reserves in excess of $250,000,000. If no Successor
Agent has been so appointed and has accepted such appointment within 21 days
after the retiring Agent's giving of notice of resignation or receiving of
notice of termination, then the retiring Agent may, on behalf of the Banks,
appoint a Successor Agent. Upon the acceptance of any appointment as Agent
hereunder by a Successor Agent, the retiring Agent shall pay the Successor Agent
any unearned portion of any fee paid to the Agent for acting as such, and the
Successor Agent shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its further duties and obligations as Agent under this Agreement
and the other Security Documents. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Article shall continue to inure to
its benefit and be binding upon it as to any actions taken or omitted to be
taken by it while it was Agent hereunder.
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6.14. Provisions Operative Between Banks and Agent Only. Except as
-------------------------------------------------
otherwise provided herein, the provisions of this Article relating to the
rights and obligations of the Banks and the Agent inter se shall be operative as
between the Banks and the Agent only, and the Borrowers shall not have any
rights or obligations under or be entitled to rely for any purpose upon such
provisions.
ARTICLE VII
MISCELLANEOUS
7.01. Further Assurances. Each Borrower shall do all things and deliver
------------------
all instruments reasonably requested by the Agent to protect or perfect any
security interest granted or intended to be granted hereunder. If any Borrower
fails promptly to comply with any such request, or if any Event of Default shall
have occurred hereunder, such Borrower authorizes the Agent to execute, in the
name or on behalf of such Borrower, any financing statement or other document or
instrument that the Agent may require to perfect, protect or establish any
security interest or lien interest to which the Bank may be then entitled
hereunder and further authorizes the Agent to sign the Borrower's name on the
same. Each Borrower appoints (but only for the purposes of protecting the Banks'
interests in the Collateral or the Banks' rights to receive payments under this
Agreement or the Notes or otherwise exercising any of its rights hereunder or
causing the performance and fulfillment of the obligations and agreements
intended to be performed and fulfilled by the Borrower under this Agreement) the
Agent as such Borrower's attorney-in-fact with the power: at any time when an
Event of Default has occurred and is continuing, to endorse the name of the
Borrower on any checks, notes, drafts, or other forms of payment or security
relating to any Collateral that may come into the possession of the Banks; at
any time when an Event of Default has occurred and is continuing, to sign the
name of such Borrower on invoices or bills of lading, drafts against customers,
notices of assignment, verifications and schedules; at any time when an Event of
Default has occurred and is continuing, to demand, collect, receive payment of,
receipt for, settle, compromise or adjust and give discharges and releases in
respect of the Receivables or any of them; at any time when an Event of Default
has occurred and is continuing, to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Receivables or any of them and to enforce any other rights in
respect thereof or in respect of the goods which have given rise thereto; at any
when an Event of Default has occurred and is continuing, to defend any suit,
action or proceeding brought against such Borrower in respect of any Receivables
or the goods which have given rise thereto, to settle, compromise or adjust any
suit, action or proceeding hereinbefore described and, in connection therewith,
to give such discharges or releases as the Agent may deem appropriate; at any
time when an Event of Default has occurred and is continuing, to notify the U.S.
Postal Service authorities to change the address of delivery of mail to an
address designated by the Agent and to open and dispose of mail addressed to
such Borrower; and, generally, to do all things necessary to carry out the
intent of this Agreement. This power, being coupled with an interest, is
irrevocable, and such Borrower approves all such acts of such attorney-in-fact.
The powers conferred on the Agent by this Agreement are solely to protect the
interest of the Bank and shall not impose any duty upon the Agent to exercise
any such power, and neither the Agent nor such attorney-in-fact shall be liable
for any act or omission, error in judgment or mistake of law, except for its
gross negligence, willful misconduct or bad faith. Except as otherwise required
by applicable law with respect to the preservation of Collateral in the
possession of the Banks, the Banks shall have no duty as to the collection or
protection of any Collateral and shall have no duty as to the preservation of
rights against prior parties or any other rights pertaining thereto, except as
provided by applicable law.
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7.02. Right to Cure. In the event that any Borrower shall fail to
-------------
purchase or maintain insurance, to pay any tax, assessment, governmental charge
or levy, except as the same may be otherwise permitted hereunder, or in the
event that any lien, encumbrance or security interest prohibited hereby shall
not be paid in full or discharged, or in the event that any Borrower shall fail
to pay or comply with any other obligation hereunder, the Banks may, but shall
not be required to, pay, satisfy, perform, discharge or bond the same for the
account of such Borrower, and all moneys so paid by the Banks shall be payable
on demand and shall bear interest at the lesser of (i) a floating rate per annum
equal to five percent (5%) plus the Prime Rate with a change in such rate of
interest to become effective on the same day on which any change in the Prime
Rate is effective, or (ii) the maximum rate permitted by the applicable law.
7.03. Environmental Matters.
---------------------
(a) The Borrowers hereby agree, jointly and severally, to indemnify
the Banks and hold the Banks harmless from and against any and all losses,
liabilities (including strict liability), damages, injuries, expenses (including
reasonable attorneys' fees, costs of any settlement or judgment) and claims of
any and every kind whatsoever paid, incurred or suffered by, or asserted or
levied against, the Banks by any person or entity for, with respect to, or in
connection with any Environmental Laws or the use, storage, transportation,
release or disposition of any Hazardous Substances or the clean-up or
remediation thereof with respect to or in connection with the Borrowers, their
business or operations or the Premises; provided, however, that notwithstanding
anything in this Section 6.03 to the contrary, the Borrowers shall not be
required to indemnify the Banks for any losses, liabilities, damages, injuries,
expenses or claims resulting from the Banks' gross negligence or willful
misconduct.
(b) After the occurrence of any environmental complaint brought
against any Borrower arising under any Environmental Laws, the Banks shall have
the right, in its sole discretion, to require the Borrowers to perform (at the
Borrowers' expense) an environmental audit and, if reasonably deemed necessary
by the Banks, an environmental risk assessment, each reasonably satisfactory to
the Bank, and to implement the recommendations set forth in such audit and/or
risk assessment.
7.04. Waivers; Release of Pledge Agreements of Certain Stockholders.
-------------------------------------------------------------
(a) This Agreement and the other Loan Documents may not be changed, waived,
discharged or terminated orally. This Agreement or any Security Document may be
amended and the performance or observance by any Borrower of any term of this
Agreement or any other Loan Document may be waived (either generally or in a
particular instance and either retroactively or prospectively) with, but only
with, the prior written consent of the Banks. The rights and remedies expressed
in this Agreement and in the other Loan Documents are cumulative and not
exclusive of any right or remedy which the Bank may otherwise have. The Banks
may release or surrender, exchange or substitute any real estate or personal
property, or both, or other collateral security now or hereafter held as
security for the payment of the Notes or any other obligations of each Borrower
to the Banks under this Agreement or however arising and may extend the time for
payment or otherwise modify the terms of payment of any part or the whole of the
Notes.
(b) In the event that Mac-Gray II, Inc. shall commence an underwritten
public offering of its Common Stock, the Banks agree to relinquish possession of
any Common Stock of Mac-Gray II, Inc. in their possession and to release,
cancel, and terminate any Pledge Agreements of Daniel W. MacDonald Trust;
Stewart G. MacDonald, Jr. Trust; Daniel W. MacDonald; Evelyn C. MacDonald Family
Trust, f/b/o Sandra E. MacDonald;
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Evelyn C. MacDonald Family Trust, f/b/o Daniel W. Mac Donald; Evelyn C.
MacDonald Family Trust, f/b/o Stewart G. MacDonald; Sandra E. MacDonald; and
Stewart G. MacDonald, Jr., executed and delivered in favor of the Banks in
connection with the Credit Facilities with respect to such Common Stock.
7.05. Delays. No delay on the part of the Banks in exercising any right,
------
power or privilege hereunder or under any other Loan Document shall operate as a
waiver thereof, nor shall any partial exercise or waiver of any privilege or
right hereunder preclude any further exercise of such privilege or right or the
exercise of any other right, power or privilege.
7.06. Notices. Any notices, consents or other communications to be given
-------
under this Agreement or under the other Loan Documents shall be in writing and
shall be deemed given when mailed to the respective parties by overnight courier
or by registered mail addressed as set forth on the first page of this
Agreement, with all such notices, consents and other communications (a) to the
Banks to be sent to the attention of Michael St. Jean, Vice President, State
Street Bank and Trust Company, and Lyle Cunningham, Vice President, CoreStates
Bank, N.A., FC 1-8-4-2, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107
with a copy to Mark D. Smith, Testa, Hurwitz & Thibeault, LLP, High Street
Tower, 125 High Street, Boston, MA 02110, (b) to each Borrower to be sent to the
attention of Stewart MacDonald, C.E.O., Mac-Gray Co., Inc. 22 Water Street,
Cambridge, MA 02140 and to Robert P. Whalen, Esquire, Goodwin, Proctor & Hoar
LLP, 53 State Street, Boston, MA 02109 or to such other addresses as either
party may from time to time designate for that purpose. Section headings and
defined terms in this Agreement and the other Loan Documents are included for
convenience only and are not intended to modify or define any term or provision
of any such instrument.
7.07. Jurisdiction. Each Borrower irrevocably submits to the
------------
jurisdiction of the courts of the Commonwealth of Massachusetts and the United
States District Court for the District of Massachusetts for the purpose of any
suit, action or other proceeding brought by the Banks arising out of or relating
to this Agreement or any other Loan Document, and each Borrower waives and
agrees not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claim that each Borrower is not personally
subject to the jurisdiction of the courts of the Commonwealth of Massachusetts,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper.
7.08. Execution. This Agreement may be signed in any number of
---------
counterparts, which together will be one and the same instrument. This
Agreement shall become effective whenever each party shall have signed at least
one such counterpart.
7.09. Governing Law. This Agreement shall be governed by the laws of
-------------
the Commonwealth of Massachusetts and for all purposes shall be construed in
accordance with the laws of such Commonwealth.
7.10. Fees. Whether or not any funds are disbursed hereunder, the
----
Borrowers shall pay all of the Bank's reasonable costs and expenses in
connection with the preparation, execution, delivery, review, and enforcement of
this Agreement and the other Loan Documents, and in connection with any
subsequent amendments thereto or waivers thereof, including reasonable legal
fees and disbursements.
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<PAGE>
7.11. Binding Nature. This Agreement shall be binding upon and shall
--------------
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that the rights and obligations under this Agreement
and under any of the other Loan Documents may not be assigned by any Borrower
without the prior written consent of the Bank. Notwithstanding anything to the
contrary herein or in any of the Loan Documents, the Banks may freely assign,
pledge, hypothecate, transfer or convey part or all of their respective
interests hereunder to the Federal Reserve without notification to the
Borrowers, or to other financial institutions upon the written consent of the
Banks and the Borrowers, which consent will not be unreasonably withheld.
7.12. Severability. In the event that any provision of this Agreement
------------
or the application hereof to any person, entity property or circumstances shall
be held to any extent to be invalid or unenforceable, the remainder of this
Agreement, and the application of such provision to persons, entities,
properties or circumstances other than those as to which it has been held
invalid or enforceable, shall not be affected thereby, and each provision of
this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
7.13. Under Seal. This Agreement shall be deemed to be an instrument
----------
under seal and shall continue in full force and effect so long as any
Indebtedness of the Borrowers to the Banks remains unpaid.
This Agreement shall supersede and replace all prior agreements, whether
written or oral, expressed or implied, by and among (i) State Street Bank and
Trust Company and any Borrower, or (ii) CoreStates Bank, N.A. and any Borrower.
ARTICLE VIII
DEFINITIONS
8.01. Definitions. All defined terms used in this Agreement which are
-----------
not otherwise defined herein shall have the respective meanings assigned to them
in the other Loan Documents. For purposes of this Agreement and of the other
Loan Documents, the following additional definitions shall apply:
"Affiliated Person" shall mean any person or entity controlling,
controlled by or under common control with any Borrower.
"Agent" in such capacity shall mean State Street Bank & Trust
Company.
"Banks," "Bank" in the plural shall mean State Street Bank and
Trust Company and CoreStates Bank, N.A.; in the singular, each a Bank.
"Borrower," "Borrowers" shall have the meaning specified in the
preamble to this Agreement.
"Borrowing Date" shall mean the date on which any advance of loans
is made by either Bank to any Borrower.
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<PAGE>
"Business Day" shall mean any day which is not a Saturday, or a
Sunday or a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to a national banking association.
"Capital Expenditure" shall mean any payment made or required to be
made, directly or indirectly, by any Borrower for the purposes of acquiring or
constructing fixed assets, real property or equipment which, in accordance with
GAAP, would be added as a debit to the fixed asset account of such Borrower,
including, without limitation, amounts paid or payable under and conditional
sale or other title retention agreement or under any lease or other periodic
payment agreement which is of such a nature that payment obligations of such
Borrower thereunder would be required by GAAP to be capitalized and shown as
liabilities on the balance sheet of the Borrower.
"Cash Equivalents" shall mean those investments which, under GAAP,
are treated as equivalent to cash.
"Closing" shall mean a closing held at 11:00 a.m., in the offices
of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 17, 1997, or such other date, time and place as
the parties hereto mutually agree.
"Closing Date" shall mean the date on which the Closing shall
occur.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
and the regulations issued pursuant thereto.
"Collateral" shall have the meaning specified in Section 2 of the
Security Agreement.
"Consent" shall mean the written consent of the Agent or the Banks.
"Credit Facility" or "Credit Facilities" shall have the meaning(s)
specified in the preamble to this Agreement.
"Current Assets" shall mean all assets of any corporation or other
entity which would, in accordance with generally accepted accounting principles,
be classified as current assets of an entity conducting a business the same as
or similar to that of such entity; excluding, however, (i) assets which have
been pledged, assigned, mortgaged, hypothecated or otherwise encumbered to
secure any Indebtedness which is not included in Current Liabilities and (ii)
any and all amounts due from affiliated entities.
"Current Liabilities" shall mean all liabilities of any corporation
or other entity which would, in accordance with generally accepted accounting
principles, be classified as current liabilities of an entity conducting a
business the same as or similar to that of such entity, including, without
limitation, all capitalized lease payments and other payments under capitalized
leases and fixed prepayments of, and sinking fund payments with respect to,
Indebtedness required to be made within one year from the date of determination,
plus all Indebtedness in respect of Revolving Loans without regard to the date
of maturity of any such Loans.
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<PAGE>
"EBITDA" shall mean for any period, the Net Income (or Net Loss,
expressed as a negative number) of the Borrowers (on a consolidated basis) for
such period, plus each of the following items, without duplication: (i) the
amount of the provision for depreciation and/or amortization actually deducted
on the books of the Borrowers (on a consolidated basis) for the purposes of
computation of such Net Income (or Net Loss) for the period involved, (ii) all
federal and state income taxes (but not ad valorem property taxes, sales taxes
or taxes in the nature of an excise tax) paid by the Borrowers (on a
consolidated basis) with respect to such period, and (iii) all interest on any
Indebtedness paid or accrued during such period and actually deducted on the
Consolidated books of the Borrowers (on a consolidated basis) for the purposes
of computation of such Pre-Tax Net Income (or Net Loss) for the period involved.
"Environmental Laws" shall have the meaning specified in Section
3.18 of this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations issued pursuant thereto.
"Event of Default" shall have the meaning specified in Section 5.01
hereof.
"Excess Cash Flow" shall mean, without duplication, for any fiscal
year being tested, EBITDA minus (i) Capital Expenditures actually made on a cash
-----
basis during such fiscal year being tested (to the extent made in cash and not
financed), (ii) income taxes paid on a cash basis during such fiscal year being
tested, and (iii) scheduled payments of the principal portion of Indebtedness
for borrowed money during such fiscal year being tested to the extent actually
paid.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.
"Indebtedness" shall mean with respect to each Borrower (i) all
indebtedness or other obligations of such Borrower for borrowed money or for the
deferred purchase price of property or services, other than for trade accounts
payable incurred in the ordinary course of such Borrower's business, (ii) all
indebtedness or other obligations of any other person for borrowed money or for
the deferred purchase price of property or services, other than for trade
accounts payable incurred in the ordinary course of such Borrower's business, in
respect of which such Borrower is liable, contingently or otherwise, to pay or
advance money or property as guarantor, endorser or otherwise (except as
endorser for collection in the ordinary course of business), or which such
Borrower has agreed to purchase or otherwise acquire, and (iii) all lease
obligations of such Borrower which are required, in accordance with GAAP, to be
capitalized on the books of the lessee.
"Interest Period" shall mean with respect to any Loan:
(i) initially, the period commencing on the Borrowing Date
with respect to such Loan and ending one to six months thereafter, as
selected by the Borrowers in their notice of borrowing given with respect
thereto; and
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such Loan and ending one
to twelve months thereafter, as selected
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by the Borrowers by irrevocable notice to the Banks not less than three
Business Days prior to the last day of the then-current Interest Period
with respect thereto;
provided, that, all of the foregoing provisions relating to
--------
Interest Periods are subject to the following:
(a) if any Interest Period pertaining to a Loan would otherwise
end on a day that is not a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless the result of such
extension would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the immediately
preceding Business Day;
(b) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date except as provided in
Section 1.01(d); and
(c) any Interest Period pertaining to a Loan that begins on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of a calendar month.
"Interest Rate Option" shall mean either the LIBOR Option or the Prime
Rate Option.
"Letters of Credit" shall have the meaning specified in Section
1.01(g) of this Agreement.
"Liabilities" shall mean all liabilities of each Borrower, including,
without limitation, all lease rental payments and other payments under capital
leases and fixed prepayments of, and sinking fund payments with respect to,
Indebtedness (including Indebtedness evidenced by the Notes).
"LIBOR" or "LIBOR Rate" shall mean with respect to the Loans
comprising any borrowings to which the LIBOR Option applies for any LIBOR
Interest Period, which rate shall be determined by the Agent by dividing (i) the
rate of interest (as determined by the Agent in accordance with its usual
procedures) at which LIBOR deposits, in an amount equal to the portion of the
Loans as to which a LIBOR Interest Option has been elected and which have a term
corresponding to the LIBOR Interest Period in question, which are offered to the
Agent by first-class banks in the London Interbank Office on the first day of
such LIBOR Interest Period as determined by the Agent at approximately 11:00
a.m. (London time) two Banking Days prior to the date upon which the LIBOR
Interest Period in question is to commence, (which determination by the Agent
shall, in the absence of manifest error, be conclusive,) by (ii) a number equal
to 1.00 minus the LIBOR Reserve Percentage. The LIBOR Rate may also be
expressed by the following formula:
LIBOR Rate = London Interbank Office
(by a first class bank)
-----------------------
1.00 - LIBOR Reserve Percentage
The LIBOR Rate shall be adjusted with respect to any LIBOR-Rate Option
outstanding on the effective date of any change in the LIBOR-Rate Reserve
Percentage as of such effective date. The Agent shall
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give prompt notice to the Borrower of the LIBOR-Rate as determined or adjusted
in accordance herewith, which determination shall be conclusive absent manifest
error.
"LIBOR Interest Period" shall have the meaning assigned to that term
in Section 1.03 hereof.
"LIBOR Loans" shall mean Loans subject to the LIBOR Option.
"LIBOR Reserve Percentage" shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Agent (which determination shall be conclusive absent manifest error)
which is in effect during any relevant period, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including, without limitation, supplemental, marginal, and
emergency reserve requirements) with respect to LIBOR currency funding
(currently referred to as "LIBOR Currency Liabilities") of a member bank in such
System.
"Loan Documents" shall mean this Agreement, the Notes, the Security
Documents and all other agreements, instruments, documents and certificates
executed or delivered in connection with the transactions contemplated therein.
"Loans" shall mean collectively, the WC Loans and the Revolving Loans
whether such Loans are Prime Rate Loans and/or the LIBOR Loans made by the Bank
to any Borrower pursuant to Section 1.01 of this Agreement.
"Net Income" or "Net Loss" for any fiscal period shall mean net income
(or net loss, expressed as a negative number), after deduction of or credit for
applicable income taxes, as such net income after taxes or net loss would be set
forth on an income statement for such fiscal period prepared in accordance with
GAAP.
"Nominee" shall mean a business entity, formed or appointed by Agent
to own or manage any Collateral in the possession or control of Lenders.
"Notes" means the Revolving Line of Credit Note and the WC Note of the
Borrowers in the form of Exhibit A attached hereto.
---------
"Payment Date" shall mean the first day of each month on which the
Agent is open for business in the Commonwealth of Massachusetts from and after
the Closing Date.
"Permitted Acquisition" shall mean an acquisition (by purchase or
merger) by such Borrower (a) of the assets or 100% of the outstanding capital
stock or joint venture or partnership interests of any entity engaged in a
business directly related to that of such Borrower, (b) of route contracts for
the servicing or operation of coin operated laundry locations, or (c) to which
the Banks have given its prior written consent.
"Permitted Lien" shall have the meaning given that term in Section
4.02(b) hereof.
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"Pledge Agreement" shall mean the Pledge Agreement of the Borrowers in
the form of Exhibit C hereto.
"Pre-Tax Net Income" for any fiscal period shall mean net income (or
net loss, expressed as a negative number), before deduction of or credit for
applicable income taxes, as such pre-tax net income or net loss would be set
forth on an income statement for such fiscal period prepared in accordance with
GAAP.
"Prime Rate Loans" shall mean Loans subject to the Prime Rate Option.
"Prime Rate" shall mean the rate of interest announced by the Agent
from time to time as its "Prime Rate" or "Base Rate"; provided, however, that
such rate is not necessarily the lowest rate charged by the Bank to its
customers.
"Principal Office" of the Agent or the Borrowers shall mean the
respective office(s) located at the address set forth on the first page hereof.
"Proportionate Share" shall mean each Bank's commitment to fund Loans;
in the case of State Street Bank and Trust Company, 50.00%; and in the case of
CoreStates Bank, N.A., 50.00%.
"Receivables" shall mean all of the present and future accounts,
accounts receivable and notes, drafts, acceptances and other instruments
representing or evidencing a right to payment for goods sold or for services
rendered of any Borrower, including all right, title and interest of any
Borrower in the goods or services which have given rise thereto and any right of
stoppage in transit, whether the same are now owned or hereafter acquired or
arising.
"Security Agreement" shall mean the Security Agreement in the form of
Exhibit B hereto.
- ---------
"Security Documents" shall have the meaning specified in Section 1.13
of this Agreement.
"Senior Liabilities" shall mean all Liabilities of the Borrowers to
the Banks arising hereunder or under the Notes.
"Shareholder's Equity" shall mean shareholder's equity (determined in
accordance with GAAP), including all assets that would be considered intangibles
under GAAP including, without limitation, good will.
"Tangible Net Worth" shall mean stockholders' equity (determined in
accordance with GAAP) minus all assets that would be considered intangibles
under GAAP, such intangible assets including, without limitation, such items as
goodwill, trademarks, tradenames, copyrights, patents, licenses and rights in
any thereof, unamortized debt discount, capitalized software development or
acquisition costs, costs or value of purchased software and all write-ups in the
book value of any asset.
"Termination Date" shall mean the earlier of (i) April 17, 1999, (ii)
such earlier date on which the Banks make a declaration in accordance with the
provisions of Section 5.02(a) hereof or
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(iii) the payment and satisfaction in full of all obligations of any Borrower to
Banks hereunder, under the Security Documents, or in connection herewith or
therewith. The Bank may, at its discretion, renew or extend the lines of credit
by extending the Termination Date. Neither the inclusion in this Agreement of
financial covenants relating to periods after the Termination Date or any other
terms and provisions hereof shall be deemed to create any implication that the
Banks are required to renew or extend such revolving line of credit.
8.02. Use of Defined Terms. Any defined term used in the plural preceded
--------------------
by the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular preceded by "any" shall be taken
to indicate any number of the members of the relevant class.
8.03. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the concerned
entity in prior years.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the Borrowers and the Banks have caused this
Credit Agreement to be executed by their duly authorized officers as of the date
first above written.
THE BORROWERS:
MAC-GRAY II, INC.
By: /s/
----------------------------------
Name:
----------------------------
Title:
---------------------------
SUN SERVICES OF AMERICA, INC.
By: /s/
----------------------------------
Name:
----------------------------
Title:
---------------------------
MAC-GRAY ACQUISITION CORP. (AND
ITS SUCCESSOR-IN-INTEREST,
R. BODDEN COIN-OP LAUNDRY, INC.)
By: /s/
----------------------------------
Name:
----------------------------
Title:
--------------------------
MAC-GRAY CO., INC.
By: /s/
----------------------------------
Name:
----------------------------
Title:
--------------------------
-47-
<PAGE>
THE BANKS:
STATE STREET BANK AND TRUST
COMPANY, FOR ITSELF AND AS AGENT FOR
CORESTATES BANK, N.A.
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
CORESTATES BANK, N.A.
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
-48-
<PAGE>
EXHIBIT 10.5
EXECUTION COPY
--------------
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT ("Security Agreement"), dated as of April 17, 1997 made
by MAC-GRAY CO., INC., MAC-GRAY II, INC., SUN SERVICES OF AMERICA, INC. AND MAC-
GRAY ACQUISITION CORP. (AND ITS SUCCESSOR-IN-INTEREST, R. BODDEN COIN-OP
LAUNDRY, INC.) (each a "Borrower" and collectively the "Borrowers") in favor of
STATE STREET BANK AND TRUST COMPANY (for itself and as Agent for) CORESTATES
BANK, N.A. (each a "Bank" and collectively the "Banks").
RECITALS
Pursuant to the Credit Agreement dated as of April 17, 1997 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
between the Borrowers and the Banks, the Banks have agreed to make advances to
the Borrowers upon the terms and subject to the conditions set forth therein, to
be evidenced by the Notes issued by the Borrowers thereunder. It is a condition
precedent to the obligation of the Banks to make advances to the Borrowers under
the Credit Agreement that the Borrowers shall have executed and delivered this
Security Agreement to the Banks.
NOW, THEREFORE, in consideration of the premises and to induce the Banks to
make advances to the Borrowers under the Credit Agreement, the Borrowers hereby
agree jointly and severally with the Banks, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
-------------
defined in the Credit Agreement and used herein are so used as so defined; the
following terms which are defined in the Uniform Commercial Code in effect in
The Commonwealth of Massachusetts on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Fixtures, General
Intangibles, Instruments, Inventory and Proceeds; and the following terms shall
have the following meanings:
"Code" means the Uniform Commercial Code as from time to time in
effect in The Commonwealth of Massachusetts.
"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.
"Copyrights" means all copyrights, registered and unregistered, and
all registrations thereof and applications therefor whether in the United States
Copyright Office or elsewhere, now existing or hereafter acquired, and all
renewals thereof.
<PAGE>
"Obligations" means the unpaid principal amount of, and interest on,
the Notes and all other obligations and liabilities of the Borrowers to the
Banks, whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the Pledge Agreement, any of
the other Security Documents or this Security Agreement and any other document
executed and delivered in connection therewith or herewith and each other
obligation and liability, whether direct or indirect, absolute or contingent,
due or to become due, or now or hereafter existing, of the Borrowers to the
Banks, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Banks) or otherwise.
"Patents" means (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, and (b) all applications
for letters patent of the United States or any other country, and all divisions,
continuations and continuations-in-part thereof.
"Security Agreement" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"Trademarks" means (a) all trademarks, trade names, corporate names,
business names, fictitious business names, trade styles, service marks, logos
and other source or business identifiers, and the goodwill associated therewith,
now existing or hereafter adopted or acquired, all registration and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, and (b) all renewals thereof.
"Vehicles" means all cars, trucks, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law of any
state and all tires and other appurtenances to any of the foregoing.
2. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations, the Borrowers hereby grant to the
Banks a security interest in all of the following property now owned or at any
time hereafter acquired by each Borrower or in which each Borrower now has or at
any time in the future may acquire any right, title or interest (collectively,
the "Collateral"): all (i) Accounts; (ii) Chattel Paper; (iii) Copyrights; (iv)
Documents; (v) Equipment; (vi) Fixtures; (vii) General Intangibles; (viii)
Instruments; (ix) Inventory; (x) Patents; (xi) Trademarks; (xii) Vehicles; and
(xiii) to the extent not otherwise included, all Proceeds and products of any
and all of the foregoing.
-2-
<PAGE>
3. Rights of Banks; Limitations on Banks' Obligations.
---------------------------------------------------
(a) Borrowers Remain Liable under Accounts. Anything herein to the
---------------------------------------
contrary notwithstanding, each Borrower shall remain liable under each of the
Accounts to observe and perform all the conditions and obligations to be observe
and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. The Banks shall not have any
obligation or liability under any Account (or any agreement giving rise thereto)
by reason of or arising out of this Security Agreement or the receipt by the
Banks of any payment relating to such Account pursuant hereto, nor shall the
Banks be obligated in any manner to perform any of the obligations of each
Borrower under or pursuant to any Account (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
(b) Notice to Account Debtors. Upon the request of the Banks at any
-------------------------
time after the occurrence and during the continuance of an Event of Default,
each Borrower shall notify account debtors on the Accounts that the Accounts
have been assigned to the Banks and that payments in respect thereof shall be
made directly to the Banks. The Banks may in their own name or in the name of
others communicate with account debtors on the Accounts to verify with them to
its satisfaction the existence, amount and terms of any Accounts.
(c) Collections on Accounts. The Banks hereby authorize the
-----------------------
Borrowers to collect the Accounts, subject to the Banks' direction and control,
and the Banks may curtail or terminate said authority at any time after the
occurrence and during the continuance of an Event of Default. If required by the
Banks at any time after the occurrence and during the continuance of an Event of
Default, any payments of Accounts, when collected by the Borrowers, shall be
forthwith (and, in any event, within two Business Days) deposited by the
Borrowers in the exact form received, duly endorsed by the Borrowers to the
Banks if required, in a special collateral account maintained by the Banks,
subject to withdrawal by the Banks only, as hereinafter provided, and, until so
turned over, shall be held by the Borrower in trust for the Banks, segregated
from other funds of the Borrowers. All Proceeds constituting collections of
Accounts while held by the Banks (or by the Borrowers in trust for the Banks)
shall continue to be collateral security for all of the Obligations and shall
not constitute payment thereof until applied as the Borrowers and the Banks, or,
if an Event of Default shall have occurred and be continuing, at any time at the
Banks' election, the Banks shall apply all or any part of the funds on deposit
in said special collateral account on account of the Obligations in such order
as the Banks may elect, and any part of such funds which the Banks elect not so
to apply and deems not required as collateral security for the Obligations shall
be paid over from time to time by the Banks to the Borrowers or to whomsoever
may be lawfully entitled to receive the same. At the Banks' request, the
Borrower shall deliver to the Banks all original and other documents evidencing,
and
-3-
<PAGE>
relating to, the agreements and transactions which gave rise to the accounts,
including, without limitation, all original orders, invoices and shipping
receipts.
(d) Title to Collateral. Each Borrower represents and warrants to
-------------------
the Banks that it has good title to all of the Collateral, free and clear of all
liens, security interests and adverse interests, other than the Permitted Liens,
in favor of any person or entity other than the Banks.
(e) Trust Account. Notwithstanding anything to the contrary provided
-------------
herein, the Banks may at any time or from time to time, in its sole discretion,
elect to require the Borrowers to establish with the Banks a trust account and
to deal with all of its Accounts subject to the provisions of this Section.
Following such election, the Borrowers will collect their Accounts as the Banks'
collection agent, hold such collections in trust for the Banks without
commingling the same with other funds of the Borrowers and will promptly, on the
day of receipt thereof, transmit such collections to the Banks in the identical
form in which they were received by the Borrowers, with such endorsements as may
be appropriate, accompanied by a report, in form approved by the Banks, showing
the amount of such collections and the cash discounts applicable thereto.
4. Covenants. Each Borrower covenants and agrees with the Banks that,
---------
from and after the date of this Security Agreement until the Obligations are
paid in full:
(a) Further Documentation; Pledge of Instruments and Chattel Paper.
--------------------------------------------------------------
At any time and from time to time, upon the written request of the Banks, and at
the sole expense of the Borrowers, the Borrowers will promptly and duly execute
and deliver such further instruments and documents and take such further action
as the Banks may reasonably request for the purpose of obtaining or preserving
the full benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the Liens created hereby. The Borrowers also
hereby authorize the Banks to file any such financing or continuation statement
without the signature of the Borrowers to the extent permitted by applicable
law. A carbon, photographic or other reproduction of this Security Agreement
shall be sufficient as a financing statement for filing in any jurisdiction. If
any amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Banks, duly endorsed in a manner
satisfactory to the Banks, to be held as Collateral pursuant to this Security
Agreement.
(b) Indemnification. Each Borrower, jointly and severally, agrees to
---------------
pay, and to save the Banks harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral, (ii) with respect to, or resulting from, any delay in
complying
-4-
<PAGE>
with any law, rule, regulation or order of any Governmental Authority applicable
to any of the Collateral or (iii) in connection with any of the transactions
contemplated by this Security Agreement. In any suit, proceeding or action
brought by the Banks under any Account for any sum owing thereunder, or to
enforce any provisions of any Account, the Borrowers will save, indemnify and
keep the Banks harmless from and against all expense, loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction or
liability whatsoever of the account debtor or obligor thereunder, arising out of
a breach by the Borrowers of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to or in favor of
such account debtor or obligor or its successors from the Borrowers.
(c) Maintenance of Records. Each Borrower will keep and maintain at
----------------------
its own cost and expense satisfactory and complete records of the Collateral,
including without limitation, a record of all payments received and all credits
granted with respect to the Accounts. For the Banks' further security, each
Borrower shall grant to the Banks a security interest in all of such Borrower's
books and records pertaining to the Collateral, and such Borrower shall turn
over any such books and records to the Banks or to its representatives during
normal business hours at the request of the Banks.
(d) Right of Inspection. The Banks shall at all times have full and
-------------------
free access during normal business hours, and upon reasonable prior notice, to
all the books, correspondence and records of the Borrowers, and the Banks or
their representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Borrowers agree to render to the Banks, at the
Borrowers' cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. The Banks and their representatives
shall at all times also have the right during normal business hours, and upon
reasonable prior notice, to enter into and upon any premises where any of the
Inventory or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.
(e) Compliance with Laws, etc. Each Borrower will comply in all
--------------------------
material respects with all laws, rules, regulations and orders of any
Governmental Authority applicable to the Collateral or any part thereof or to
the operation of such Borrower's business; provided, however, that such Borrower
may contest any such law, rule, regulation or order in any reasonable manner
which shall not, in the reasonable opinion of the Banks, adversely affect the
Banks' rights or the priority of its liens on the Collateral.
(f) Payment of Obligations. Each Borrower will pay promptly when due
----------------------
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any of the Collateral or any interest
therein and (iii) such charge is adequately reserved against on such Borrower's
books in accordance with GAAP.
-5-
<PAGE>
(g) Limitation on Liens on Collateral. Each Borrower will not
---------------------------------
create, incur or permit to exist, will defend the Collateral against, and will
take such other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than Permitted Liens, and will defend the right, title and
interest of the Banks in and to any of the Collateral against the claims and
demands of all Persons whomsoever.
(h) Limitations on Dispositions of Collateral. Each Borrower will
-----------------------------------------
not sell, transfer, lease or otherwise dispose of any of the Collateral, or
attempt, offer or contract to do so, except for sales of Collateral permitted by
the Credit Agreement.
(i) Limitations on Discounts, Compromises, Extensions of Accounts.
-------------------------------------------------------------
Other than in the ordinary course of business as generally conducted by the
Borrowers over a period of time, each Borrower will not grant any extension of
the time of payment of any of the Accounts, compromise, compound or settle the
same for less than the full amount thereof, release, wholly or partially, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon.
(j) Maintenance of Equipment. Each Borrower will maintain each item
------------------------
of Equipment in good operating condition, ordinary wear and tear and immaterial
impairments of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose.
(k) Maintenance of Insurance. Each Borrower will maintain, with
------------------------
financially sound and reputable companies, insurance policies (i) insuring the
Inventory, Equipment and Vehicles against loss by fire, explosion, theft and
such other casualties as may be reasonably satisfactory to the Banks and (ii)
insuring such Borrower and the Banks against liability for personal injury and
property damage relating to such Inventory, Equipment and Vehicles, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Banks, with losses payable to such Borrower and
the Banks as their respective interests may appear. All such insurance shall
(i) contain a breach of warranty clause in favor of the Banks, (ii) provide that
no termination, cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Banks of written notice thereof, (iii) name the Banks as an insured and (iv) be
reasonably satisfactory in all other respect to the Banks. From time to time
upon the request of the Banks, each Borrower shall deliver to the Banks a report
of a reputable insurance broker with respect to such insurance in such form as
the Banks may from time to time reasonably request.
(l) Further Identification of Collateral. Each Borrower will furnish
------------------------------------
to the Banks from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Banks may reasonably request, all in reasonable detail.
-6-
<PAGE>
5. Banks' Appointment as Attorney-in-Fact.
--------------------------------------
(a) Powers. Each Borrower hereby irrevocably constitutes and
------
appoints the Banks and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Borrower and in the name of
such Borrower or in its own name, from time to time in the Banks' discretion,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute any and all instruments which may
be necessary or desirable to accomplish the purposes of this Security Agreement,
and, without limiting the generality of the foregoing, such Borrower hereby
gives the bank the power and right, on behalf of such Borrower, without notice
to or assent by such Borrower, to do the following:
(i) in the case of any Account, at any time when the authority
of the Borrower to collect the Accounts has been curtailed or terminated
pursuant to the first sentence of Section 3(c) hereof, or in the case of any
other Collateral, at any time when any Event of Default shall have occurred and
is continuing, in the name of such Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument, general Intangible or with respect to any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Banks for the purpose of collecting any and all such moneys due under any
Account, Instrument, General Intangible or with respect to any other collateral
whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance called
for the terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and
(iii) Upon the occurrence and during the continuance of any
Event of Default, (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Banks or as the Banks shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding brought against
such Borrower with respect to any Collateral; (F) to settle, compromise or
adjust any suit, action or proceeding described in clause (E) above and, in
connection therewith, to give such discharges or releases as the Banks may deem
appropriate; (G) to assign any Patent or Trademark (along with the goodwill of
the business to which any such Trademark pertains), throughout the world for
such term or terms, on such conditions, and in such manner, as the Banks shall
in its sole discretion determine; and
-7-
<PAGE>
(H) generally, to sell, transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
the bank were the absolute owner thereof for all purposes, and to do, at the
Banks' option and such Borrower's expense, at any time, or from time to time,
all acts and things which the Banks deems necessary to protect, preserve or
realize upon the Collateral and the Banks' liens thereon and to effect the
intent of this Security Agreement, all as fully and effectively as such Borrower
might do.
Each Borrower hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This Power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) Other Powers. Each Borrower also authorizes the Banks, at any
------------
time and from time to time, to execute, in connection with the sales provided
for in Section 7 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
(c) No Duty on Banks' Part. The powers conferred on the Banks
----------------------
hereunder are solely to protect the Banks' interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Banks shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its own gross negligence or willful misconduct.
6. Performance by Banks of Borrowers' Obligations. If any Borrower fails
----------------------------------------------
to perform or comply with any of its agreements contained herein and the Banks,
as provided for by the terms of this Security Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
expenses of the Banks incurred in connection with such performance or
compliance, together with interest thereon at a rate per annum equal to the
Prime Rate plus 5%, shall be payable by the Borrower to the Banks on demand and
shall constitute Obligations secured hereby.
7. Remedies. If an Event of Default shall occur and be continuing, the
--------
Banks may exercise, in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Banks, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Borrower or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Banks or
-8-
<PAGE>
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Banks shall have the right upon any such
public sale or sales, and, to the extent permitted by law, upon any such private
sale or sales, to purchase the whole or any part of the Collateral so sold, free
of any right or equity or redemption in such Borrower, which right or equity is
hereby waived or released. Each Borrower further agrees, at the Banks' request,
to assemble the Collateral and make it available to the Banks at places which
the Banks shall reasonably select, whether at any Borrower's premises or
elsewhere. The Banks shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Banks hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Obligations, in such order as the Banks may elect, and only after such
application and after the payment by the Banks of any other amount required by
any provision of law, including, without limitation, Section 9-504(1)(c) of the
Code, need the Banks account for the surplus, if any, to the Borrowers. To the
extent permitted by applicable law, each Borrower waives all claims, damages and
demands it may acquire against the bank arising out of the exercise by the Banks
of any of their rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at lease 10 days before such sale or other
disposition. Each Borrower shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Banks to collect such deficiency.
8. Limitation on Duties Regarding Preservation of Collateral. The Banks'
---------------------------------------------------------
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Banks deals with similar
property for its own account. Neither the Banks nor any of their directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of any Borrower or otherwise.
9. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
10. Severability. Any provision of this Security Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-9-
<PAGE>
11. Paragraph Headings. The paragraph headings used in this Security
------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
12. No Waiver; Cumulative Remedies. The Banks shall not be any act
------------------------------
(except by a written instrument pursuant to Section 15 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Banks, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Banks of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Banks would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
13. Waivers and Amendments; Successors and Assigns. None of the terms or
----------------------------------------------
provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by each Borrower and
the Banks, provided that any provision of this Security Agreement may be waived
by the Banks in a written letter or agreement executed by the Banks or by telex
or facsimile transmission from the Banks. This Security Agreement shall be
binding upon the successors and assigns of the Borrower and shall inure to the
benefit of the Banks and their respective successors and assigns.
14. Governing Law. This Security Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of The Commonwealth of
Massachusetts.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
IN WITNESS WHEREOF, each Borrower has caused this Security Agreement to be
duly executed and delivered as of the date first above written.
THE BORROWERS:
MAC-GRAY II, INC. NEWCO, INC.
By: /s/
------------------------------------
Name:
Title:
SUN SERVICES OF AMERICA, INC. ACQUISITION
SUBSIDIARY I
By: /s/
------------------------------------
Name:
Title:
MAC-GRAY CO., INC. ACQUISITION
SUBSIDIARY II
By: /s/
------------------------------------
Name:
Title:
MAC-GRAY ACQUISITION CORP. (AND ITS
SUCCESSOR-IN-INTEREST, R. BODDEN
COIN-OP LAUNDRY, INC.)
By: /s/
------------------------------------
Name:
Title:
-11-
<PAGE>
THE BANKS:
STATE STREET BANK AND TRUST COMPANY
By: /s/
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
CORESTATES BANK, N.A.
By: /s/
-------------------------------------
Name:
-------------------------------
Title:
-----------------------------
-12-
<PAGE>
EXHIBIT 10.6
REVOLVING LINE OF CREDIT NOTE
-----------------------------
$45,000,000 April 17, 1997
FOR VALUE RECEIVED, MAC-GRAY CO., INC., MAC-GRAY II, INC., SUN
SERVICES OF AMERICA, INC. AND MAC-GRAY ACQUISITION CORP. (AND ITS SUCCESSOR-IN-
INTEREST, R. BODDEN COIN-OP LAUNDRY, INC.), each a Delaware Corporation (the
"Borrowers") jointly and severally hereby promise to pay to the order of STATE
STREET BANK AND TRUST COMPANY for itself and as Agent for CORESTATES BANK, N.A.
(the "Banks") at the office of the Agent located at 225 Franklin Street, Boston,
Massachusetts 02110, or such other place as the holder hereof shall designate,
the principal amount of Forty-Five Million Dollars and No Cents ($45,000,000.00)
or, if less, the aggregate unpaid principal amount of all loans made by the
Banks to the Borrowers hereunder, plus all accrued but unpaid interest and all
other amounts then due and payable, on the Termination Date as defined in the
Credit Agreement (as hereinafter defined), together with interest on unpaid
balances payable monthly in arrears on the first day of each calendar month and
in accordance with the Credit Agreement (as defined herein). Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. If this Note
is not paid in full when due, interest on unpaid balances shall thereafter be
payable on demand at a fluctuating interest rate per annum equal to four percent
(4%) above the Prime Rate in effect from time to time.
All loans hereunder and all payments on account of principal and
interest hereof shall be recorded by the Agent and, prior to any transfer
hereof, endorsed on the attached grid which is part of this Note. The entries
on the records of the Banks (including any appearing on this Note) shall be
prima facie evidence of amounts outstanding hereunder.
This Note is issued pursuant to and is subject to the terms and
conditions of that certain Credit Agreement between the Borrowers and the Banks
dated as of April 17, 1997, as amended from time to time, which is hereby
incorporated herein by reference, and is entitled to the benefits thereof.
The principal amount of this Note may be repaid by the Borrowers in
whole or in part and reborrowed from time to time, in each case subject to the
terms and provisions of the Credit Agreement Prepayments of principal and
interest may be subject to penalty or premium in accordance with the terms and
provisions of the Credit Agreement.
All principal and interest hereunder are payable in lawful money of
the United States of America at the office of the Agent at the address shown
above in immediately available funds.
Any deposits or other sums at any time credited by or due from the
holder to the Borrowers and any securities or other property of the Borrowers at
any time in the possession of the holder shall at all times be held and treated
as collateral for the payment of this Note and any and all other liabilities
(direct or indirect, absolute or contingent, sole, joint or several, secured or
<PAGE>
unsecured, due or to become due, now existing or hereafter arising) of the
Borrowers to the holder. Regardless of the adequacy of collateral, the holder
may apply or set off such deposits or other sums against such liabilities at any
time.
The Borrowers hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that no indulgence, and
no substitution, release or surrender of collateral, and no discharge or release
of any other party primarily or secondarily liable hereon, shall discharge or
otherwise affect the liability of the Borrowers. No delay or omission on the
part of the holder in exercising any right hereunder shall operate as a waiver
of such right or of any other right hereunder, and a waiver of any such right on
any one occasion shall not be construed as a bar to or waiver of any such right
on any future occasion.
This Note is secured by the terms of a Security Agreement between the
Banks and the Borrowers dated as of the date hereof and any and all collateral
at any time granted to the Banks to secure any obligations of any maker hereof.
The Borrowers agree to pay on demand all reasonable costs and expenses
(including reasonable legal costs and attorneys' fees) incurred or paid by the
holder in enforcing this Note, including without limitation upon the occurrence
of an Event of Default under the Credit Agreement.
[Remainder of page intentionally left blank.]
-2-
<PAGE>
This Note shall take effect as a sealed instrument and shall be
governed by the laws of the Commonwealth of Massachusetts.
MAC-GRAY II, INC.
By: /s/
------------------------------------
Name:
Title:
SUN SERVICES OF AMERICA, INC.
By: /s/
------------------------------------
Name:
Title:
MAC-GRAY CO., INC.
By: /s/
------------------------------------
Name:
Title:
MAC-GRAY ACQUISITION CORP. (AND ITS
SUCCESSOR-IN-INTEREST, R. BODDEN COIN-OP
LAUNDRY, INC.)
By: /s/
------------------------------------
Name:
Title:
-3-
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
----------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Date Amount of Loan Amount of Principal Outstanding Notation Made By
---- -------------- ----------------
Paid Principal Balance
---- -----------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
WORKING CAPITAL LINE OF CREDIT NOTE
-----------------------------------
$5,000,000 April 17, 1997
FOR VALUE RECEIVED, MAC-GRAY CO., INC., MAC-GRAY II, INC., SUN
SERVICES OF AMERICA, INC. AND MAC-GRAY ACQUISITION CORP. (AND ITS SUCCESSOR-IN-
INTEREST, R. BODDEN COIN-OP LAUNDRY, INC.), each a Delaware Corporation (the
"Borrowers") jointly and severally hereby promise to pay to the order of STATE
STREET BANK AND TRUST COMPANY for itself and as Agent for CORESTATES BANK, N.A.
(the "Banks") at the office of the Agent located at 225 Franklin Street, Boston,
Massachusetts 02110, or such other place as the holder hereof shall designate,
the principal amount of Five Million Dollars and No Cents ($5,000,000.00) or, if
less, the aggregate unpaid principal amount of all loans made by the Banks to
the Borrowers hereunder, plus all accrued but unpaid interest and all other
amounts then due and payable, on the Termination Date as defined in the Credit
Agreement (as hereinafter defined), together with interest on unpaid balances
payable monthly in arrears on the first day of each calendar month and in
accordance with the Credit Agreement (as defined herein). Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. If this Note
is not paid in full when due, interest on unpaid balances shall thereafter be
payable on demand at a fluctuating interest rate per annum equal to four percent
(4%) above the Prime Rate in effect from time to time.
All loans hereunder and all payments on account of principal and
interest hereof shall be recorded by the Agent and, prior to any transfer
hereof, endorsed on the attached grid which is part of this Note. The entries
on the records of the Banks (including any appearing on this Note) shall be
prima facie evidence of amounts outstanding hereunder.
This Note is issued pursuant to and is subject to the terms and
conditions of that certain Credit Agreement between the Borrowers and the Banks
dated as of April 17, 1997, as amended from time to time, which is hereby
incorporated herein by reference, and is entitled to the benefits thereof.
The principal amount of this Note may be repaid by the Borrowers in
whole or in part and reborrowed from time to time, in each case subject to the
terms and provisions of the Credit Agreement. Prepayments of principal and
interest may be subject to penalty or premium in accordance with the terms and
provisions of the Credit Agreement.
All principal and interest hereunder are payable in lawful money of
the United States of America at the office of the Agent at the address shown
above in immediately available funds.
Any deposits or other sums at any time credited by or due from the
holder to the Borrowers and any securities or other property of the Borrowers at
any time in the possession of the holder shall at all times be held and treated
as collateral for the payment of this Note and any and all other liabilities
(direct or indirect, absolute or contingent, sole, joint or several, secured or
<PAGE>
unsecured, due or to become due, now existing or hereafter arising) of the
Borrowers to the holder. Regardless of the adequacy of collateral, the holder
may apply or set off such deposits or other sums against such liabilities at any
time.
The Borrowers hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement hereof and consents that no indulgence, and
no substitution, release or surrender of collateral, and no discharge or release
of any other party primarily or secondarily liable hereon, shall discharge or
otherwise affect the liability of the Borrowers. No delay or omission on the
part of the holder in exercising any right hereunder shall operate as a waiver
of such right or of any other right hereunder, and a waiver of any such right on
any one occasion shall not be construed as a bar to or waiver of any such right
on any future occasion.
This Note is secured by the terms of a Security Agreement between the
Banks and the Borrowers dated as of the date hereof and any and all collateral
at any time granted to the Banks to secure any obligations of any maker hereof.
The Borrowers agree to pay on demand all reasonable costs and expenses
(including reasonable legal costs and attorneys' fees) incurred or paid by the
holder in enforcing this Note, including without limitation upon the occurrence
of an Event of Default under the Credit Agreement.
[Remainder of page intentionally left blank.]
<PAGE>
This Note shall take effect as a sealed instrument and shall be
governed by the laws of the Commonwealth of Massachusetts.
MAC-GRAY II, INC.
By: /s/
-------------------------------------
Name:
Title:
SUN SERVICES OF AMERICA, INC.
By: /s/
-------------------------------------
Name:
Title:
MAC-GRAY CO., INC.
By: /s/
-------------------------------------
Name:
Title:
MAC-GRAY ACQUISITION CORP. (AND ITS
SUCCESSOR-IN-INTEREST, R. BODDEN COIN-OP
LAUNDRY, INC.)
By: /s/
-------------------------------------
Name:
Title:
<PAGE>
ADVANCES AND PAYMENTS OF PRINCIPAL
----------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Date Amount of Loan Amount of Principal Outstanding Notation Made By
---- -------------- ----------------
Paid Principal Balance
---- -----------------
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.7
EXECUTION COPY
--------------
PLEDGE AGREEMENT
----------------
MAC-GRAY II, INC.
-----------------
PLEDGE AGREEMENT, dated as of April 17, 1997, made by the undersigned MAC-
GRAY II, INC., a Delaware corporation with its Principal Office at 22 Water
Street, Cambridge, Massachusetts (the "Pledgor"), in favor of STATE STREET BANK
AND TRUST COMPANY, (for itself and as Agent for) CORESTATES BANK, N.A. (each a
"Bank" and collectively the "Banks").
RECITALS
--------
Pursuant to the Credit Agreement between the Pledgor, certain other
borrowers, and the Banks dated April 17, 1997 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), the Banks have
agreed to make loans to the Pledgor and the other borrowers upon the terms and
subject to the conditions set forth therein, to be evidenced by the promissory
notes (the "Notes") issued by the Pledgor and the other borrowers thereunder.
The Pledgor is the legal and beneficial owner of the Pledged Securities (as
hereinafter defined). It is a covenant of the Pledgor under the Credit
Agreement that the Pledgor shall execute and deliver this Pledge Agreement to
the Banks.
NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees
with the Banks as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are
-------------
defined in the Credit Agreement and used herein are so used as so defined, and
the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code from time to time in effect in the
Commonwealth of Massachusetts.
"Collateral" means the Pledged Securities and all Proceeds.
"Obligations" means the unpaid principal of and interest on the Notes and
all other obligations and liabilities of the Pledgor to the Banks, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Notes or this Pledge Agreement and any other
document made, delivered or given in connection therewith or herewith, whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses
<PAGE>
(including, without limitation, all reasonable fees and disbursements of counsel
to the Banks) or otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.
"Pledged Securities" means the shares of capital stock and other securities
listed on Schedule I hereto, together with all stock certificates, instruments,
----------
options or rights of any nature whatsoever which may be issued or granted to the
Pledgor in respect of the Pledged Securities, while this Pledge Agreement is in
effect.
"Proceeds" means all "proceeds" as such term is defined in Section 9-306(1)
of the Code and, in any event, shall include, without limitation, all dividends
or other income from the Pledged Securities, collections thereon or
distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to
----------------------------------
the Banks all the Pledged Securities and hereby grants to the Banks a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.
3. Stock Powers. Concurrently with the delivery to the Banks of each
------------
certificate or instrument representing the Pledged Securities, the Pledgor shall
deliver an undated stock power or other transfer document covering such
certificate or instrument, duly executed in blank with, if the Banks so
requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
to the Banks that:
(a) the Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities listed on Schedule I, free of
----------
any and all security interests, liens or options in favor of, or claims of, any
other person or entity, except for Permitted Liens; and
(b) upon delivery to the Banks of the certificates and instruments
evidencing the Pledged Securities, the lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority lien on the Pledged
Securities enforceable as such against all creditors of the Pledgor and any
person or entities purporting to purchase any Collateral from the Pledgor.
5. Covenants. The Pledgor covenants and agrees with the Banks that, from
---------
and after the date of this Pledge Agreement until the Obligations are paid in
full:
(a) If the Pledgor shall, as a result of its ownership of the Pledged
Securities, become entitled to receive or shall receive any stock certificate or
other certificate or instrument
-2-
<PAGE>
(including, without limitation, any certificate representing a stock dividend or
a distribution in connection with any reclassification, increase or reduction of
capital or any certificate or instrument issued in connection with any
reorganization), option or rights, whether in addition to, in substitution of,
as a conversion of, or in exchange for any of the Pledged Securities or
otherwise in respect thereof, the Pledgor shall accept the same as the Banks'
agent, hold the same in trust for the Banks and deliver the same forthwith to
the Banks in the exact form received, together with an undated stock power or
other transfer document covering such certificate or instrument duly executed in
blank and with, if the Banks so request, signature guaranteed, to be held by the
Banks hereunder as additional collateral security for the Obligations. Any sums
paid upon or in respect of the Pledged Securities upon the liquidation or
dissolution of the issuer thereof shall be paid over to the Banks to be held by
it hereunder as additional collateral security for the Obligations, and in case
any distribution of capital shall be made on or in respect of the Pledged
Securities or any property shall be distributed upon or with respect to the
Pledged Securities pursuant to the recapitalization or reclassification of the
capital of the issuer thereof or pursuant to the reorganization thereof, the
property so distributed shall be delivered to the Banks to be held by it,
subject to the terms hereof, as additional collateral security for the
Obligations. If any sums of money or property so paid or distributed in respect
of the Pledged Securities shall be received by the Pledgor, the Pledgor shall,
until such money or property is paid or delivered to the Banks, hold such money
or property in trust for the Banks, segregated from other funds of the Pledgor,
as additional collateral security for the Obligations.
(b) Without the prior written consent of the Banks, the Pledgor will
not (i) sell, assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral except in compliance with the provisions
of the Credit Agreement, or (ii) create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with respect to, any of
the Collateral, or any interest therein, except for Permitted Liens. The
Pledgor will defend the right, title and interest of the Banks in and to the
Collateral against the claims and demands of all person or entities whomsoever.
(c) At any time and from time to time, upon the written request of the
Banks, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Banks may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and of the
rights and powers herein granted. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel paper shall
be promptly delivered to the Banks, duly endorsed in a manner satisfactory to
the Banks, to be held as Collateral pursuant to this Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Banks harmless from,
any and all liabilities with respect to, or resulting from any delay in paying
any and all stamp, excise, sales or other taxes (exclusive of taxes based on
income, gross receipts, franchise rights and
-3-
<PAGE>
related items) which may be payable or determined to be payable with respect to
any of the Collateral or in connection with any of the transactions contemplated
by this Pledge Agreement.
6. Cash Dividends; Voting Rights. Notwithstanding the provisions of
-----------------------------
Section 5(a) hereof, unless an Event of Default shall have occurred, the Pledgor
shall be permitted to receive all cash dividends and other cash distributions
paid by the issuer of any of the Pledged Securities in respect of the Pledged
Securities and to exercise all voting and corporate rights with respect to the
Pledged Securities, provided, however, that after written notice from the Banks
-------- -------
to the Pledgor, no stockholder vote shall be cast or corporate right exercised
or other action taken by the Pledgor which, in the Banks' reasonable judgment,
would impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, the Notes or this Pledge
Agreement, except if and to the extent that the Pledgor is obligated to effect
such vote, exercise or action pursuant to an agreement between the Pledgor and
one or more third parties.
7. Rights of the Banks. (a) If an Event of Default shall occur and be
-------------------
continuing: (i) the Banks shall have the right to receive any and all cash
dividends paid in respect of the Pledged Securities and make application thereof
to the Obligations in such order as it may determine, and (ii) all of the
Pledged Securities shall be registered in the name of the Banks or its nominee,
and the Banks or their nominee may thereafter exercise (A) all voting,
corporate, and other rights pertaining to the Pledged Securities at any meeting
or otherwise and (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization of
other fundamental change in the corporate or partnership structure of the issuer
thereof or upon the exercise by the Pledgor or the Banks of any right, privilege
or option pertaining to such Pledged Securities and in connection therewith, the
right to deposit and deliver any and all of the Pledged Securities with any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as it may determine), all without liability except to
account for property actually received by it, but the Banks shall have no duty
to exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.
(b) The rights of the Banks hereunder shall not be conditioned or
contingent upon the pursuit by the Banks of any right or remedy against the
Pledgor or against any other person or entity which may be or become liable in
respect of all or any part of the Obligations or against any other collateral
security therefor, guarantee thereof or right of offset with respect thereto.
The Banks shall not be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall it be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other person or entity or to take any other action
whatsoever with regard to the Collateral or any part thereof.
-4-
<PAGE>
8. Remedies. If an Event of Default shall occur and be continuing, the
--------
Banks may exercise, in addition to all other rights and remedies granted in this
Pledge Agreement and in any other instrument or agreement securing, evidencing
or relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Banks, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Pledgor, any guarantor or any other person or entity (all and each of
which demands, defenses, advertisements and notices are hereby expressly
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker's board or office of the Banks or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Banks shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Pledgor, which right or equity is hereby
expressly waived and released. The Banks shall apply any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Banks hereunder, including, without limitation, reasonable attorneys'
fees and disbursements, to the payment in whole or in part of the Obligations,
in such order as the Banks may elect, and only after such application and after
the payment by the Banks of any other amount required by any provision of law,
including, without limitation, Section 9-504(1)(c) of the Code, need the Banks
account for the surplus, if any, to the Pledgor. To the extent permitted by
applicable law, the Pledgor waives all claims, damages and demands it may
acquire against the Banks arising out of the exercise by the Banks of any of
their rights hereunder. If any notice of a proposed sale or other disposition
of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least ten (10) days before such sale or other
disposition.
9. Amendments with Respect to the Obligations. The Pledgor shall remain
------------------------------------------
obligated hereunder, and the Collateral shall remain subject to the lien granted
hereby, notwithstanding that, without any reservation of rights against the
Pledgor, and without notice to or further assent by the Pledgor, any demand for
payment of any of the Obligations made by the Banks may be rescinded by the
Banks, and any of the Obligations continued, and the Obligations, or the
liability of the Pledgor upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Banks, and the
Credit Agreement, Notes and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the Banks
may deem advisable from time to time, and any right of offset or other
collateral at any
-5-
<PAGE>
time held by the Banks for the payment of the Obligations may be sold,
exchanged, waived, surrendered or released. The Banks shall have no obligation
to protect, secure, perfect or insure any other lien at any time held by it as
security for the Obligations or any property subject thereto. The Pledgor hereby
expressly waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by the
Banks upon this Pledge Agreement; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred in reliance
upon this Pledge Agreement; and all dealings between the Pledgor and the Banks
shall likewise be conclusively presumed to have been created or consummated in
reliance upon this Pledge Agreement. The Pledgor hereby expressly waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon the Pledgor with respect to the Obligations.
10. Limitation on Duties Regarding Collateral. The Banks' sole duty with
-----------------------------------------
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Banks deals with similar securities,
instruments and property for its own account. Neither the Banks nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or otherwise.
11. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
12. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. Section Headings. The paragraph headings used in this Pledge
----------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.
14. No Waiver; Cumulative Remedies. The Banks shall not by any act
------------------------------
(except by a written instrument pursuant to paragraph 15 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Banks, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Banks of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Banks would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative,
-6-
<PAGE>
may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
15. Waivers and Amendments; Successors and Assigns; Governing Law. None
-------------------------------------------------------------
of the terms or provisions of this Pledge Agreement, may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Banks, provided that any provision of this Pledge Agreement
--------
may be waived in writing by the Banks in a letter or agreement executed by the
Banks or by telex or facsimile transmission from the Banks. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of the Banks and its successors and assigns. This
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts, United States of
America.
16. Notices. Notices by either party hereto to the other shall be given
-------
as provided in the Credit Agreement.
17. Counterparts. This Pledge Agreement may be executed in several
------------
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.
[Remainder of page intentionally left blank.]
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be
duly executed and delivered as of the date first above.
THE PLEDGOR:
MAC-GRAY II, INC.
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
THE BANKS:
STATE STREET BANK AND TRUST COMPANY
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
CORESTATES BANK, N.A.
By: /s/
------------------------------------
Name:
-----------------------------
Title:
----------------------------
-8-
<PAGE>
SCHEDULE I
----------
PLEDGED SECURITIES
------------------
<TABLE>
<CAPTION>
Name of Issuer Description of Securities Amount
-------------- ------------------------- ------
<S> <C> <C>
Mac-Gray Co., Inc. Common Stock
Sun Services of America, Inc. Common Stock
R. Bodden Coin-Op Laundry, Inc. Common Stock
</TABLE>
-9-
<PAGE>
EXHIBIT 10.8
AMENDMENT TO
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
---------------------------------------------
AMENDMENT, dated as of March 25, 1993 by and between Mac-Gray Co., Inc., a
Delaware corporation (successor by merger to Mac-Gray Co., Inc., a Massachusetts
corporation, "Mac-Gray"), and Caldwell and Gregory, Inc., a Delaware corporation
(the "Company").
WHEREAS, the Company and Mac-Gray are parties to a Confidentiality and Non-
Competition Agreement dated as of September 4, 1990, a copy of which is attached
hereto as Exhibit A (the "Agreement"); and
---------
WHEREAS, in consideration of the execution and delivery by each of John P.
Gregory and Donald A. Caldwell of separate Amendments to Confidentiality and
Non-Competition Agreement dated as of the date hereof, the Company and Mac-Gray
wish to amend certain provisions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. Defined Terms. Capitalized terms used and not defined in this
-------------
Amendment shall have the meanings assigned to such terms in the Agreement.
2. Amendment of Agreement. Section 4 of the Agreement is hereby amended
----------------------
and restated in its entirety as follows:
4. Term. The term of this Agreement (the "Term") shall commence on
---- ----
the date hereof and continue until September 4, 2000, provided, however,
that if there occurs a sale of substantially all the assets of the Company
or of Mac-Gray or a "change in control" of the Company or Mac-Gray, the
obligations of Mac-Gray shall cease and be of no further effect. For
purposes of this Agreement, a "change in control" with respect to either
Mac-Gray or the Company shall be deemed to occur if the stockholders of
Mac-Gray or the Company, as the case may be, on the date of this Agreement
shall cease to own at least 51% of the issued and outstanding capital stock
of Mac-Gray or the Company.
3. Survival of Agreement. Except as expressly amended hereby, the
---------------------
parties hereto hereby confirm that the Agreement shall continue in full force
and effect in accordance with its terms.
4. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which is deemed to be an original and all of which shall
constitute one and the same instrument.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each duly executed this
Amendment as of the date set forth above.
MAC-GRAY CO., INC.
/s/ Donald M. Shaw, President
_________________________________________
Donald M. Shaw, President
CALDWELL AND GREGORY, INC.
/s/
_________________________________________
Name:
Title:
2
<PAGE>
EXHIBIT A
---------
CONFIDENTIALITY AND NON-COMPETITION AGREEMENT
---------------------------------------------
THIS CONFIDENTIALITY AND NON-COMPETITION AGREEMENT is made as of September
4, 1990 by and between CALDWELL AND GREGORY, INC., a Delaware corporation (the
"Company"), and MAC-GRAY CO., INC., a Massachusetts corporation ("Mac-Gray");
------- --------
WHEREAS, the Company and Mac-Gray have heretofore entered into that certain
Asset Purchase and Sale Agreement, dated as of July 18, 1990, as amended
September 4, 1990 (as so amended, the "Purchase Agreement"), providing for the
------------------
sale by Mac-Gray and the purchase by the company of the Assets (as defined in
the Purchase Agreement); and
WHEREAS, the Company is unwilling to purchase the Assets and otherwise to
consummate the transactions contemplated by the Purchase Agreement unless Mac-
Gray enters into an agreement on the terms and conditions set forth herein; and
WHEREAS, Mac-Gray wishes to enter into this Agreement for the purpose of so
inducing the Company;
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties covenant and agree as follows:
1. Confidential Information. During the Term (as defined below) of this
------------------------
Agreement, Mac-Gray shall not, for its own benefit, or for the benefit of a
third person or entity, divulge, use, disclose, or make accessible to anyone,
any non-public confidential or proprietary information, gained by Mac-Gray as a
result of its ownership of the Assets or its operation of the Business (as
defined in the Purchase Agreement) or otherwise, with respect to the Assets or
the Business, including without limitation, any business plans, financial
information, marketing or sales information, customer or supplier lists, pricing
or cost information, personnel or employment or benefits records or Intellectual
Property (collectively, the "Confidential Information". For purposes of this
------------------------
Agreement, "Intellectual Property" shall include, but not be limited to, all
---------------------
patentable or unpatentable information, research, discoveries, inventions,
designs, improvements, plans, trade secrets, systems, methods, know-how,
drawings, specifications, technical, manufacturing or engineering data or any
other confidential information or intellectual property of any type or nature
whatsoever, either owned by the Company or in which the Company has rights.
Confidential Information shall not include (i) information which is or becomes
publicly available (except as may be disclosed by a party in violation of this
Agreement; (ii) information acquired by Mac-Gray from a source other than the
Company or any of its employees, agents, consultants or shareholders, which
source
3
<PAGE>
legally acquired such information and is not bound by a confidentiality
obligation to the Company; (iii) information which is required to be disclosed
in a judicial proceeding; or (iv) information acquired by Mac-Gray and utilized
by Mac-Gray in connection with its operation of businesses similar to the
Business in jurisdictions other than those specified in paragraph (b) below.
Mac-Gray represents and warrants that as of the date hereof, it has returned to
the Company all copies of Confidential Information in its possession.
2. Covenant Not to Compete. During the Term of this Agreement, Mac-Gray
-----------------------
will not at any time compete, directly or indirectly, with Seller by engaging in
any business involving commercial laundry equipment services or concessions
within the states of Virginia, Maryland, West Virginia or Tennessee or the
District of Columbia (sometime hereinafter referred to as the "Restricted
Area"), including without limitation, by (a) participating as a stockholder or
partner of, or having any direct or indirect financial interest (including
without limitation the interest of a creditor) in, any enterprise which engages
in such business in the Restricted Area; or (b) participating as an agent,
representative or consultant in which such entity's or person's responsibility
is related to such business in the Restricted Area.
3. Restrictions on Solicitation. During the Term of this Agreement, Mac-
----------------------------
Gray will not, directly or indirectly:
(a) recruit, solicit or induce or attempt to divert or take
away any employees of the Company to terminate their employment
with or otherwise cease their relationship with the Company; or
(b) solicit, divert or take away or attempt to take away the
business or patronage of any of the customers or accounts or
prospective customers or accounts of the Company which are
located in the Restricted Area.
4. Term. The term of this Agreement (the "Term") shall be for a period
---- ----
of five (5) years from the date hereof, provided, however, that if there occurs
a sale of substantially all the assets of the Company or of Mac-Gray or a
"change in control" of the Company or Mac-Gray, the obligations of Mac-Gray
shall cease and be of no further effect. For purposes of this Agreement, a
"change in control" with respect to either Mac-Gray or the Company shall be
deemed to occur if the stockholders of Mac-Gray or the Company, as the case may
be, on the date of this Agreement shall cease to own at least 51% of the issued
and outstanding capital stock of Mac-Gray or the Company.
5. Waiver. No delay or failure in exercising any right, power or
------
privilege under this Agreement or under any other instrument or document given
in connection with or pursuant to this Agreement shall impair any such right,
power or privilege or be construed as a waiver of any default or any
acquiescence therein. No single or partial exercise of any such right, power or
privilege shall preclude the further exercise of such right, power or privilege,
or the exercise of any other right, power or privilege.
4
<PAGE>
6. Benefit and Assignment. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and assigns, provided, however, that neither this Agreement nor any rights
hereunder shall be assignable by Mac-Gray without the prior written consent of
the Company.
7. Specific Performance; Other Rights and Remedies. Mac-Gray recognizes
-----------------------------------------------
and agrees that he Company's remedy at law for any breach of the provisions this
Agreement would be inadequate, and he agrees that, for breach of such
provisions, the Company shall, in addition to such other remedies as may be
available to it at law or in equity or as provided in this Agreement, be
entitled to injunctive relief and to enforce its rights by an action for
specific performance to the extent permitted by law. Without limiting the
generality of the foregoing, in the event of a breach or threatened breach by
Mac-Gray of the provisions of this Agreement, the Company shall be entitled to
an injunction restraining Mac-Gray from soliciting employers, customers or
suppliers, or from disclosing, in whole or in part, any Confidential
Information, or from rendering any services to any third person or entity to
whom such information has been disclosed, or is threatened to be disclosed from
engaging, participating or otherwise being in connection with any business
described in this Agreement hereof or from otherwise violating the terms of this
Agreement. Nothing herein contained shall be construed as prohibiting the
Company from pursuing any other remedies available to it for such breach or
threatened breach, including without limitation the recovery of damages from
Mac-Gray, and the legal fees incurred by Seller. Should Mac-Gray engage in any
activities prohibited by this Agreement, he agrees to pay over to the Company
all compensation, remunerations or monies or property of any sort received in
connection with such activities, and such payment shall not impair any rights or
remedies of the Company hereto or the obligations or liabilities of Mac-Gray
under this Agreement.
8. Entire Agreement; Amendment. This Agreement constitutes the entire
---------------------------
agreement among the parties hereto with respect to the subject matter hereof,
and supersedes all prior oral and written agreements, commitments or
understandings with respect to the matters provided herein. This Agreement may
not be changed orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
9. Severability. The restrictions set forth in Sections 1, 2 and 3 shall
------------
be construed as independent covenants, and the existence of any claim or cause
of action against the Company, whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
the restrictions contained in Sections 1, 2 or 3. If at any time any covenant
herein shall be deemed invalid or unenforceable by the laws of the jurisdiction
wherein it is to be enforced, by reason of being vague or unreasonable as to
duration, or geographic scope, or scope of activities restricted, or for any
other reason, this Agreement shall be considered divisible as to such portion
and such covenant shall become and be immediately amended and reformed to
include only such covenants as are enforceable by the court or other body having
jurisdiction of this Agreement; and Mac-Gray and the Company
5
<PAGE>
agree that such covenant, as so amended and reformed, shall be valid and binding
as though the invalid or unenforceable portion has not been included herein.
10. Headings. The headings of the sections contained in this Agreement
--------
are inserted for convenience only and do not form a part of or affect the
meaning, construction or scope thereof.
11. Counterparts. This Agreement may be executed in separate
------------
counterparts, none of which need contain the signatures of all parties, each of
which is deemed to be an original, and all of which taken together constitute
one and the same instrument. It shall not be necessary in making proof of this
Agreement to produce or account for more than the number of counterparts
containing the respective signatures of, or on behalf of, all the parties
hereto.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
or has caused this Agreement to be duly executed under seal and delivered in its
name and on its behalf, all as of the day and year first above written.
MAC-GRAY CO., INC.
By: /s/
-------------------------
Title:
CALDWELL AND GREGORY, INC.
By: /s/
-------------------------
Title:
6
<PAGE>
Exhibit 10.9
------------
CONSULTING AGREEMENT
--------------------
This CONSULTING AGREEMENT is made as of April 17, 1997 by and between Mac-
Gray II, Inc., a Delaware corporation (the "Company"), and Jeffrey C. Huenink
("Consultant"). Reference is made to that certain Agreement and Plan of Merger
dated as of the date of this Agreement (the "Merger Agreement") by and among the
Company, Mac-Gray Co., Inc., Mac-Gray Acquisition Corp. ("Acquisition Corp."),
Consultant, Sun Services of America, Inc., a Florida corporation ("SSA"), and R.
Bodden Coin-Op-Laundry, Inc., a Florida corporation ("Bodden"). Capitalized
terms used in this Agreement and not defined herein shall have the respective
meanings given to them in the Merger Agreement.
WHEREAS, concurrently with the execution and delivery of this Agreement,
the parties are consummating the transactions contemplated by the Merger
Agreement, pursuant to which Acquisition Corp. will merge with and into Bodden,
SSA will merge with and into the Company and Consultant will receive in exchange
for the capital stock of SSA and Bodden cash and shares of Company Stock (the
"Mergers");
WHEREAS, prior to the Mergers, Consultant was the sole stockholder of, and
was principally involved in the management of the business of, each of SSA and
Bodden;
WHEREAS, the Company desires to continue to have the benefit of
Consultant's experience and knowledge in the card and coin-operated laundry
business and industry; and
WHEREAS, as a material inducement to the Company and Consultant to
consummate the transactions contemplated by the Merger Agreement, the Company
and Consultant are executing and delivering this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Consulting Arrangement. Subject to the terms of this Agreement, for a
----------------------
period from the date hereof until the earlier of (a) the fifth anniversary of
the date hereof and (b) the effective date of any termination of this Agreement
pursuant to Section 5 hereof (the "Consulting Period"), Consultant shall serve
as a consultant to the Company. During the Consulting Period, Consultant shall
render such services of an advisory or consulting nature as the Chief Executive
Officer or President of the Company, and/or their respective designees, may,
from time to time, reasonably request, in order that the Company may continue to
have the benefit of Consultant's experience and knowledge of the card and coin-
operated laundry business and industry including, without limitation, advising
and consulting with the Company with respect to the initiation, negotiation and
consummation of acquisitions of businesses in the card and coin-operated laundry
business (the "Consulting Services"). The Consultant shall at all times perform
and discharge his duties and responsibilities under this Agreement faithfully,
diligently and to the best of his ability.
<PAGE>
2. Confidentiality. Consultant agrees that, for the benefit of the
---------------
Company and each of its Affiliates (as defined below), during the Consulting
Period, he shall not (nor shall Consultant assist any other person to) directly
or indirectly furnish, divulge, reveal, report, publish or disclose (other than
as may be required under applicable law) any Confidential Information (as
hereinafter defined) to any person, firm, corporation or other entity, or
hereafter use (or assist any person to use) such Confidential Information;
provided, however, that Consultant may use or disclose Confidential Information
- -------- -------
as directed by the Company in connection with the provision of the Consulting
Services under this Agreement. For purposes of this Agreement, the term
"Confidential Information" means all information or material not generally known
to the public, which gives the Company and any of its Affiliates some
competitive business advantage or the opportunity of obtaining such advantage or
the disclosure of which could be detrimental to the interests of the Company and
any of its Affiliates, including, without limitation, trade secrets, inventions,
drawings, file data, documentation, diagrams, specifications, know how,
processes, formulas, models, subscriber lists, sales representative lists,
proprietary information, research and development procedures, research or
development and test results, marketing techniques and materials, marketing and
development plans, price lists, pricing policies, business plans, information
relating to customers and/or suppliers' identities, characteristics and
agreements, financial information and projections, and employee files.
"Confidential Information" also includes any information described above which
the Company or any of its Affiliates obtains from another party and which the
Company or such Affiliate treats as proprietary or designates as Confidential
Information, whether or not owned or developed by the Company or such Affiliate.
For purposes of this Agreement, the term "Affiliate" shall mean, with respect to
any person or entity (herein the "first party"), any other person or entity that
directly or indirectly controls, or is controlled by, or is under common control
with, such first party (the term "control" as used herein (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to (a) vote twenty-five percent (25%) or more of the
outstanding voting securities of such person or entity, or (b) otherwise direct
the management or policies of such person or entity by contract or otherwise).
3. Payment. During the Consulting Period, as compensation in full for
-------
providing the Consulting Services under this Agreement, the Company shall
compensate Consultant as follows:
(a) Retainer. The Company shall pay to Consultant a base retainer
--------
(the "Annual Retainer") equal to (i) with respect to each of the first and
second Consulting Years (as defined below), $50,000 per year and (ii) with
respect to each of the third, fourth and fifth Consulting Years, $100,000
per year. The Annual Retainer shall be payable in equal monthly
installments during each Consulting Year during the Consulting Period and
shall be subject to reduction pursuant to Section 4 hereof.
(b) Bonus. The Company shall pay to Consultant an annual bonus
-----
(the "Annual Bonus") for each Consulting Year during the Consulting Period
which (i) in the case of the first and second Consulting Years, shall be
payable in cash in installments of $56,250 on the 90th, 180th and 270th
days (or, if not a business day, the next succeeding business day) of each
such Consulting Year with the balance of
2
<PAGE>
such Annual Bonus payable within sixty (60) days following the end of each such
Consulting Year and (ii) in the case of the third, fourth and fifth Consulting
Years, shall be payable in cash within sixty (60) days following the end of such
Consulting Year (or, in the case of any portion of the Annual Bonus due with
respect to the fifth Consulting Year for Acquired Entities acquired during the
Tail Period (as defined below), within sixty (60) days following the end of the
Tail Period), determined as follows:
(i) with respect to each of the first and second Consulting
Years, the Annual Bonus shall be an amount equal to the greater of (x) the
product of (A) one percent (1%) multiplied by (B) the Acquired Entity
Revenues (as defined below) for the calendar year ended immediately prior
to the end of such Consulting Year and (y) $225,000; and
(ii) with respect to each of the third, fourth and fifth
Consulting Years, the Annual Bonus shall be an amount equal to the product
of (x) seventy-five one hundredths of one percent (.75%) multiplied by (y)
the Acquired Entity Revenues for the calendar year ended immediately prior
to the end of such Consulting Year.
(c) Definition. For purposes of this Agreement, the following terms shall
----------
have the following meanings:
(i) "Acquired Entity" means, with respect to any Consulting
---------------
Year, a business operating in the card or coin-operated laundry business
which both (A) the Company acquires during such Consulting Year and, in
addition, in the case of the fifth Consulting Year, which the Company
acquires within six months following the end of such fifth Consulting Year
(the "Tail Period") if a letter of intent or acquisition agreement was
executed with respect thereto during such fifth Consulting Year, and (B)
either (x) has more than twelve hundred and fifty (1250) revenue producing
washers and dryers that are acquired by the Company or (y) which is
approved as an "Acquired Entity" by the Chairman of the Board of Directors
of the Company, acting in his sole and absolute discretion; provided,
--------
however, that in no event shall the term Acquired Entity include any
-------
business acquired from any of the entities listed on Schedule A attached
----------
hereto or any business acquired from any Affiliate of any of such entities
unless after a period of two years from the date of this Agreement a letter
of intent has not been signed by the Company and any of the entities listed
on Schedule A or any of their Affiliates, in which case any such entity,
----------
for which there is no signed letter of intent, shall become eligible to
become an Acquired Entity if the other requirements of this subsection are
met.
(ii) "Acquired Entity Revenues" means, with respect to any
------------------------
calendar year, the sum of the gross revenues from coin-route operations
(which shall exclude, without limitation, revenues from sales of laundry
machines, parts and
3
<PAGE>
accessories) for such calendar year of all Acquired Entities for the
Consulting Year ended immediately after such calendar year.
(iii) "Consulting Years" means (A) the period commencing
----------------
on April 17, 1997 and ending on April 16, 1998, (B) the one-year
period commencing on April 17, 1998 and ending on April 16,
1999, the one-year period commencing on April 17, 1999 and
ending on April 16, 2000, (D) the one-year period commencing on
April 17, 2000 and ending on April 16, 2001 and (E) the one-year
period commencing on April 17, 2001 and ending on April 16,
2002.
(d) Calculation of Bonus. The Company shall provide to
--------------------
Consultant at the time of the payment of each Annual Bonus under this
Agreement, a reasonably detailed statement setting forth the calculation of
such Annual Bonus (an "Annual Bonus Statement").
If Consultant disputes the calculation of any Annual Bonus, Consultant
shall notify the Company in writing within 30 days after the delivery to
Consultant of the Annual Bonus Statement with respect thereto, which notice
shall specify the nature of such dispute and the basis therefor (the "Dispute
Notice"). For a period of 15 days after the Company's receipt of the Dispute
Notice, at the request of Consultant and during the regular business hours of
the Company, the Company shall grant to Consultant and his representatives
reasonable access to the books and records of the Company that directly relate
to the calculation of the Annual Bonus. The parties shall attempt in good faith
to reach agreement resolving all of the disputes set forth in the Dispute Notice
within 15 days after the Dispute Notice is received by the Company, in which
event the Annual Bonus Statement, as amended to the extent necessary to reflect
the resolution of all such disputes, shall be conclusive and binding on the
parties. If the parties are unable to resolve any or all of such disputes within
the aforesaid 15 day period, the parties shall, promptly after the expiration of
such time period, submit all unresolved disputes to a nationally recognized
independent accounting firm mutually agreeable to the parties (the "Arbiter")
for resolution. Promptly, but no later than 30 days after its acceptance of its
appointment as Arbiter, the Arbiter shall determine, based solely on
presentations by the Company and Consultant, only those items in dispute on the
Annual Bonus Statement, and shall render a written report as to the resolution
of each dispute and the resulting calculation of the Annual Bonus Statement. The
Arbiter shall have exclusive jurisdiction over, and resort to the Arbiter, as
provided in this Section 3(d) shall be the sole recourse and remedy of the
parties with respect to, any disputes arising out of or relating to the Annual
Bonus Statement, and the Arbiter's determination shall be conclusive and binding
on the parties and shall be enforceable in any court of competent jurisdiction.
The fees and expenses of the Arbiter shall be borne equally by the Company and
Consultant.
4. Expense Reimbursement; Insurance. The Company shall, in addition to
--------------------------------
the payments contemplated by Section 3 hereof, reimburse Consultant for all
reasonable out-of-pocket costs and expenses incurred by Consultant in connection
with the performance of the Consulting Services hereunder. Such reimbursement
shall be made within fifteen (15) days after receipt by the Company of
statements detailing such costs and expenses and other
4
<PAGE>
appropriate documentation reasonably satisfactory to the Company. During the
Consulting Period, the Company shall provide health insurance coverage for
Consultant and his spouse and children under the Company's group health
insurance plan. The incremental cost to the Company for providing such coverage
shall be paid by Consultant by a reduction in each monthly installment of the
Annual Retainer.
5. Termination. The Company may terminate this Agreement and Consultant's
-----------
engagement hereunder upon (a) any act of fraud or embezzlement by Consultant
with respect to the Company or its Affiliates or (b) gross negligence of
Consultant in connection with the rendering of Consulting Services hereunder;
provided that such gross negligence has not been cured by the date thirty (30)
days after the Company has given written notice to Consultant specifying such
gross negligence in reasonable detail. In the event of any termination pursuant
to this Section 5, the Company shall pay to Consultant (i) the Annual Retainer
then in effect, pro rated to the effective date of such termination and (ii)
within 60 days after the end of the Consulting Year in which such termination
occurs, the Annual Bonus for such Consulting Year, based on the Acquired
Entities acquired during, or within six (6) months after the end of, such
Consulting Year for which letters of intent or acquisition agreements were
executed on or prior to the effective date of such termination. Upon any
termination of this Agreement pursuant to this Section 5, (i) the Company's
obligations to Consultant shall be limited to the payments provided for in the
preceding sentence and (ii) all other provisions of this Agreement shall
terminate.
6. Status. The Company and Consultant agree that Consultant shall be an
------
independent contractor of the Company and that nothing in this Agreement shall
be construed or deemed to create any other relationship. Without limiting the
foregoing, the relationship between the Company and Consultant shall not be that
of any employer-employee, joint venturers or partners. The Company shall not
make any deductions or withholdings from Consultant's compensation as might
otherwise be required by federal or state laws. Consultant expressly understands
and agrees that he shall be solely responsible for all withholding and income
taxes, and that he will not be covered by FICA, SDI or Workmen's Compensation
laws during the Consulting Period. Consultant agrees to provide the Company with
written evidence of compliance with federal and state withholding requirements
upon request.
7. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Florida, without regard to the
conflicts or choice of law provisions thereof.
8. Dispute Resolution. Except as provided below, any dispute arising out
------------------
of or relating to this Agreement or the breach, termination or validity hereof
shall be finally settled by arbitration conducted expeditiously in accordance
with the CPR Institute for Dispute Resolution Rules for Non-Administered
Arbitration of Business Disputes (the "CPR Rules"). The CPR Institute for
Dispute Resolution shall appoint a neutral advisor from its National CPR Panel.
The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
(S)(S)1-16, and judgment upon the award rendered by the arbitrators may be
entered by any court having jurisdiction thereof. The place of arbitration shall
be Tampa, Florida.
5
<PAGE>
Such proceedings shall be administered by the neutral advisor in accordance
with the CPR Rules as he/she deems appropriate, however, such proceedings shall
be guided by the following agreed upon procedures:
(a) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
(b) no other discovery;
(c) hearings before the neutral advisor which shall consist of a
summary presentation by each side of not more than three (3) hours; such
hearings to take place on one or two days at a maximum; and
(d) decision to be rendered not more than ten (10) days
following such hearings.
Notwithstanding anything to the contrary contained herein, the provisions
of this Section 8 shall not apply with regard to any equitable remedies to which
any party may be entitled hereunder.
Each of the parties hereto (i) hereby irrevocably submits to the
jurisdiction of the United States District Court for the District of
Massachusetts for the purpose of enforcing the award or decision in any such
proceeding, (ii) hereby waives, and agrees not to assert, by way of motion, as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the suit,
action or proceeding is brought in an inconvenient forum, that the venue of the
suit, action or proceeding is improper or that this Agreement or the subject
matter hereof may not be enforced in or by such court, and (iii) hereby waives
and agrees not to seek any review by any court of any other jurisdiction which
may be called upon to grant an enforcement of the judgment of any such court.
Each of the parties hereto hereby consents to service of process by registered
mail at the address to which notices are to be given. Each of the parties hereto
agrees that its or his submission to jurisdiction and its or his consent to
service of process by mail is made for the express benefit of the other parties
hereto. Final judgment against any party hereto in any such action, suit or
proceeding may be enforced in other jurisdictions by suit, action or proceeding
on the judgment, or in any other manner provided by or pursuant to the laws of
such other jurisdiction; provided, however, that any party hereto may at its or
-------- -------
his option bring suit, or institute other judicial proceedings, in any state or
federal court of the United States or of any country or place where the other
parties or their assets, may be found.
9. Successors and Assigns. This Agreement shall inure to the benefit of,
----------------------
and be binding upon, the successors of the Company by way of merger,
consolidation or transfer of all or substantially all of the assets of the
Company, and may not be assigned by Consultant.
10. No Conflicting Obligations. Consultant hereby represents and warrants
--------------------------
to the Company that he is not now under, or bound to be under in the future, any
obligation to any
6
<PAGE>
person, firm or corporation which is or would be inconsistent or in conflict
with this Agreement or would prevent, limit or impair in any way the full and
absolute performance by Consultant of his obligations hereunder. In addition,
Consultant covenants that he will not enter into or discuss entering into any
such agreement during the Consultant Period.
11. Entire Agreement; Modifications. This Agreement, the Merger
-------------------------------
Agreement, the Noncompetition Agreement and the Stockholders' Agreement
constitute the entire agreement between the parties pertaining to their subject
matter and supersede all prior and contemporaneous agreements, representations,
negotiations and understandings of the parties, whether oral or written. No
supplement, modification or amendment to this Agreement shall be binding unless
executed in writing by all the parties hereto.
12. Waivers. The failure of any party to require the performance or
-------
satisfaction of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent subsequent enforcement
of such term or obligation or be deemed a waiver of any subsequent failure or
breach.
13. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
14. Notices. All notices and other communications under this Agreement
-------
shall be in writing and shall be delivered in accordance with the provisions of
the Merger Agreement.
[Remainder of page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Consulting
Agreement as of the date and year first written above.
COMPANY:
MAC-GRAY II, INC., a Delaware
corporation
/s/
--------------------------------
Name:
Title:
CONSULTANT:
/s/ Jeffrey C. Huenink
--------------------------------
Jeffrey C. Huenink
Consulting Agreement
8
<PAGE>
SCHEDULE A
----------
LIST OF EXCLUDED ENTITIES
-------------------------
Material listed on this Schedule A has been omitted pursuant to a request for
confidential treatment and has been filed separately with the office of the
Secretary of the Securities and Exchange Commission.
9
<PAGE>
EXHIBIT 10.10
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT is made as of April 17, 1997 by and between
Mac-Gray II, Inc., a Delaware corporation (the "Company"), and Jeffrey C.
Huenink ("Executive"). Reference is made to that certain Agreement and Plan of
Merger dated as of the date of this Agreement (the "Merger Agreement") by and
among the Company, Mac-Gray Co., Inc., Mac-Gray Acquisition Corp. ("Acquisition
Corp."), Executive, Sun Services of America, Inc., a Florida corporation
("SSA"), and R. Bodden Coin-Op-Laundry, Inc. ("Bodden"). Capitalized terms used
in this Agreement and not defined herein shall have the respective meanings
given to them in the Merger Agreement.
WHEREAS, concurrently with the execution and delivery of this Agreement,
the parties are consummating the transactions contemplated by the Merger
Agreement, pursuant to which Acquisition Corp. will merge with and into Bodden,
SSA will merge with and into the Company and Executive will receive in exchange
for the capital stock of SSA and Bodden cash and shares of Company Stock (the
"Mergers");
WHEREAS, prior to the Mergers, Executive was the sole stockholder of, and
was principally involved in the management of the business of, each of SSA and
Bodden; and
WHEREAS, as a material inducement to the Company and Executive to
consummate the transactions contemplated by the Merger Agreement, the Company
and Executive are executing and delivering this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. NONCOMPETITION.
--------------
(a) Executive covenants and agrees that, for a period beginning on the
date of this Agreement and expiring on the third anniversary of the later of (i)
the date on which the Consulting Period (as defined in the Consulting Agreement)
expires and (ii) the date on which Executive ceases to serve as a director of
the Company (such later date is referred to herein as the "Termination Date"),
he shall not, without the express prior written consent of the Company, directly
or indirectly, anywhere in the Restricted Area (as defined below) (A) engage in
any activity in the Designated Industry (as defined below) or (B) engage,
participate or invest in or assist (whether as owner, part-owner, shareholder,
partner, member, director, officer, trustee, employee, agent or consultant, or
in any other capacity) any business organization whose activities, products or
services are in the Designated Industry; provided, however, that Executive may
-------- -------
make passive investments in a competitive enterprise, the shares of which are
publicly traded, if Executive's aggregate investment in such enterprise
constitutes less than one percent (1%) of the equity ownership of such
enterprise. Without implied limitation, the foregoing noncompetition covenant
shall prohibit Executive from (i) hiring, attempting to hire or otherwise
soliciting, for or on behalf of any entity or person, any officer or other
employee of the Company or any of its Affiliates (as defined below), or
authorizing or approving any such action by any other person, (ii) encouraging
for or on behalf of any entity or person any officer or other employee to
terminate his or her relationship or employment
<PAGE>
with the Company or any of its Affiliates, (iii) soliciting for or on behalf of
any entity or person any customer of the Company or any of its Affiliates and
(iv) diverting to any entity or person any customer of the Company or any of its
Affiliates. Notwithstanding the foregoing, the provisions of this Section 1(a)
shall cease to be in effect if and for so long as both (A) the Company is either
(x) in default in the payment of any amount due to Executive pursuant to Section
3 of the Consulting Agreement or (y) in material breach of any of its
obligations to Executive under the Stockholders' Agreement or the Merger
Agreement and (B) Executive is not then in material breach of any of his
obligations under the Consulting Agreement, the Stockholders' Agreement or the
Merger Agreement.
(b) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Restricted Area" means each state of the United States (A) in
---------------
which SSA is, as of the date of this Agreement, conducting any
business activities, (B) in which Bodden is, as of the date of this
Agreement, conducting any business activities, and (C) in which the
Company or any of its Affiliates are, as of the date of this Agreement
or at any time prior to the Termination Date, conducting any business
activities.
(ii) "Designated Industry" means the business of SSA and Bodden as
-------------------
of the date of this Agreement, including the business of owning,
selling, leasing, operating or servicing card or coin-operated laundry
machines.
(iii) "Affiliate" shall mean, with respect to any person or entity
---------
(herein the "first party"), any other person or entity that directly
or indirectly controls, or is controlled by, or is under common
control with, such first party (the term "control" as used herein
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to (A) vote
twenty-five percent (25%) or more of the outstanding voting securities
of such person or entity, or (B) otherwise direct the management or
policies of such person or entity by contract or otherwise).
2. CONFIDENTIALITY. Executive agrees that, for the benefit of the
---------------
Company and each of its Affiliates, for a period beginning on the date of this
Agreement and expiring on the tenth anniversary of the date of this Agreement,
he shall not (nor shall Executive assist any other person to) directly or
indirectly furnish, divulge, reveal, report, publish or disclose (other than as
may be required under applicable law) any Confidential Information (as
hereinafter defined) to any person, firm, corporation or other entity, or
hereafter use (or assist any person to use) such Confidential Information,
except as expressly permitted by the terms of the Consulting Agreement. For
purposes of this Agreement, the term "Confidential Information" means all
information or material not generally known to the public, which gives the
Company or any of its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to
2
<PAGE>
the interests of the Company or any of its Affiliates, including, without
limitation, trade secrets, inventions, drawings, file data, documentation,
diagrams, specifications, know how, processes, formulas, models, subscriber
lists, sales representative lists, proprietary information, research and
development procedures, research or development and test results, marketing
techniques and materials, marketing and development plans, price lists, pricing
policies, business plans, information relating to customers and/or suppliers'
identities, characteristics and agreements, financial information and
projections, and employee files. "Confidential Information" also includes any
information described above which the Company or any of its Affiliates obtains
from another party and which the Company or such Affiliate treats as proprietary
or designates as Confidential Information, whether or not owned or developed by
the Company or such Affiliate.
3. PAYMENT. In consideration of the covenants contained in Section 1
-------
hereof, the Company shall pay to Executive on the date hereof a total of five
thousand dollars ($5,000) in immediately available funds.
4. SCOPE OF AGREEMENT. The parties acknowledge that the time, scope,
------------------
geographic area and other provisions of this Agreement have been specifically
negotiated by sophisticated commercial parties and agree that (a) all such
provisions are reasonable under the circumstances of the transactions
contemplated by the Merger Agreement, (b) are given as an integral and essential
part of the transactions contemplated by the Merger Agreement and (c) but for
the covenants of Executive contained in this Agreement, the Company would not
enter into the Merger Agreement or consummate the transactions contemplated
thereby. Executive has independently consulted with his counsel and has been
advised in all respects concerning the reasonableness and propriety of the
covenants contained herein, with specific regard to the businesses conducted by
the Company and its Affiliates.
5. SPECIFIC PERFORMANCE; SEVERABILITY. It is specifically understood and
----------------------------------
agreed by the parties hereto that the breach by Executive of any provision of
this Agreement will result in irreparable injury to the Company and its
Affiliates, that the remedy at law alone will be an inadequate remedy for such
breach and that, in addition to any other remedy they may have, the Company and
each of its Affiliates shall be entitled to enforce the specific performance of
this Agreement by Executive through both temporary and permanent injunctive
relief without the necessity of proving actual damages. If the Company is
required to post a bond in connection with obtaining any temporary or permanent
injunctive relief, the parties hereto agree that such bond shall be limited in
amount to $10,000 and that such amount is reasonable and adequate for such bond.
In the event that any covenant or provision contained in this Agreement shall be
determined by any court of competent jurisdiction to be unenforceable by reason
of its extending for too long a period of time or over too large a geographical
area or by reason of its being too extensive in any other respect, such covenant
or provision shall not be construed to be null, void and of no effect, but
rather shall be interpreted to extend only over the maximum period of time for
which it may be enforceable, and/or over the maximum geographical area as to
which it may be enforceable, and/or to the maximum extent in all other respects
as to which it may be enforceable, all as determined by such court in such
action. The existence of any claim or cause of action which Executive may have
against the Company or any of its Affiliates shall
3
<PAGE>
not constitute a defense or bar to the enforcement of any of the provisions of
this Agreement and shall be pursued through separate court action by Executive.
6. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Florida, without regard to the
conflicts or choice of law provisions thereof.
7. ATTORNEYS' FEES. If any suit or action is instituted by either party
---------------
to enforce or in connection with any dispute relating to this Agreement, the
prevailing party in such suit or action shall be entitled to have all court
costs and attorneys' fees paid by the non-prevailing party.
8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of,
----------------------
and be binding upon, the successors of the Company and its Affiliates by way of
merger, consolidation or transfer of all or substantially all of the assets of
the Company, and may not be assigned by Executive.
9. NO CONFLICTING OBLIGATIONS. Executive hereby represents and warrants
--------------------------
to the Company that he is not now under, or bound to be under in the future, any
obligation to any person, firm or corporation which is or would be inconsistent
or in conflict with this Agreement or would prevent, limit or impair in any way
the full and absolute performance by Executive of his obligations hereunder. In
addition, Executive covenants that he will not enter into or discuss entering
into any such agreement.
10. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement, the Merger
-------------------------------
Agreement, the Consulting Agreement and the Stockholders' Agreement constitute
the entire agreement between the parties pertaining to their subject matter and
supersede all prior and contemporaneous agreements, representations,
negotiations and understandings of the parties, whether oral or written. No
supplement, modification or amendment to this Agreement shall be binding unless
executed in writing by all the parties hereto.
11. WAIVERS. The failure of any party to require the performance or
-------
satisfaction of any term or obligation of this Agreement, or the waiver by any
party of any breach of this Agreement, shall not prevent subsequent enforcement
of such term or obligation or be deemed a waiver of any subsequent failure or
breach.
12. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
13. NOTICES. All notices and other communications under this Agreement
-------
shall be in writing and shall be delivered in accordance with the provisions of
the Merger Agreement.
[Remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Noncompetition
Agreement as of the date and year first written above.
COMPANY:
MAC-GRAY II, INC., a Delaware
corporation
/s/
-------------------------------------------
Name:
Title:
EXECUTIVE:
/s/ Jeffrey C. Huenink
-------------------------------------------
Jeffrey C. Huenink
5
<PAGE>
Exhibit 10.11
-------------
NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT dated as of ________, 1997 by and between Mac-Gray
Corporation, a Delaware corporation having a principal place of business at 22
Water Street, Cambridge, Massachusetts 02141 (the "Company"), and
_____________________ of ____________ (the "Executive").
WHEREAS, in consideration of the employment of the Executive by the
Company, which necessarily involves the disclosure by the Company to the
Executive of, and access by the Executive to, confidential information relating
to the method of business, processes, products, operations and clients of the
Company, the parties hereto covenant and agree as follows:
ARTICLE 1. TRADE SECRETS; CONFIDENTIAL INFORMATION; PROPRIETARY PROPERTY
- --------- -------------------------------------------------------------
Section 1.01 Trade Secrets; Confidential Information. It is specifically
---------------------------------------
agreed between the parties hereto that: (a) the trade secrets of the Company
(the "Trade Secrets") shall include (i) the names and locations of the customers
of the Company and the services provided to each customer or supplier and (ii)
the terms and conditions of the contracts the Company has with each such
customer or supplier; and (b) the confidential information (the "Confidential
Information") of the Company shall include (i) any other confidential or
proprietary information or data relating to the business of the Company, or any
of its Affiliates (as defined below), which is not generally known to the public
and which provides the Company and its Affiliates some competitive advantage, or
the opportunity to obtain such advantage, or the disclosure of which could be
detrimental to the interests of the Company and its Affiliates, including,
without limitation, all notes, memoranda, inventions, drawings, file data,
documentation, diagrams, specifications, know how, processes, formulas, models,
customer lists, sales representative lists, sales plans, proprietary
information, research and development procedures, research or development and
test results, marketing techniques and materials, marketing and development
plans, price lists, pricing policies, business plans, reports, information
relating to customers and/or suppliers' identities, characteristics and
agreements, financial information and projections, and employee files, and (ii)
any information described above which the Company or any of its Affiliates
obtains from another party and which the Company or such Affiliate treats as
proprietary or designates as Confidential Information, whether or not owned or
developed by the Company or such Affiliate.
Section 1.02 Nondisclosure; Nonuse. As long as the Executive is employed
---------------------
by the Company and any time thereafter, the Executive shall keep secret and
shall not ever publish, divulge, furnish, impart or disclose any of the Trade
Secrets or Confidential Information to any person, firm or corporation other
than the Company or any of its Affiliates, or use any of the Trade Secrets or
Confidential Information, directly or indirectly, for the Executive's own
benefit or for the benefit of any person, firm or corporation other than the
Company and its Affiliates.
<PAGE>
Section 1.03 Company's Proprietary Right to Documents. All Trade Secrets
----------------------------------------
and Confidential Information shall be the property of the Company and its
Affiliates and shall be delivered by the Executive to the Company or an
Affiliate upon termination of the Executive's employment with the Company or an
Affiliate at any earlier time at the request of the Company or such Affiliate.
Specifically, the Executive agrees that any Trade Secrets or Confidential
Information coming into the Executive's possession by reason of the Executive's
employment with the Company or an Affiliate, including, without limitation,
custom computer programs, software, or related data, are the property of the
Company or such Affiliate and shall not be used in any way except on behalf of
and for the benefit of the Company or any of its Affiliates. The Executive will
not deliver, reproduce or otherwise use such documents or information for the
Executive's own benefit or in any way allow such documents or things to be
delivered or used by any third party without the prior written consent of the
Company. As long as the Executive is employed by the Company and any time
thereafter, the Executive will not publish, release or otherwise make available
to any third party any information describing any Trade Secret or Confidential
Information of the Company or any of its Affiliates, without the prior written
consent of the Company.
Section 1.04 Proprietary Property. The Executive agrees to, and does
--------------------
hereby, sell, assign, transfer and set over to the Company, its successors,
assigns or Affiliates, as the case may be, all of the Executive's right, title
and interest in and to any custom software, documentation, copyrights,
inventions, improvements, proprietary information, patents or applications for
patents (collectively, the "Proprietary Property") conceived of, prepared or
developed by the Executive, individually or in conjunction with others, during
the period that he hereafter will be employed by the Company; provided, however,
-------- -------
that the foregoing sale or assignment shall only apply to Proprietary Property
which either relates to the product areas in which the Company or any of its
Affiliates is then engaged or constitutes an application of any Proprietary
Property then belonging to the Company or any of its Affiliates. The right,
title and interest transferred pursuant to this Section 1.04 shall be held and
enjoyed by the Company, its Affiliates, and their respective successors and
assigns, to the full extent of the term for which any copyright or Letters
Patent may be granted, and as fully as the same would have been held by the
Executive had such sale or assignment not been made. The Executive agrees to
disclose promptly to the Company all such Proprietary Property and to deliver
any documents and take any other action necessary to vest in the Company all of
the Executive's rights in and to such Proprietary Property.
ARTICLE 2. NONCOMPETITION
- --------- --------------
Section 2.01 Noncompetition. The Executive covenants and agrees that he
--------------
shall not, for a period beginning on the date of this Agreement and ending on
the third anniversary of the date the Executive's employment with the Company is
terminated (the "Termination Date"), without the express prior written consent
of the Company, directly or indirectly, anywhere in the Restricted Area (as
defined below) (a) engage in any activity in the Designated Industry (as defined
below) or (b) engage, participate or invest in or assist (whether as owner,
part-owner, shareholder, partner, member, director, officer, trustee, employee,
agent or consultant, or in
2
<PAGE>
any other capacity) any business organization whose activities, products or
services are in the Designated Industry; provided, however, that the Executive
-------- -------
may make passive investments in a competitive enterprise, the shares of which
are publicly traded, if the Executive's aggregate investment in such enterprise
constitutes less than one percent (1%) of the equity ownership of such
enterprise. Without implied limitation, the foregoing noncompetition covenant
shall prohibit the Executive from (i) hiring, attempting to hire or otherwise
soliciting, for himself or on behalf of any entity or person, any officer,
director, consultant or other employee of the Company or any of its Affiliates,
or authorizing or approving any such action by any other person, (ii)
encouraging for himself or on behalf of any entity or person any officer,
director, consultant or other employee to terminate his or her relationship or
employment with the Company or any of its Affiliates, (iii) soliciting for or on
behalf of any entity or person any customer or Prospective Customer of the
Company or any of its Affiliates and (iv) diverting to any entity or person any
customer or Prospective Customer of the Company or any of its Affiliates.
Section 2.02 Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following meanings:
(a) "Restricted Area" means each state of the United States in which
---------------
the Company and its Affiliates are, collectively, as of the date of
this Agreement or at any time prior to the Termination Date,
conducting any business activities.
(b) "Designated Industry" means the principal business of the Company
-------------------
and its Affiliates as of the date of this Agreement, including,
without limitation, the business of owning, selling, leasing,
operating or servicing card or coin-operated laundry machines.
(c) "Affiliate" shall mean, with respect to any person or entity
---------
(herein the "first party"), any other person or entity that directly
or indirectly controls, or is controlled by, or is under common
control with, such first party (the term "control" as used herein
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to (X) vote
twenty-five percent (25%) or more of the outstanding voting securities
of such person or entity, or (Y) otherwise direct the management or
policies of such person or entity by contract or otherwise).
(d) "Prospective Customer" shall mean any person or entity with whom
--------------------
the Company was actively attempting to develop a customer relationship
(whether for laundry services or otherwise) at any time during the six
(6) months immediately preceding the Termination Date.
3
<PAGE>
ARTICLE 3. MISCELLANEOUS
- --------- -------------
Section 3.01 Scope of Agreement. The parties acknowledge that the time,
------------------
scope, geographic area and other provisions of this Agreement have been
specifically negotiated by sophisticated commercial parties and agree that all
such provisions are reasonable under the circumstances of the Executive's
employment with the Company. The Executive has independently consulted with his
counsel and has been advised in all respects concerning the reasonableness and
propriety of the covenants contained herein, with specific regard to the
businesses conducted by the Company and its Affiliates.
Section 3.02 Specific Performance; Severability. It is specifically
----------------------------------
understood and agreed by the parties hereto that the breach by the Executive of
any provision of this Agreement will result in irreparable injury to the Company
and its Affiliates, that the remedy at law alone will be an inadequate remedy
for such breach and that, in addition to any other remedy they may have, the
Company and each of its Affiliates shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief without the necessity of proving actual damages. If
the Company is required to post a bond in connection with obtaining any
temporary or permanent injunctive relief, the parties hereto agree that such
bond shall be limited in amount to $10,000 and that such amount is reasonable
and adequate for such bond. In the event that any covenant or provision
contained in this Agreement shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its extending for too long a
period of time or over too large a geographical area or by reason of its being
too extensive in any other respect, such covenant or provision shall not be
construed to be null, void and of no effect, but rather shall be interpreted to
extend only over the maximum period of time for which it may be enforceable,
and/or over the maximum geographical area as to which it may be enforceable,
and/or to the maximum extent in all other respects as to which it may be
enforceable, all as determined by such court in such action. The existence of
any claim or cause of action which the Executive may have against the Company or
any of its Affiliates shall not constitute a defense or bar to the enforcement
of any of the provisions of this Agreement and shall be pursued through separate
court action by the Executive.
Section 3.03 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of The Commonwealth of Massachusetts,
without regard to the conflicts or choice of law provisions thereof.
Section 3.04 Attorneys' Fees. If any suit or action is instituted by
---------------
either party to enforce or in connection with any dispute relating to this
Agreement, the prevailing party in such suit or action shall be entitled to have
all court costs and attorneys' fees paid by the non-prevailing party.
Section 3.05 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of, and be binding upon, the successors of the Company and its
Affiliates by way of merger,
4
<PAGE>
consolidation or transfer of all or substantially all of the assets of the
Company, and may not be assigned by the Executive.
Section 3.06 No Conflicting Obligations. The Executive hereby represents
--------------------------
and warrants to the Company that he is not now under, or bound to be under in
the future, any obligation to any person, firm or corporation which is or would
be inconsistent or in conflict with this Agreement or would prevent, limit or
impair in any way the full and absolute performance by the Executive of his
obligations hereunder. In addition, the Executive covenants that he will not
enter into or discuss entering into any such agreement.
Section 3.07 Entire Agreement; Modifications. This Agreement constitutes
-------------------------------
the entire agreement between the parties pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements, representations,
negotiations and understandings of the parties, whether oral or written. No
supplement, modification or amendment to this Agreement shall be binding unless
executed in writing by all the parties hereto.
Section 3.08 No Employment Obligations. The Executive understands and
-------------------------
agrees that this Agreement does not create any obligation on the part of the
Company to continue his employment with the Company. The Executive acknowledges
that he is employed by the Company as an employee "at will" and further
acknowledges that there are no employment or other similar agreements between
the Company and the Executive.
Section 3.09 Waivers. The failure of any party to require the
-------
performance or satisfaction of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent failure or breach.
Section 3.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 3.11 Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be delivered by certified mail, return
receipt requested, postage prepaid, to the address set forth above unless
another address shall be furnished in writing by such party.
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Noncompetition
Agreement as of the date and year first written above.
COMPANY:
MAC-GRAY CORPORATION, a
Delaware corporation
---------------------------------
Name:
Title:
EXECUTIVE:
---------------------------------
[Name]
6
<PAGE>
EXHIBIT 10.12
LICENSING AGREEMENT FOR MAYTAG "RED CARPET SERVICE"(R)
This Agreement is entered into by and between Maytag Appliances, having a place
of business at Newton, Iowa, (hereinafter referred to as Company) and Mac-Gray,
Company, Inc. of Cambridge, Massachusetts, 02141, (hereinafter referred to as
Distributor).
Company has developed, for use by its recognized servicing outlets and those of
its Distributors who specialize in Maytag Appliance repair to consumers, a
program that emphasizes high quality. Company wishes, therefore, to extend the
program only to those commercial distributors willing and capable of high
quality performance in the servicing area and to grant to these firms the right
to employ Company's registered service mark Red Carpet Service.
Distributor wishes to avail themselves of the program and be recognized by
Company. It is therefore mutually agreed as follows:
1. Company authorizes Distributor to use the service mark Red Carpet Service
in identifying the repair services they provide with respect to appliances
placed by them in multi-family dwellings on a sale or lease basis, but only
in conjunction or combination with the trademark Maytag.
2. Company retains the complete right of control over the manner and extent of
the use of the service mark Red Carpet Service so that uniformity of use
and promotion can be maintained and furthered.
3. Company will undertake and provide to Distributor at reasonable cost, if
any, the materials required in this Agreement such as uniforms, decals and
red carpets.
4. Distributor recognizes and will faithfully adhere to the following
standards and requirements:
a. All Service technicians employed by Distributor shall have attended such
service training schools and sessions offered by Company as will render
them adequately trained to perform "Red Carpet Service" in the opinion
of Company.
b. Service technicians must be dressed in the uniform prescribed by Company
when making service calls.
c. Service vehicles shall be white and must have prominently displayed on
each side, full size truck decals reading "Maytag Commercial Red Carpet
Service."
d. Service technicians shall have with them on each service call the
following:
1) White tool boxes displaying "Maytag Red Carpet" decals.
2) Two (2) clean red carpets with one to be laid on floor and other
on appliance top. These are to be cleaned as often as necessary
to maintain a neat appearance.
e. All requests for service on an appliance must be scheduled and performed
within 24 hours of the hour of the request.
f. Service technicians shall be courteous and considerate, not smoke in
customer's
<PAGE>
laundry facilities, never use or consume intoxicants or
controlled substances during working hours and leave the premises and
appliances as clean or cleaner than when the call began.
5. Subject to applicable statutes, this Agreement may be terminated as to all
or any Location(s):
a. By either part at any time with or without cause upon giving sixty (60)
days written notice to the other party, which termination shall be
effective sixty (60) days from the date of the notice.
b. Immediately upon the failure by the other party to promptly perform any
of its obligations under this Agreement (a "Default") which has not been
cured by the party within ten (10) days after notice of such Default.
c. Immediately by Company in the event:
1) Distributor fails to promptly pay sums when due to Company; or
2) Distributor shall become insolvent; shall be deemed insolvent or
bankrupt; or shall cease or liquidate its business; or
3) Of the sale of the Distributor's business, an assignment or
transfer of business assets or, if Distributor is a corporation, a
change in majority control of the Corporation without a thirty (30)
day written notice to Company and Company's written approval of
such change; or
4) Distributor, its agents or employees make any false, misleading,
derogatory or deceptive statements, written or oral, about Company,
Maytag Corporation, any of its affiliated or subsidiary companies
or any of their products or services.
d. Immediately and without notice if Distributor ceases to be authorized to
sell and/or service Maytag Appliances. In the event of termination by
Company, Distributor may, within thirty (30) days of the date or the
notice of termination, make written request for a review of the decision
to terminate to the Vice President Strategic Marketing of Company
setting forth the reasons Distributor believes termination should not
take place. This request shall not stay or extend the effective date of
termination. The Vice President Strategic Marketing will promptly reach
a decision and notify Distributor of the decision.
Upon termination Distributor shall immediately discontinue all permitted
uses of the mark Red Carpet Service in telephone directories, on store
fronts, on signs, on posterboards, in newspapers and periodicals, on
vehicles, on stationery and in any manner whatsoever. In the event
Distributor does not promptly discontinue use of the mark Red Carpet
Service and Company brings legal action to compel compliance, Company shall
be entitled to be reimbursement for all costs, attorney's fees, and other
expenses which shall be in addition to any other remedy.
6. This Agreement, having first been executed by Distributor, shall become
effective and binding upon both Company and Distributor upon the date of
its execution by Company at Newton, Iowa. Except as otherwise provided by
applicable State or Federal law, this Agreement will terminate on June 30,
1998.
<PAGE>
This Agreement entered into ______________________________________
(Date to be filled in by Newton office)
COMMERCIAL DISTRIBUTOR: Maytag Appliances:
By___________________________ By:______________________________________
Commercial Division Sales Manager, Newton,
Iowa
_____________________________ _________________________________________
Print or Type Signature Commercial Field Sales Manager
<PAGE>
EXHIBIT 10.13
MAYTAG
COMMERCIAL
ON-PREMISE LAUNDRY
DISTRIBUTOR
SALES AGREEMENT
1996-1998
<PAGE>
MAYTAG Company, having a place of business at Newton, Iowa (hereinafter referred
to as Company) and Mac-Gray Co., Inc., a Delaware Corporation, having a place of
business located at Cambridge, Massachusetts (hereinafter referred to as
Distributor) mutually agree as follows:
1. Distributor shall undertake to engage in the business of selling those
Maytag brand commercial on premise laundry equipment listed below:
(Distributor must initial on the line beside the products Distributor
agrees to sell or provide).
__x___ Commercial Non Coin Top-Load Washers
__x___ Commercial Non Coin Front-Load Washers
__x___ Commercial Non Coin Single-Load Dryers
__x___ Commercial Non Coin Stack Dryers
__x___ Commercial Non Coin Multi-Load Dryers
along with accessories for non coin commercial installation in on premise
laundry, "OPL" locations in the area of primary marketing responsibility as
described on the attached list(s) and to diligently devote its time and
abilities in developing the sales potential for the indicated Maytag brand
commercial OPL equipment in the area in such a manner as will justify
continuance of this Agreement by Company.
It is understood the statement of "area" in this Agreement is intended to
insure that all sales opportunities throughout the United States or Canada
are specifically assigned for accountability. It is not the intention to
restrict sales of Distributors to such areas; provided it is understood
that every sale of commercial OPL equipment, wherever made, carries with it
the full range of Distributor responsibility to purchaser, including that
of installation, warranty service and post-warranty service as required.
Company shall provide and Distributor shall accept quotas on unit appliance
sales for the area of its primary marketing responsibility. Credit against
quota is not given for sales outside this area so Distributor or Company
will deduct such sales from reports of quota attainment. Although these
quotas are to be considered as reasonable sales objectives and not as legal
obligation, when they are accepted by Distributor it shall be the
responsibility of Distributor to make every reasonable effort to meet such
quotas. Distributor shall recognize and promote Company's marketing
programs and exert every effort to insure success of these programs in
Distributor's area of primary responsibility.
2. On a mutually non-exclusive basis, Company shall sell to Distributor such
models of Maytag brand commercial appliance in the categories initialed by
Distributor, including repair parts and accessories for the same, in such
quantities as Distributor will order
<PAGE>
and purchase, provided the item ordered has been made available by Company
for general sale to its other Distributors of commercial appliances and in
the judgment of Company it is appropriate to market it in the area herein
described. Where an item is being made available, but is in short supply,
Company reserves the right to allocate the available supply among its
commercial Distributor in the manner that Company considers most equitable.
All orders of Distributor shall be subject to acceptance by Company at its
home office in Newton, Iowa. Prices and terms to be those in effect at the
time of shipment with all prices and terms being subject to change without
notice. Any order form used by Distributor containing terms and conditions
of purchase shall not vary or add to the terms of this Agreement.
3. Distributor shall make every reasonable effort to insure that all non-
Maytag brand commercial equipment furnished to an OPL customer is of the
highest possible quality. Distributor shall, in every instance, inform the
OPL customer (prior to sale) the names of the manufacturers of such other
appliances, that such appliances are not the product of Company, and that
any guarantee or representation of the quality or performance of such
appliance is by its manufacturer and not by Company.
4. Company issues a printed warranty on each Maytag Brand commercial appliance
and Company hereby grants the same warranty to all Maytag brand commercial
appliances purchased by Distributor. Distributor agrees to assume any
labor responsibilities under the warranty. Distributor agrees to indemnify
and hold Company harmless, including providing the necessary defense,
against any and all claims based upon any labor warranty.
5. Distributor is to assume the responsibility under this Agreement of
assuring the commercial purchasers that proper service is available during
the warranty period as well as continuing service as needed, either through
Distributor's own service organization or through Distributor-approved
independent service organizations, and shall furnish Company with a current
list showing the names and addresses of such organizations. Distributor
shall also provide commercial purchaser with an up-to-date list of
competent service organizations that may be used, information regarding
where parts may be procured, appropriate service information made available
by Company, and a time and place of offering of service training courses.
In view of Distributor's prominent public identification with Company, to
avoid customer misunderstanding and deception, Distributor agrees that to
the extent it uses other than Maytag-authorized repair parts in the repair
of Maytag brand commercial appliances, it will inform the customer of the
fact of such substitution and will, in addition, clearly indicate on the
customer's invoice that a part has been substituted for a Maytag-authorized
part.
6. Distributor shall provide, on an annual basis, a list of sales personnel
showing name, address and territory covered. Distributor shall also
forward to the Company, one copy of its annual statement of financial
condition and one copy of its statement of income
<PAGE>
and expense as promptly as possible after the close of its fiscal year.
7. Distributor recognizes that Maytag Corporation is the owner of the marks
Maytag and its Company SYMBOL. During the terms of this Agreement,
Distributor shall be permitted to use these marks in its advertising;
however, such usage by Distributor shall not be construed as the granting
of a license for any Maytag Corporation marks. Distributor's use shall be
in accordance with the standards established by Maytag Corporation for
their protection and shall be subject to Maytag Corporation's complete
right of control over the manner and extent of use and of the right of
Company to compel discontinuance of such usages.
Distributor may not use the name and mark Maytag as part of its trade name
unless such use is expressly authorized by Company in writing and shall
never use it in a manner to indicate that Distributor is other than an
independent contractor, as distinguished from an agent or employee of
Company.
Upon request or upon termination of this Agreement, Distributor shall
immediately discontinue and relinquish any and all permitted uses of the
name Maytag and of the marks Maytag and its Company Symbol in telephone
directories, on store fronts, on signs, on posterboards, in newspapers and
periodicals, on trucks, on stationery or in any manner whatsoever and
advertising and promotional material on Maytag brand commercial appliances
shall be destroyed. In the event Distributor does not promptly discontinue
use of these marks and legal action is commenced to compel compliance,
Company or Maytag Corporation in such action shall be entitled to be
reimbursed for all costs, attorney's fees and other expenses, which shall
be in addition to any other rights of recovery.
Distributor shall not permit any OPL customer to use the mark Maytag or the
Company Symbol without the express written permission of Company.
8. Distributor is not in any respect an agent, representative, joint venturer,
partner or employee of Company or Maytag Corporation. In furtherance of
this fact, Distributor shall accept full responsibility for any
representations made to its customers, including but not limited to those
dealing with questions of profitability, location, facilities, equipment
and service requirements. Further, Distributor agrees to indemnify and
hold Company and Maytag Corporation harmless, including providing of
necessary defense against any and all claims made by customers based upon
Distributor's representations.
9. It is agreed that wholesale price sheets and information will be treated by
Distributor as confidential and shall not be revealed, disseminated or
displayed to the public because they are not prepared to provide consumer
understanding and may, therefore, mislead consumers.
10. Neither Company nor Distributor shall be held in default for failure of
performance under this Agreement, due to strikes, riots, insurrections,
fire, acts of God, inability to
<PAGE>
obtain labor, machinery, material or merchandise or for any cause beyond
their reasonable control.
11. Except as otherwise provided by applicable State, Provincial, or Federal
law, this Agreement may be terminated at any time with or without cause by
either Company or Distributor by a ninety (90) day written notice of
cancellation, duly signed on behalf of the party electing to terminate the
Agreement and delivered to the other party. Deposit of such notice in the
United States Certified Mail (in the case of a foreign Distributor the
nearest foreign equivalent) with the requisite postage, and properly
addressed to the addressee at its last known place of business shall be
deemed delivery of the notice.
In the event of termination, Distributor may, within the ninety (90) days
prior to the effective date of termination, make written request for a
review of the decision to terminate to the Vice President Strategic
Marketing of Company setting forth the reasons Distributor believes
termination should not take place. Such request shall not stay or extend
the effective date of termination. The Vice President Strategic Marketing
will, within fifteen (15) days of receipt of such request, reach a decision
and immediately notify Distributor of the decision.
Such termination of this Agreement by cancellation or its termination by
expiration, will automatically effective on the date thereof, cancel all
undelivered purchase orders placed by Distributor with Company, whether or
not accepted by Company. Both Distributor and Company shall waive any
claim for compensation in connection with such cancellation of undelivered
purchase orders. Further, neither Company nor Distributor shall be liable
with such cancellation of undelivered purchase orders. Further, neither
Company nor Distributor shall be liable to the other because of the
termination of this Agreement for compensation, reimbursement or damages on
account of the loss of prospective profits on anticipated sales or on
account of expenditures, investments, leases or any type of commitments
made in connection with the business of either of them.
12. In the event of the termination of this Agreement, Company shall have for a
period of fifteen (15) days from and after the date of said termination,
the exclusive option, exercisable by giving a written notice, to purchase
all or any part of the inventory of new, used and repossessed Maytag brand
commercial appliances owned by Distributor upon that date at the following
prices: New Maytag brand commercial appliances at the price for which such
appliances were sold to Distributor by Company, less any discounts or
allowances granted and plus actual freight (or the regular commercial truck
rate in the event transported in Distributor's own truck) apportionable to
those appliances for which the option is exercised; used or repossessed
Maytag brand commercial appliances at 75% of the current price for similar
new appliances. Distributor shall not sell or offer for sale any Maytag
brand commercial appliances to anyone else during such option period
without written permission from Company and, if required by Company, will
assemble, at the place of business mentioned in this Agreement, all Maytag
brand commercial appliances Distributor owned on said
<PAGE>
termination date. The option of repurchase herein described shall also
apply to any new accessories or new repair parts, as they are defined by
Company, at a price computed by the formula prescribed for new appliances.
13. This Agreement supersedes all previous agreements covering this
Distributorship. There are no agreements, written or oral, as to the terms
and conditions of this Distributorship except those contained herein, and
it is expressly understood by Distributor that no subsequent agreement
modifying or altering the terms hereof shall bind Company unless in
writing, duly signed by an officer or the Commercial Division Manager of
Company at Newton, Iowa.
14. All questions arising out of or under this Agreement shall be governed by
the domestic laws of the State of Iowa.
15. This Agreement is personal to Distributor and terminates upon the sale of
the business or an assignment or transfer of the business assets or the
capital stock of a corporation. Further, the Agreement can be declared
terminated by Company if there is a change in operating management prior to
written notice to Company and its written approval of such change.
16. This Agreement, having first been executed by Distributor, shall become
effective and binding upon both Company and Distributor upon the date of
its execution by an officer or the Commercial Division Manager of Company
at Newton, Iowa, and except as otherwise provided by applicable State,
Provincial or Federal law thereafter shall remain effective until June 30,
1998, unless previously terminated by cancellation as provided in Paragraph
11 hereof.
17. Distributor certifies in executing this Agreement that Maytag brand
commercial appliances, accessories and repair parts purchased from Company
are for resale, that it holds an active registration or resale number and
that it will account to the appropriate state, province or city for any
retailer's occupation tax due as a result of the sale of this property at
retail.
<PAGE>
- --------------------------------------- ---------------------------------------
(TAXING BODY, STATE PROVINCE OR CITY) (SALES TAX REGISTRATION NUMBER)
This Agreement entered into this ______ day of _______________, 19_____
DISTRIBUTOR MAYTAG COMPANY
- --------------------------------------- ---------------------------------------
(Firm Name) (Commercial District Sales Manager)
By By
---------------------------------- -------------------------------------
(Signature and Title) (Commercial Division Manager)
<PAGE>
MAYTAG
COMMERCIAL DISTRIBUTOR SALES AGREEMENT
1996-1998
Mac-Gray Company, Inc.
7283
<PAGE>
Maytag Company, having a place of business at Newton, Iowa (hereinafter referred
to as Company) and Mac-Gray Company, Inc. a(an) Delaware Corporation, having a
place of business located at Charlotte, North Carolina, (hereinafter referred to
as Distributor) mutually agree as follows:
1. Distributor shall undertake to engage in the business of selling those
Maytag brand commercial on premise laundry equipment listed below:
(Distributor must initial on the line beside the products Distributor
agrees to sell or provide).
__x__ Commercial Non Coin Top-Load Washers
__x__ Commercial Non Coin Front-Load Washers
__x__ Commercial Non Coin Single-Load Dryers
__x__ Commercial Non Coin Stack Dryers
__x__ Commercial Non Coin Multi-Load Dryers
along with accessories for commercial installation in new and existing
self-service coin laundries, multiple housing locations, dealers, and to
route operators in the area of primary marketing responsibility as
described on the attached list(s) and to diligently devote its time and
abilities in developing the sales potential for the indicated Maytag brand
commercial OPL equipment in the area in such a manner as will justify
continuance of this Agreement by Company.
It is understood the statement of "area" in this Agreement is intended to
insure that all sales opportunities throughout the United States or Canada
are specifically assigned for accountability. It is not the intention to
restrict sales of Distributors to such areas; provided it is understood
that every sale of commercial appliances, wherever made, carries with it
the full range of Distributor responsibility to purchaser, including that
of installation, warranty service and post-warranty service as required.
Company shall provide and Distributor shall accept quotas on unit sales for
the area of its primary marketing responsibility. Credit against quota is
not given for sales outside this area so Distributor or Company will deduct
such sales from reports of quota attainment. Although these quotas are to
be considered as reasonable sales objectives and not as legal obligation,
when they are accepted by Distributor it shall be the responsibility of
Distributor to make every reasonable effort to meet such quotas.
Distributor shall recognize and promote Company's marketing programs and
exert every effort to insure success of these programs in Distributor's
area of primary responsibility.
2. Distributor shall undertake to engage in the business of selling Maytag
household washers and dryers for installation in new multiple housing
projects and existing
<PAGE>
projects which are substantially remodeled and to develop this market with
Distributor's primary area of marketing responsibility.
3. Distributor shall submit orders on forms provided by Company for these
products. Only sales meeting the qualifications set forth on the form
provided by Company shall qualify for Distributor pricing.
4. On a mutually non-exclusive basis, Company shall sell to Distributor such
models of Maytag brand commercial appliances in the categories initialed by
Distributor, including repair parts and accessories for the same, in such
quantities as Distributor will order and purchase, provided the item
ordered has been made available by Company for general sale to its other
Distributors of commercial appliances and in the judgment of Company it is
appropriate to market it in the area herein described. Where an item is
being made available, but is in short supply, Company reserves the right to
allocate the available supply among its commercial Distributors in the
manner that Company considers most equitable. All orders of Distributor
shall be subject to acceptance by Company at its home office in Newton,
Iowa. Prices and terms to be those in effect at the time of shipment with
all prices and terms being subject to change without notice. Any order
form used by Distributor containing terms and conditions of purchase shall
not vary or add to the terms of this Agreement.
5. Distributor shall make every reasonable effort to insure that all non-
Maytag brand commercial equipment furnished to an operator are of the
highest possible quality. Distributor shall, in every instance, inform the
OPL customer (prior to sale) the names of the manufacturers of such other
appliances that such appliances are not the product of Company, and that
any guarantee or representation of the quality or performance of such
appliance is by its manufacturer and not by Company.
6. Company issues a printed warranty on each Maytag Brand commercial appliance
and Company hereby grants the same warranty to all Maytag brand commercial
appliances purchased by Distributor. Distributor agrees to assume any
labor responsibilities under the warranty. Distributor agrees to indemnify
and hold Company harmless, including providing the necessary defense,
against any and all claims based upon any labor warranty.
7. Distributor is to assume the responsibility under this Agreement of
assuring the commercial purchasers that proper service is available during
the warranty period as well as continuing service as needed, either through
Distributor's own service organization or through Distributor-approved
independent service organizations, and shall furnish Company with a current
list showing the names and addresses of such organizations. Distributor
shall also provide commercial purchaser with an up-to-date list of
competent service organizations that may be used, information regarding
where parts may be procured, appropriate service information made available
by Company, and a time and place of offering of service training courses.
<PAGE>
In view of Distributor's prominent public identification with Company, to
avoid customer misunderstanding and deception, Distributor agrees that to
the extent it uses other than Maytag-authorized repair parts in the repair
of Maytag brand commercial appliances, it will inform the customer of the
fact of such substitution and will, in addition, clearly indicate on the
customer's invoice that a part has been substituted for a Maytag-authorized
part.
8. Distributor shall provide, on an annual basis, a list of sales personnel
showing name, address and territory covered. Distributor shall also
forward to the Company, one copy of its annual statement of financial
condition and one copy of its statement of income and expense as promptly
as possible after the close of its fiscal year.
9. Distributor recognizes that Maytag Corporation is the owner of the marks
Maytag and its Company Symbol. During the terms of this Agreement,
Distributor shall be permitted to use these marks in its advertising;
however, such usage by Distributor shall not be construed as the granting
of a license for any Maytag Corporation marks. Distributor's use shall be
in accordance with the standards established by Maytag Corporation for
their protection and shall be subject to Maytag Corporation's complete
right of control over the manner and extent of use and of the right of
Company to compel discontinuance of such usages.
Distributor may not use the name and mark Maytag as part of its trade name
unless such use is expressly authorized by Company in writing and shall
never use it in a manner to indicate that Distributor is other than an
independent contractor, as distinguished from an agent or employee of
Company.
Upon request or upon termination of this Agreement, Distributor shall
immediately discontinue and relinquish any and all permitted uses of the
name Maytag and of the marks Maytag and its Company Symbol in telephone
directories, on store fronts, on signs, on poster boards, in newspapers and
periodicals, on trucks, on stationery or in any manner whatsoever and
advertising and promotional material on Maytag brand commercial appliances
shall be destroyed. In the event Distributor does not promptly discontinue
use of these marks and legal action is commenced to compel compliance,
Company or Maytag Corporation in such action shall be entitled to be
reimbursed for all costs, attorney's fees and other expenses, which shall
be in addition to any other rights of recovery.
10. Distributor must make every effort to identify each coin laundry using
Maytag brand commercial appliances by signs, decals, etc., utilizing the
words "Maytag Washer Equipped" or "Maytag Washer and Dryer Equipped" in
accordance with written specifications as to shape, size and color
combinations, which are available to Distributor through Company. All such
identification materials not prepared by Company must be submitted to
Company for its prior approval, which approval will be governed by the
written specifications. In no event may the name and mark Maytag be used
in the firm or trade name of any customer of Distributor, except to point
out that a
<PAGE>
particular location has an installation of Maytag brand commercial washers
or washers and dryers by using the combination of words set out in the
first sentence of this paragraph.
Any violation of this latter provision must be brought to Company's
attention by Distributor as it becomes known to it. In the event
Distributor fails to notify Company of a violation or has in some way not
enforced the prohibition, Company shall have the right, as to all
violations occurring after the date of this Agreement, to take any steps
necessary to correct the unauthorized use of Maytag and to charge back to
the Distributor all expenses incurred, which shall be in addition to any
other remedy. Further, Distributor must incorporate in its contract
documents signed by a commercial purchaser of washers or dryers for
installation in a laundry open to the general public the agreement of
purchaser to discontinue advertising the business as equipped with Maytag
brand commercial appliances if so requested by Distributor or Company on
the grounds that the business has ceased to meet reasonable standards of
maintenance and cleanliness or has advertised in any way that it deceptive
to the consuming public.
11. Distributor is not in any respect an agent, representative, joint venturer,
partner or employee of Company or Maytag Corporation. In furtherance of
this fact, Distributor shall accept full responsibility for any
representations made to its customers, including but not limited to those
dealing with questions of profitability, location, facilities, equipment
and service requirements. Further, Distributor agrees to indemnify and
hold Company and Maytag Corporation harmless, including providing of
necessary defense against any and all claims by customers based upon
Distributor's representations.
12. It is agreed that wholesale price sheets and information will be treated by
Distributor as confidential and shall not be revealed, disseminated or
displayed to the public because they are not prepared to provide consumer
understanding and may, therefore, mislead consumers.
13. Neither Company nor Distributor shall be held in default for failure of
performance under this Agreement, due to strikes, riots, insurrections,
fire, acts of God, inability to obtain labor, machinery, material or
merchandise or for any cause beyond their reasonable control.
14. Except as otherwise provided by applicable State, Provincial, or Federal
law, this Agreement may be terminated at any time with or without cause by
either Company or Distributor by a ninety (90) day written notice of
cancellation, duly signed on behalf of the party electing to terminate the
Agreement and delivered to the other party. Deposit of such notice in the
United States Certified Mail (in the case of a foreign Distributor the
nearest foreign equivalent) with the requisite postage, and properly
addressed to the addressee at its last known place of business shall be
deemed delivery of the notice.
In the event of termination, Distributor may, within the ninety (90) days
prior to the effective date of termination, make written request for a
review of the decision to
<PAGE>
terminate to the Vice President Strategic Marketing of Company setting
forth the reasons Distributor believes termination should not take place.
Such request shall not stay or extend the effective date of termination.
The Vice President Strategic Marketing will, within fifteen (15) days of
receipt of such request, reach a decision and immediately notify
Distributor of the decision.
Such termination of this Agreement by cancellation or its termination by
expiration, will automatically effective on the date thereof, cancel all
undelivered purchase orders placed by Distributor with Company, whether or
not accepted by Company. Both Distributor and Company shall waive any
claim for compensation in connection with such cancellation of undelivered
purchase orders. Further, neither Company nor Distributor shall be liable
with such cancellation of undelivered purchase orders. Further, neither
Company nor Distributor shall be liable to the other because of the
termination of this Agreement for compensation, reimbursement or damages on
account of the loss of prospective profits on anticipated sales or on
account of expenditures, investments, leases or any type of commitments
made in connection with the business of either of them.
15. In the event of the termination of this Agreement, Company shall have for a
period of fifteen (15) days from and after the date of said termination,
the exclusive option, exercisable by giving a written notice, to purchase
all or any part of the inventory of new, used and repossessed Maytag brand
commercial appliances owned by Distributor upon that date at the following
prices: New Maytag brand commercial appliances at the price for which such
appliances were sold to Distributor by Company, less any discounts or
allowances granted and plus actual freight (or the regular commercial truck
rate in the event transported in Distributor's own truck) apportionable to
those appliances for which the option is exercised; Used or repossessed
Maytag brand commercial appliances at 75% of the current price for similar
new appliances. Distributor shall not sell or offer for sale any Maytag
brand commercial appliances to anyone else during such option period
without written permission from Company and, if required by Company, will
assemble, at the place of business mentioned in this Agreement, all Maytag
brand commercial appliances Distributor owned on said termination date.
The option of repurchase herein described shall also apply to any new
accessories or new repair parts, as they are defined by Company, at a price
computed by the formula prescribed for new appliances.
16. This Agreement supersedes all previous agreements covering this
Distributorship. There are no agreements, written or oral, as to the terms
and conditions of this Distributorship except those contained herein, and
it is expressly understood by Distributor that no subsequent agreement
modifying or altering the terms hereof shall bind Company unless in
writing, duly signed by an officer or the Commercial Division Manager of
Company at Newton, Iowa.
17. All questions arising out of or under this Agreement shall be governed by
the domestic laws of the State of Iowa.
<PAGE>
18. This Agreement is personal to Distributor and terminates upon the sale of
the business or an assignment or transfer of the business assets or the
capital stock of a corporation. Further, the Agreement can be declared
terminated by Company if there is a change in operating management prior to
written notice to Company and its written approval of such change.
19. This Agreement, having first been executed by Distributor, shall become
effective and binding upon both Company and Distributor upon the date of
its execution by an officer or the Commercial Division Manager of Company
at Newton, Iowa, and except as otherwise provided by applicable State,
Provincial or Federal law thereafter shall remain effective until June 30,
1998, unless previously terminated by cancellation as provided in Paragraph
11 hereof.
20. Distributor certifies in executing this Agreement that Maytag brand
commercial appliances, accessories and repair parts purchased from Company
are for resale, that it holds an active registration or resale number and
that it will account to the appropriate state, province or city for any
retailer's occupation tax due as a result of the sale of this property at
retail.
______________________________________ _______________________________________
(TAXING BODY, STATE PROVINCE OR CITY) (SALES TAX REGISTRATION NUMBER)
This Agreement entered into this ______ day of _______________, 19_____
DISTRIBUTOR MAYTAG COMPANY
______________________________________ _______________________________________
(Firm Name) (Commercial District Sales Manager)
By__________________________________ By_____________________________________
(Signature and Title) (Commercial Division Manager)
<PAGE>
Exhibit 10.14
PROMISSORY NOTE
---------------
$3,545,440 December 31, 1992
Cambridge, Massachusetts
FOR VALUE RECEIVED, Mac-Gray Co., Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Donald M. Shaw (the
"Shareholder"), the principal sum of THREE MILLION FIVE HUNDRED FORTY-FIVE
THOUSAND FOUR HUNDRED FORTY DOLLARS ($3,545,440.00), together with interest
thereon, as hereinafter provided.
Principal and Interest Payments. Payments of principal shall be made in
-------------------------------
twenty (20) equal quarterly installments (each, a "Principal Installment") in
the amount of $177,272.00 each (such amount to be adjusted as necessary with
respect to any prepayment hereunder) on January 1st, April 1st, July 1st and
October 1st of each year, with the first such Principal Installment to be on
January 1, 1996; provided, however, that any payment which is stated to be due
on a day which is not a business day shall be made on the next succeeding
business day.
A single payment of interest only shall be due and payable on April 1,
1993, and thereafter payments of interest shall be made in thirty-one (31)
installments (each, an "Interest Installment") on January 1st, April 1st, July
1st and October 1st of each year; provided, however, that any payment which is
stated to be due on a day which is not a business day shall be made on the next
succeeding business day, and any such extension shall be included in the
computation of the payment of interest. Interest (computed on the basis of the
actual number of days elapsed in a 365-day year) shall accrue on the unpaid
principal amount outstanding from time to time hereunder from the date hereof
until due and payable (whether at maturity, at the date of an Interest
Installment, at a date fixed for prepayment or otherwise) at a rate per annum,
adjusted on each date that an Interest Installment is due, equal to the lesser
of (i) the prime rate announced from time to time by State Street Bank and Trust
Company plus two (2) percentage points, and (ii) nine percent (9%), and shall be
payable on each date that an Interest Installment is due.
All payments hereunder shall be made by the Company in lawful money of
the United States of America and pursuant to
<PAGE>
instructions given to it in writing by the Shareholder from time to time.
Prepayment. The Company may prepay all or any part of the outstanding
----------
principal amount of this Note at any time upon ten (10) days prior written
notice to the Shareholder. Any such prepayment shall be without penalty or
premium.
Subordination. This Note is subordinated, as hereinafter provided, to
-------------
all present and future indebtedness of the Company for borrowed money to any
bank, financial institution or other institutional lender, direct or indirect,
absolute or contingent, due or to become due (the "Senior Debt"). Upon any
payment or distribution of assets of the Company of any kind, whether in cash,
property or securities, upon any dissolution, liquidation or reorganization of
the Company whether voluntary or involuntary or in bankruptcy, insolvency or
other similar proceedings, or upon any assignment for the benefit of creditors
of the Company, all principal of and premium, if any, and interest then due upon
all Senior Debt shall be paid in full before the Shareholder shall be entitled
to receive any assets or other payment in respect of this Note. In addition,
this note is subject to the terms and conditions of the Subordination Agreement
dated as of the date hereof by and among State Street Bank and Trust Company,
the Shareholder and the Company.
Acceleration. If any of the following shall occur the Shareholder may
------------
(i) declare the unpaid principal balance of this Note, and any accrued but
unpaid interest, to be forthwith due and payable, and (ii) proceed to protect
its rights by suit in equity, action at law and/or other appropriate
proceedings:
(a) Failure to Make Payment. The Company shall fail to make
-----------------------
any payment required to be made hereunder within twenty (20) days after the same
shall become due and payable.
(b) Payment of Dividends. If at any time the Company shall,
--------------------
without the Shareholder's prior written consent, pay a dividend in an amount
which, together with all other dividends paid by the Company during the period
(the "Dividend Period") commencing January 1, 1993 and ending on the date on
which the dividend in question is paid, exceeds forty percent (40%) of the
Company's Net Income (as hereinafter defined) for the Dividend Period; provided,
however, that for purposes of determining the amount of dividends paid by the
Company there shall not be included any dividends paid pursuant to the Company's
obligations under Section 5 of the Amended and Restated
2
<PAGE>
S Corporation Shareholder's Agreement dated as of the date hereof, by and among
the Company and the stockholders of the Company named therein, as amended from
time to time, or similar provisions of any similar or successor agreement. As
used herein, "Net Income" for any period shall mean the net income of the
Company for such period before interest and taxes, calculated in accordance with
generally accepted accounting principles.
(c) Acceleration of other Indebtedness. State Street Bank
----------------------------------
and Trust Company, or its successor in interest (the "Bank"), shall declare a
default under, and accelerate the maturity of the debt covered by, that certain
Second Amended and Restated Credit Agreement, dated as of December 30, 1992,
between the Bank and the Company, as amended from time to time.
(d) Change in Control. (i) The Company shall sell or
-----------------
transfer all or substantially all of its assets in one transaction or a series
of transactions to one or more persons or entities which are not Affiliates (as
hereinafter defined) or (ii) one or more persons or entities which are not
Affiliates shall beneficially own fifty-one percent (51%) or more of the voting
capital stock of the Company. For purposes of this Note, the term "Affiliate"
shall mean (a) Stewart G. MacDonald, Jr., Daniel W. MacDonald or Sandra E.
MacDonald (each, a "Major Shareholder"), (b) the spouse of any Major
Shareholder, any lineal descendant of the grandparents of any Major Shareholder
and any spouse of such lineal descendant (which lineal descendants, their
spouses, the Major Shareholder and his or her spouse are collectively referred
to herein as the "Major Shareholder's Family Members"), (c) the trustee or
trustees of a trust for the benefit of one or more Major Shareholder's Family
Members, (d) any entity controlled by one or more Major Shareholder's Family
Members, (e) the estate of a Major Shareholder, (f) the trustee or trustees of a
voting trust established by one or more Major Shareholder's Family Members or
(g) any employee stock ownership plan of the Company.
(e) Conduct of Business. The Company's principal business
-------------------
shall be a business other than the business in which it is now engaged or a
business directly related thereto.
Costs; Waivers. The Company agrees to pay all costs (including
--------------
reasonable attorney's fees, expenses and disbursements) of the Shareholder in
connection with the collection and/or enforcement of this Note. The Company
hereby waives presentment for payment, demand, protest and notice of
3
<PAGE>
dishonor.
Governing Law. This instrument shall have the effect of an instrument
-------------
executed under seal and shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
MAC-GRAY CO., INC.
By: /s/ Steward G. MacDonald, Jr.
-----------------------------
Stewart G. MacDonald, Jr.
Secretary
4
<PAGE>
Exhibit 10.15
CONSULTING AND
NONCOMPETITION AGREEMENT
------------------------
This CONSULTING AND NONCOMPETITION AGREEMENT (the "Agreement"), is made
and entered into as of December 31, 1992, by and between DONALD M. SHAW of
Lexington, Massachusetts ("Executive") and MAC-GRAY CO., INC., a Delaware
corporation ("Company").
W I T N E S S E T H:
--------------------
WHEREAS, Executive and Company have an employment relationship pursuant
to which Executive currently serves as President of Company, and
WHEREAS, Company wishes to engage Executive as a consultant to provide
services of an advisory and consulting nature as more particularly set forth
herein following the termination of Executive's employment with Company.
NOW, THEREFORE, for valuable consideration, including the promises and
covenants of the parties hereto contained herein, the receipt and sufficiency of
which are hereby acknowledged by each of the parties hereto, Executive and
Company hereby represent, warrant, covenant and agree as follows:
ARTICLE I
TERMINATION OF EMPLOYMENT
-------------------------
1.1 Notwithstanding any other agreement or understanding to the
contrary, Executive's employment with Company shall terminate on the earlier of
(i) December 31, 1994, or (ii) the last day of the calendar quarter in which the
Board of Directors of the Company, in its sole discretion, notifies Executive in
writing during the first 45 days of such calendar quarter of its desire to
terminate Executive's employment with Company (either such date, the
"Termination Date"); provided, however, that in no event shall the Termination
Date be earlier than June 30, 1994. Executive shall be deemed to have resigned
as President of the Company as of the Termination Date.
ARTICLE II
<PAGE>
TERMS OF CONSULTING ARRANGEMENT
-------------------------------
2.1 Executive shall serve as a consultant to Company for eight (8)
years, such term to commence on the Termination Date and to expire on the eighth
anniversary of the Termination Date (such term, the "Consulting Period").
2.2 During the Consulting Period, Executive shall render such services
of an advisory or consulting nature as the Chairman of the Board of Directors of
Company or Company's Chief Executive Officer or President, and/or their
respective designees, may, from time to time, reasonably request, upon
reasonable notice, in order that Company may continue to have the benefit of
Executive's experience and knowledge of the affairs of Company; provided,
however, that all advisory or consulting services to be rendered by Executive
pursuant to this Agreement shall be reasonably related to Executive's area of
expertise. During the Consulting Period, Executive undertakes to remain
available to such officers for (a) up to 10 hours per month under ordinary
circumstances and (b) up to 40 hours per month during any period when, in the
reasonable business judgment of Company, the services of Executive are necessary
or desirable in connection with an acquisition, merger, sale, restructuring or
similar corporate transaction involving the Company.
2.3 Services contemplated herein will be performed primarily in
Massachusetts, although services shall also be performed elsewhere within the
United States as may be required under this Agreement; provided, however, that
in the event services are required other than in Massachusetts, reasonable
notice shall be given to Executive and all reasonable efforts shall be made to
schedule the performance of such services at mutually agreeable times and
places; and further provided that in the event services are required other than
at Executive's then current residence, Company shall reimburse Executive for all
reasonable travel and accommodation costs incurred by Executive in connection
therewith within fifteen (15) days after receipt by Company of copies of
relevant invoices and other appropriate documentation reasonably satisfactory to
Company. Notwithstanding anything in this Section 2.3 to the contrary, if
Executive requests that services contemplated hereunder be performed over the
telephone, Company shall allow such services to be so performed as long as
Executive's physical presence is not, in the reasonable business judgment of
Company, necessary or desirable to satisfactorily perform such services.
3
<PAGE>
2.4 During the Consulting Period, so long as Executive is not in breach
of this Agreement, Company shall pay Executive gross compensation at the annual
rate of five hundred thousand dollars ($500,000), which amount shall be payable
in quarterly installments of one hundred twenty five thousand dollars ($125,000)
on each January 1st, April 1st, July 1st, and October 1st during the Consulting
Period, subject to applicable withholding and deductions.
ARTICLE III
CERTAIN PROMISES, COVENANTS AND OBLIGATIONS OF EXECUTIVE
--------------------------------------------------------
3.1 Executive hereby acknowledges and confirms that in Executive's
position as President of Company, Executive has been, and that in Executive's
position as a consultant hereunder Executive may be, made privy to and put into
the possession of certain confidential information and proprietary property and
trade secrets of Company, and that the disclosure or use by Executive of any
such information, property or trade secrets would damage Company. Accordingly,
Executive hereby acknowledges his continuing duty of confidentiality to Company
and agrees as follows:
(a) For a period of eight (8) years following the Termination
Date, Executive will not, without the express prior written consent of
Company, which consent shall be determined by the Board of Directors of
the Company and shall not be unreasonably withheld or delayed, directly
or indirectly engage, participate or invest in or assist, as owner,
part-owner, stockholder, partner, director, officer, trustee, employee,
agent or consultant, or through any corporation, partnership or other
entity (including, without limitation, a sole proprietorship), or in
any other capacity, any business organization anywhere in the United
States where Company then conducts or plans to conduct business which
is engaged in the coin operated or non-coin operated laundry business
currently conducted by Company; provided, however, that the foregoing
-------- -------
shall not prevent (x) Executive from making passive investments in a
competitive enterprise, the shares of which are publicly traded, if
Executive's aggregate investment in such enterprise constitutes less
than five percent (5%) of the equity ownership of such enterprise or
(y) Executive from serving in a director capacity with the
Multi-Housing Laundry Association. Without implied limitation, the
foregoing covenant shall include (i) hiring, attempting to
4
<PAGE>
hire or otherwise soliciting, for or on behalf of any entity or person,
any officer or other employee of Company, or authorizing or approving
any such action by any other person, (ii) encouraging for or on behalf
of any entity or person any officer or other employee to terminate his
or her relationship or employment with Company, (iii) soliciting for or
on behalf of any entity or person any customer of Company and (iv)
diverting to any entity or person any customer of Company.
(b) For a period of eight (8) years following the Termination
Date, Executive shall keep secret and shall not publish, divulge,
furnish, use or make accessible to anyone (otherwise than as may be
necessary for Executive to fulfill his duties to Company or as may be
required under applicable law, and except for information which comes
into the public domain through a third party who has no duty not to
disclose) any confidential or proprietary information about, or
confidential or proprietary records, documentation or data of, Company,
including without limitation: (i) any patents, inventions, proprietary
information, trade secrets, customer lists, sales representative lists,
supplier lists and manufacturing and secret processes, and (ii)
knowledge or information of a confidential or proprietary nature with
respect to any plans, policies, practices, programs, products,
materials, production methods, systems, designs, suppliers, customers,
customer requirements, business operations or techniques or strategies
of Company.
3.2 The parties hereto agree that no adequate remedy at law exists for
the breach by Executive of the provisions of this Article III. As a result, such
provisions of this Agreement shall be enforceable by specific performance and
injunctive relief or at law in an action for damages.
ARTICLE IV
ADDITIONAL PROVISIONS
---------------------
4.1 Executive expressly declares that Executive has been supplied with,
and has read, a copy of this Agreement. Executive further declares that
Executive has had adequate time and opportunity to examine the meaning of the
terms and conditions contained herein, to consult with an attorney and other
parties of Executive's own choosing regarding the meaning of the terms and
conditions contained herein and does, in fact, fully understand the content and
effect of this Agreement.
5
<PAGE>
Executive further acknowledges that Executive accepts the terms and provisions
of this Agreement in their entirety and agrees to be bound thereby.
4.2 This Agreement is personal as to Executive and shall not be
assignable by Executive and shall not be subject to attachment, execution,
pledge or hypothecation. This Agreement shall be binding upon and shall inure to
the benefit of the successors of the Company by way of merger, consolidation or
transfer of all or substantially all of the assets of the Company.
4.3 In the event of Executive's death or permanent disability before or
during the Consulting Period, Company shall pay to the estate of Executive, as a
death or disability benefit, throughout the unexpired balance of the term of the
Consulting Period, the quarterly payments due under Section 2.4 hereof, on the
dates upon which such payments would have been payable to Executive hereunder
had Executive survived or not been disabled.
4.4 All notices which Company is required or permitted to give to
Executive shall be given by registered or certified mail or overnight courier,
addressed to Executive at the address designated in writing by Executive from
time to time. All notices which Executive is required or permitted to give to
Company shall be given by registered or certified mail or overnight courier,
addressed to Company at its principal offices or at such other address as
Company may from time to time designate in writing. A notice will be deemed
given upon the mailing thereof or delivery to an overnight courier for delivery
the next business day.
4.5 This Agreement shall be construed according to and governed by the
laws of The Commonwealth of Massachusetts.
4.6 This Agreement shall not be modified or discharged in whole or in
part except by an agreement in writing signed by the parties hereto.
4.7 Notwithstanding anything to the contrary contained herein, all
remedies provided herein for the benefit of either party are non-exclusive,
distinct and cumulative to and from any other right or remedy provided herein or
to which a party may be entitled at law or in equity. Except as expressly
otherwise provided herein, each party reserves any and all rights and remedies
to which it may be entitled at law or in equity.
6
<PAGE>
4.8 No delay or omission on the part of Company or Executive in
exercising any right under this Agreement shall operate as a waiver of such
right or any other right. No consent or waiver, express or implied, by either
party to or of any breach of any covenant, condition or duty of the other shall
be construed as consent or waiver of the same or any other covenant, condition
or duty.
4.9 In case any of the provisions contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement, but this Agreement shall be construed
as if such invalid, illegal or unenforceable provision or part of a provision
had been limited or modified (consistent with its general intent) to the extent
necessary so that it shall be valid, legal and enforceable, or if it shall not
be possible to so limit or modify such invalid or illegal or unenforceable
provision or part of a provision, this Agreement shall be construed as if such
invalid or illegal or unenforceable provision or part of a provision had never
been contained herein, and the parties will use their best efforts to substitute
a valid, legal and enforceable provision which, insofar as practicable,
implements the purpose and intent of the provision or part of such provision
originally contained herein.
4.10 Company covenants and agrees that it will not take any action
which would result in Executive having a more limited entitlement to
indemnification, whether under its Certificate of Incorporation, By-laws or
otherwise, than Executive has as of the date of this Agreement.
4.11 This Agreement may be simultaneously executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the day and year first above written.
MAC-GRAY CO., INC.
By /s/ Stewart G. MacDonald, Jr.
-----------------------------
Stewart G. MacDonald, Jr.
Secretary
7
<PAGE>
/s/ Donald M. Shaw
---------------------------------
Donald M. Shaw
8
<PAGE>
EXHIBIT 10.16
MAC-GRAY II, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
----------------------------------------
The name of the plan is the Mac-Gray II, Inc. 1997 Stock Option and
Incentive Plan (the "Plan"). The purpose of the Plan is to encourage and enable
the officers, employees, Directors and other key persons of Mac-Gray II, Inc.
(the "Company") and its Subsidiaries, upon whose judgment, initiative and
efforts the Company largely depends for the successful conduct of its business,
to acquire a proprietary interest in the Company. It is anticipated that
providing such persons with a direct stake in the Company's welfare will assure
a closer identification of their interests with those of the Company, thereby
stimulating their efforts on the Company's behalf and strengthening their desire
to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Administrator" is defined in Section 2.
"Award" or "Awards," except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Dividend Equivalent Rights.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Committee" means the committee of the Board referred to in Section 2.
"Director" means a member of the Board.
"Dividend Equivalent Right" means Awards granted pursuant to Section 9.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 16.
"Fair Market Value" of the Stock on any given date means: (i) if the Stock
is admitted to quotation on the NASDAQ National Market, the Fair Market Value on
such date shall not
<PAGE>
be less than the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported;
(ii) if the Stock is admitted to trading on a national securities exchange or
the NASDAQ National Market, the Fair Market Value on such date shall not be less
than the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last date
preceding such date for which a sale was reported; or (iii) if the Stock is not
publicly traded on a securities exchange or traded in the over-the-counter
market or, if traded or quoted, there are no transactions or quotations within
the last ten (10) trading days or trading has been halted for extraordinary
reasons, the Fair Market Value on such date shall be determined in good faith by
the Administrator with reference to the rules and principles of valuation set
forth in Section 20.2031-2 of the Treasury Regulations.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Independent Director" means a member of the Board who is not also an
employee of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means Awards granted pursuant to Section 8.
"Restricted Stock Award" means Awards granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.01 per share, of the Company,
subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the Company)
in any unbroken chain of corporations or other entities, beginning with the
Company if each of the corporations or entities (other than the last corporation
or entity in the unbroken chain) owns stock or other interests possessing fifty
percent (50%) or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
"Unrestricted Stock Award" means any Award granted pursuant to Section 7.
2
<PAGE>
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT
---------------------------------------------------------
PARTICIPANTS AND DETERMINE AWARDS
---------------------------------
(a) Committee. The Plan shall be administered by either the Board or a
---------
committee consisting of not less than two (2) Independent Directors (in either
case, the "Administrator"). On and after the date the Plan becomes subject to
Section 162(m) of the Code, each member of the Committee shall be an "outside
director" within the meaning of Section 162(m) of the Code and the regulations
promulgated thereunder. On and after the date the Company becomes subject to
the Act, each member of the Committee shall be a "non-employee director" within
the meaning of Rule 16b-3 promulgated under the Act, or any successor definition
under said rule.
(b) Powers of Administrator. The Administrator shall have the power and
-----------------------
authority to grant Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the officers, employees, Independent Directors,
consultants and key persons of the Company and its Subsidiaries to whom
Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if
any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted
Stock Awards, Unrestricted Stock Awards, Performance Share Awards and
Dividend Equivalent Rights, or any combination of the foregoing, granted to
any one or more participants;
(iii) to determine the number of shares of Stock to be covered by any
Award;
(iv) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the
Plan, of any Award, which terms and conditions may differ among individual
Awards and participants, and to approve the form of written instruments
evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all
or any portion of any Award and/or to include provisions in Awards
providing for such acceleration;
(vi) subject to the provisions of Section 5(a)(ii), to extend at any
time the period in which Stock Options may be exercised;
(vii) to determine at any time whether, to what extent, and under
what circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts constituting interest (at rates determined by the Administrator) or
dividends or deemed dividends on such deferrals; and
3
<PAGE>
(viii) at any time to adopt, alter and repeal such rules, guidelines
and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and
provisions of the Plan and any Award (including related written
instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection
with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on
all persons, including the Company and Plan participants.
(c) Delegation of Authority to Grant Awards. The Administrator, in its
---------------------------------------
discretion, may delegate to the Chief Executive Officer of the Company all or
part of the Administrator's authority and duties with respect to Awards,
including the granting thereof, to individuals who are not subject to the
reporting and other provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Administrator may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator's delegate or delegates that
were consistent with the terms of the Plan.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
----------------------------------------------------
(a) Stock Issuable. The maximum number of shares of Stock reserved and
--------------
available for issuance under the Plan shall not exceed the greater of (i) 15,000
shares of stock or (ii) ten percent (10%) of the total number of outstanding
shares of Stock (as determined at the time of each grant of Award and without
considering as outstanding any Stock subject to any Awards granted on the same
day as such grant); provided, however, that the maximum number of shares of
-------- -------
Stock for which Incentive Options may be granted under the Plan shall not exceed
750,000 shares of Stock. For purposes of the foregoing limitation(s), the
shares of Stock underlying any Awards which are forfeited, canceled, reacquired
by the Company, satisfied without the issuance of Stock or otherwise terminated
(other than by exercise) shall be added back to the shares of Stock available
for issuance under the Plan. Subject to such overall limitation, shares of
Stock may be issued up to such maximum number pursuant to any type or types of
Award; provided, however, that on and after the date the Plan is subject to
-------- -------
Section 162(m) of the Code, Stock Options with respect to no more than 150,000
shares of Stock may be granted to any one individual participant during any one
calendar year period. The shares available for issuance under the Plan may be
authorized but unissued shares of Stock or shares of Stock reacquired by the
Company.
(b) Recapitalizations. If, through or as a result of any merger,
-----------------
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, the outstanding shares of
Stock are increased or decreased or are exchanged for a different number or kind
of shares or other securities of the Company, or additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect
4
<PAGE>
to such shares of Stock or other securities, the Administrator shall make an
appropriate or proportionate adjustment in (i) the maximum number of shares
reserved for issuance under the Plan, (ii) the number of Stock Options that can
be granted to any one individual participant, (iii) the number and kind of
shares or other securities subject to any then outstanding Awards under the
Plan, and (iv) the price for each share subject to any then outstanding Stock
Options under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options) as to which such Stock
Options remain exercisable. The adjustment by the Administrator shall be final,
binding and conclusive. No fractional shares of Stock shall be issued under the
Plan resulting from any such adjustment, but the Administrator in its discretion
may make a cash payment in lieu of fractional shares.
(c) Mergers. Upon consummation of a consolidation or merger or sale of
-------
all or substantially all of the assets of the Company in which outstanding
shares of Stock are exchanged for securities, cash or other property of an
unrelated corporation or business entity and which results in the change in
control of the Company, or in the event of a liquidation of the Company (in each
case, a "Transaction"), all outstanding Stock Options shall automatically vest
and become fully exercisable, and the Board, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions as to outstanding Stock Options:
(i) provide that such Stock Options shall be assumed or equivalent options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), (ii) upon written notice to the optionees, provide that all
unexercised Stock Options will terminate immediately prior to the consummation
of the Transaction unless exercised by the optionee within a specified period
following the date of such notice, and/or (iii) in the event of a business
combination under the terms of which holders of the Stock of the Company will
receive upon consummation thereof a cash payment for each share surrendered in
the business combination, make or provide for a cash payment to the optionees
equal to the difference between (A) the value (as determined by the
Administrator) of the consideration payable per share of Stock pursuant to the
business combination (the "Merger Price") times the number of shares of Stock
subject to such outstanding Stock Options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding Stock Options in exchange for the termination of such
Stock Options. In the event Stock Options will terminate upon the consummation
of the Transaction, each optionee shall be permitted, within a specified period
determined by the Administrator, to exercise all non-vested Stock Options,
subject to the consummation of the Transaction.
(d) Substitute Awards. The Administrator may grant Awards under the
-----------------
Plan in substitution for stock and stock based awards held by employees of
another corporation who become employees of the Company or a Subsidiary as the
result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Administrator may direct
that the substitute awards be granted on such terms and conditions as the
Administrator considers appropriate in the circumstances.
5
<PAGE>
SECTION 4. ELIGIBILITY
-----------
Participants in the Plan will be such officers and other employees,
Independent Directors, consultants and other key persons of the Company and its
Subsidiaries who are responsible for or contribute to the management, growth or
profitability of the Company and its Subsidiaries as are selected from time to
time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be in such form as the
Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Qualified Stock Options. Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code. Non-Qualified Stock Options
may be granted to officers, employees, Independent Directors, consultants and
other key persons of the Company and its subsidiaries. To the extent that any
Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-
Qualified Stock Option.
No Incentive Stock Option shall be granted under the Plan after April __,
2007.
(a) Stock Options Granted to Employees and Key Persons. Stock Options
--------------------------------------------------
granted pursuant to this Section 5(a) shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(i) Exercise Price. The exercise price per share for the Stock
--------------
covered by a Stock Option granted pursuant to this Section 5(a) shall be
determined by the Administrator at the time of grant but shall not be less
than one hundred percent (100%) of the Fair Market Value on the date of
grant in the case of Incentive Stock Options and or eighty-five percent
(85%) of the Fair Market Value on the date of grant in the case of Non-
Qualified Stock Options. If an employee owns or is deemed to own (by
reason of the attribution rules of Section 424(d) of the Code) more than
ten percent (10%) of the combined voting power of all classes of stock of
the Company or any parent or subsidiary corporation and an Incentive Stock
Option is granted to such employee, the exercise price of such Incentive
Stock Option shall be not less than one hundred ten percent (110%) of the
Fair Market Value on the grant date of such Option.
(ii) Option Term. The term of each Stock Option shall be fixed
-----------
by the Administrator, but no Incentive Stock Option shall be exercisable
more than ten (10) years after the date such Option is granted. If an
employee owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than ten percent (10%) of the combined
voting power of all classes of stock of the Company or any
6
<PAGE>
parent or subsidiary corporation and an Incentive Stock Option is granted
to such employee, the term of such option shall be no more than five (5)
years from the date of grant of such Option.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall
---------------------------------------
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Administrator at or after the
grant date. The Administrator may at any time accelerate the
exercisability of all or any portion of any Stock Option. An optionee
shall have the rights of a stockholder of the Company only as to shares
acquired upon the exercise of a Stock Option and not as to unexercised
Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole
------------------
or in part, by giving written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods:
(A) In cash, by certified or bank check or other instrument
acceptable to the Administrator;
(B) In the form of shares of Stock that are not then subject
to restrictions under any Company plan and that have been beneficially
owned by the optionee for at least six (6) months, if permitted by the
Administrator in its discretion. Such surrendered shares shall be
valued at Fair Market Value on the exercise date;
(C) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Administrator shall prescribe as a condition of such
payment procedure; or
Payment instruments will be received subject to collection. The delivery
of certificates representing the shares of Stock to be purchased pursuant
to the exercise of a Stock Option will be contingent upon receipt from the
optionee (or a purchaser acting in his stead in accordance with the
provisions of the Stock Option) by the Company of the full purchase price
for such shares and the fulfillment of any other requirements contained in
the Stock Option or applicable provisions of laws.
(v) Annual Limit on Incentive Stock Options. To the extent
---------------------------------------
required for "incentive stock option" treatment under Section 422 of the
Code, the aggregate Fair Market Value (determined as of the time of grant)
of the shares of Stock with respect to
7
<PAGE>
which Incentive Stock Options granted under this Plan and any other plan of
the Company or its parent and subsidiary corporations become exercisable
for the first time by an optionee during any calendar year shall not exceed
$100,000. To the extent that any Stock Option exceeds this limit, it shall
constitute a Non-Qualified Stock Option.
(b) Reload Options. At the discretion of the Administrator, Options
--------------
granted under the Plan may include a "reload" feature pursuant to which an
optionee exercising an option by the delivery of a number of shares of Stock in
accordance with Section 5(a)(iv)(B) hereof would automatically be granted an
additional Option (with an exercise price equal to the Fair Market Value of the
Stock on the date the additional Option is granted and with such other terms as
the Administrator may provide) to purchase that number of shares of Stock equal
to the number delivered to exercise the original Option.
(c) Stock Options Granted to Independent Directors.
----------------------------------------------
(i) Automatic Grant of Options.
--------------------------
(A) Each Independent Director shall be granted on the
effective date of the Company's initial public offering a Non-
Qualified Stock Option to acquire one thousand (1,000) shares of
Stock.
(B) Each Independent Director who is first elected to serve
as a Director after the effective date of the Company's initial
public offering shall be granted, on the fifth (5th) business day
after his election, a Non-Qualified Stock Option to acquire one
thousand (1,000) shares of Stock.
(C) Each Independent Director who is serving as a Director
of the Company on the fifth (5th) business day after each annual
meeting of shareholders, beginning with the 1998 annual meeting,
shall automatically be granted on such day a Non-Qualified Stock
Option to acquire one thousand (1,000) shares of Stock.
(D) The exercise price per share for the Stock covered by a
Stock Option granted under this Section 5(c) shall be equal to the
Fair Market Value of the Stock on the date the Stock Option is
granted.
(E) The Administrator, in its sole discretion, may grant
additional Non-Qualified Stock Options to Independent Directors.
8
<PAGE>
(ii) Exercise; Termination.
---------------------
(A) Except as otherwise provided in Section 3 hereof, an
Option granted under this Section 5(c) shall be exercisable in full as
of the grant date. An Option issued under this Section 5(c) shall not
be exercisable after the expiration of ten (10) years from the date of
grant.
(B) Options granted under this Section 5(c) may be exercised
only by written notice to the Company specifying the number of shares
to be purchased. Payment of the full purchase price of the shares to
be purchased may be made by one or more of the methods specified in
Section 5(a)(iv). An optionee shall have the rights of a stockholder
of the Company only as to shares acquired upon the exercise of a Stock
Option and not as to any unexercised Stock Options.
(d) Non-transferability of Options. No Stock Option shall be transferable
------------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee. Notwithstanding the foregoing, the Administrator
may permit the optionee to transfer, without consideration for the transfer, his
Non-Qualified Stock Options to members of his immediate family, to trusts for
the benefit of such family members or to partnerships in which such family
members are the only partners, provided that the transferee agrees in writing
with the Company to be bound by all of the terms and conditions of this Plan and
the applicable option agreement.
SECTION 6. RESTRICTED STOCK AWARDS
-----------------------
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an
---------------------------------
Award entitling the recipient to acquire, at par value or such other purchase
price determined by the Administrator, shares of Stock subject to such
restrictions and conditions as the Administrator may determine at the time of
grant ("Restricted Stock"). Conditions may be based on continuing employment
(or other business relationship) and/or achievement of pre-established
performance goals and objectives.
(b) Rights as a Stockholder. Upon execution of a written instrument
-----------------------
setting forth the Restricted Stock Award and paying any applicable purchase
price, a participant shall have the rights of a stockholder with respect to the
voting of the Restricted Stock, subject to such conditions contained in the
written instrument evidencing the Restricted Stock Award. Unless the
Administrator shall otherwise determine, certificates evidencing the Restricted
Stock shall remain in the possession of the Company until such Restricted Stock
is vested as provided in Section 6(d) below.
(c) Restrictions. Restricted Stock may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein and in the written instrument evidencing the
Restricted Stock Award. If a participant's employment (or other business
relationship) with the Company and its Subsidiaries terminates for any reason,
9
<PAGE>
the Company shall have the right to repurchase shares of Restricted Stock with
respect to which conditions have not lapsed at their purchase price, from the
participant or the participant's legal representative.
(d) Vesting of Restricted Stock. The Administrator at the time of grant
---------------------------
shall specify the date or dates and/or the attainment of pre-established
performance goals, objectives and other conditions on which the non-
transferability of the Restricted Stock and the Company's right of repurchase or
forfeiture shall lapse. Subsequent to such date or dates and/or the attainment
of such pre-established performance goals, objectives and other conditions, the
shares on which all restrictions have lapsed shall no longer be Restricted Stock
and shall be deemed "vested." Except as may otherwise be provided by the
Administrator at any time, a participant's rights in any shares of Restricted
Stock that have not vested shall automatically terminate upon the participant's
termination of employment (or other business relationship) with the Company and
its Subsidiaries and such shares shall either be subject to the Company's right
of repurchase as provided in Section 6(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The written
----------------------------------------------
instrument evidencing the Restricted Stock Award may require or permit the
immediate payment, waiver, deferral or investment of dividends paid on the
Restricted Stock.
SECTION 7. UNRESTRICTED STOCK AWARDS
-------------------------
(a) Grant or Sale of Unrestricted Stock. The Administrator may, in its
-----------------------------------
sole discretion, grant (or sell at a purchase price determined by the
Administrator) an Unrestricted Stock Award to any participant pursuant to which
such participant may receive shares of Stock free of any restrictions
("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of past services or
other valid consideration, or in lieu of any cash compensation due to such
participant.
(b) Elections to Receive Unrestricted Stock In Lieu of Compensation.
---------------------------------------------------------------
Upon the request of a participant and with the consent of the Administrator,
each such participant may, pursuant to an advance written election delivered to
the Company no later than the date specified by the Administrator, receive a
portion of the cash compensation otherwise due to such participant in the form
of shares of Unrestricted Stock either currently or on a deferred basis.
(c) Restrictions on Transfers. The right to receive shares of
-------------------------
Unrestricted Stock on a deferred basis may not be sold, assigned, transferred,
pledged or otherwise encumbered, other than by will or the laws of descent and
distribution.
SECTION 8. PERFORMANCE SHARE AWARDS
------------------------
(a) Nature of Performance Share Awards. A Performance Share Award is an
----------------------------------
Award entitling the recipient to acquire shares of Stock upon the attainment of
specified
10
<PAGE>
performance goals. The Administrator may make Performance Share Awards
independent of or in connection with the granting of any other Award under the
Plan. The Administrator in its sole discretion shall determine whether and to
whom Performance Share Awards shall be made, the performance goals applicable
under each such Award, the periods during which performance is to be measured,
and all other limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Administrator may rely on the performance
-------- -------
goals and other standards applicable to other performance unit plans of the
Company in setting the standards for Performance Share Awards under the Plan.
(b) Restrictions on Transfer. Performance Share Awards and all rights
------------------------
with respect to such awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) Rights as a Shareholder. A participant receiving a Performance Share
-----------------------
Award shall have the rights of a shareholder only as to shares actually received
by the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a stock certificate evidencing the acquisition of shares of
Stock under a Performance Share Award only upon satisfaction of all conditions
specified in the written instrument evidencing the Performance Share Award (or
in a performance plan adopted by the Administrator).
(d) Termination. Except as may otherwise be provided by the
-----------
Administrator at any time prior to termination of employment (or other business
relationship), a participant's rights in all Performance Share Awards shall
automatically terminate upon the participant's termination of employment (or
business relationship) with the Company and its Subsidiaries for any reason.
(e) Acceleration, Waiver, Etc. At any time prior to the participant's
-------------------------
termination of employment (or other business relationship) by the Company and
its Subsidiaries, the Administrator may in its sole discretion accelerate, waive
or, subject to Section 12, amend any or all of the goals, restrictions or
conditions imposed under any Performance Share Award.
SECTION 9. DIVIDEND EQUIVALENT RIGHTS
--------------------------
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award
--------------------------
entitling the recipient to receive credits based on cash dividends that would be
paid on the shares of Stock specified in the Dividend Equivalent Right (or other
award to which it relates) if such shares were held by the recipient. A
Dividend Equivalent Right may be granted hereunder to any participant as a
component of another Award or as a freestanding award. The terms and conditions
of Dividend Equivalent Rights shall be specified in the grant. Dividend
equivalents credited to the holder of a Dividend Equivalent Right may be paid
currently or may be deemed to be reinvested in additional shares of Stock, which
may thereafter accrue additional equivalents. Any such reinvestment shall be at
Fair Market Value on the date of reinvestment or such other price as may then
apply under a dividend reinvestment plan sponsored by the Company, if any.
Dividend Equivalent Rights may be settled in cash or shares of Stock or a
11
<PAGE>
combination thereof, in a single installment or installments. A Dividend
Equivalent Right granted as a component of another Award may provide that such
Dividend Equivalent Right shall be settled upon exercise, settlement, or payment
of, or lapse of restrictions on, such other award, and that such Dividend
Equivalent Right shall expire or be forfeited or annulled under the same
conditions as such other award. A Dividend Equivalent Right granted as a
component of another Award may also contain terms and conditions different from
such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in
--------------------
whole or in part in cash on a deferred basis may provide in the grant for
interest equivalents to be credited with respect to such cash payment. Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
SECTION 10. TAX WITHHOLDING
---------------
(a) Payment by Participant. Each participant shall, no later than the
----------------------
date as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) Payment in Stock. Subject to approval by the Administrator, a
----------------
participant may elect to have such tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Award a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 11. TRANSFER, LEAVE OF ABSENCE, ETC.
-------------------------------
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or
from the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or
for any other purpose approved by the Company, if the employee's right to re-
employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Administrator
otherwise so provides in writing; or
12
<PAGE>
(c) the change in employment status of an executive officer to that of a
consultant, whether evidenced by agreement or not.
SECTION 12. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the
Administrator may, at any time, amend or cancel any outstanding Award (or
provide substitute Awards at the same or reduced exercise or purchase price or
with no exercise or purchase price in a manner not inconsistent with the terms
of the Plan, but such price, if any, must satisfy the requirements which would
apply to the substitute or amended Award if it were then initially granted under
this Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the holder's consent. If and to the extent determined by the
Administrator to be required by the Act to ensure that Incentive Stock Options
granted under the Plan are qualified under Section 422 of the Code, Plan
amendments shall be subject to approval by the Company stockholders entitled to
vote at a meeting of stockholders.
SECTION 13. STATUS OF PLAN
--------------
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Administrator shall otherwise expressly
determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet
the Company's obligations to deliver Stock or make payments with respect to
Awards hereunder, provided that the existence of such trusts or other
arrangements is consistent with the foregoing sentence.
SECTION 14. GENERAL PROVISIONS
------------------
(a) No Distribution; Compliance with Legal Requirements. The
---------------------------------------------------
Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities law and other legal and stock exchange or similar
requirements have been satisfied. The Administrator may require the placing of
such stop-orders and restrictive legends on certificates for Stock and Awards as
it deems appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
------------------------------
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have mailed such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
13
<PAGE>
(c) Other Compensation Arrangements; No Employment Rights. Nothing
-----------------------------------------------------
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this
Plan and the grant of Awards do not confer upon any employee any right to
continued employment with the Company or any Subsidiary.
SECTION 15. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective upon approval by the holders of a majority
of the shares of Stock cast at a duly held meeting of the Stockholders' of the
Company. Subject to such approval by the stockholders and to the requirement
that no Stock may be issued hereunder prior to such approval, Stock Options and
other Awards may be granted hereunder on and after adoption of this Plan by the
Board.
SECTION 16. GOVERNING LAW
-------------
This Plan shall be governed by the laws of the State of Delaware law except
to the extent such law is preempted by federal law.
DATE APPROVED BY BOARD OF DIRECTORS: ____________________
DATE APPROVED BY STOCKHOLDERS: ____________________
14
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE MAC-GRAY II, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee:_____________________________
No. of Option Shares:___________________________
Option Exercise Price per Share:_____________________________________
[FMV (110% of FMV if a 10% owner)]
Grant Date:____________________
Expiration Date:_____________________________________
[up to 10 years (5 if a 10% owner)]
Pursuant to the Mac-Gray II, Inc. 1997 Stock Option and Incentive Plan (the
"Plan") as amended through the date hereof, Mac-Gray II, Inc. (the "Company")
hereby grants to the Optionee named above an option (the "Stock Option") to
purchase on or prior to the Expiration Date specified above all or part of the
number of shares of Common Stock, par value $.01 per share (the "Stock") of the
Company specified above at the Option Exercise Price per Share specified above
subject to the terms and conditions set forth herein and in the Plan.
1. Vesting Schedule. No portion of this Stock Option may be exercised
----------------
until such portion shall have vested. This Stock Option shall become fully
vested and exercisable on the sixth anniversary of the Grant Date; provided,
--------
however, that, except as set forth below, and subject to the discretion of the
- -------
Committee (as defined in Section 2 of the Plan) to accelerate the vesting
schedule hereunder, if the Company's Common Stock is offered for sale pursuant
to a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (an "IPO"),
prior to the sixth anniversary of the Grant Date, then this Stock Option shall
be vested and exercisable with respect to the following number of Option Shares
on the dates indicated:
<TABLE>
<CAPTION>
Number of
---------
Option Shares Exercisable* Vesting Date
------------------------- ------------
<S> <C>
____ (20%) [First Anniversary]
____ (20%) [Second Anniversary]
____ (20%) [Third Anniversary]
____ (20%) [Fourth Anniversary]
____ (20%) [Fifth Anniversary]
</TABLE>
<PAGE>
* Max. of $100,000 per yr.
In the event of a sale of all or substantially all of the assets of the
Company, a merger or other consolidation which results in a change in control of
the Company, or the liquidation or dissolution of the Company, this Stock Option
shall become immediately vested and exercisable in full, whether or not this
Stock Option or any portion hereof is vested and exercisable at such time. Once
vested, this Stock Option shall continue to be exercisable at any time or times
prior to the close of business on the Expiration Date, subject to the provisions
hereof and of the Plan.
2. Manner of Exercise.
------------------
(a) The Optionee may exercise this Option only in the following
manner: from time to time on or prior to the Expiration Date of this Option, the
Optionee may give written notice to the Committee of his or her election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any Company plan and that have been
held by the Optionee for at least six months; (iii) by the Optionee delivering
to the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price, provided
that in the event the Optionee chooses to pay the option purchase price as so
provided, the Optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure; or (iv) a combination
of (i), (ii) and (iii) above. Payment instruments will be received subject to
collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for the shares of Stock purchased upon exercise of
this Stock Option shall be issued and delivered to the Optionee upon compliance
to the satisfaction of the Committee with all requirements under applicable laws
or regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee
<PAGE>
shall not be deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares of Stock subject to this Stock Option unless
and until this Stock Option shall have been exercised pursuant to the terms
hereof, the Company shall have issued and delivered the shares to the Optionee,
and the Optionee's name shall have been entered as the stockholder of record on
the books of the Company. Thereupon, the Optionee shall have full voting,
dividend and other ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be 2 shares, unless the number of
shares with respect to which this Stock Option is being exercised is the total
number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. Termination of Employment.
-------------------------
(a) If the Optionee's employment by the Company or a Subsidiary (as
defined in the Plan) is terminated, the period within which to exercise the
Stock Option may be subject to earlier termination as set forth below.
(i) Termination Due to Death. If the Optionee's employment terminates
------------------------
by reason of death, any Stock Option held by the Optionee shall become
fully exercisable and may thereafter be exercised by the Optionee's
legal representative or legatee for a period of [twelve (12)] months
from the date of death or until the Expiration Date, if earlier.
(ii) Termination Due to Disability. If the Optionee's employment
-----------------------------
terminates by reason of the Optionee's inability to perform [his/her]
normal required services for the Company and its Subsidiaries for a
period of six (6) consecutive months by reason of the Optionee's
mental or physical disability, as determined by the Administrator in
good faith in its sole discretion (a "Disability"), any Stock Option
held by the Optionee shall become fully exercisable and may thereafter
be exercised by the Optionee for a period of twelve (12) months from
the date of termination or until the Expiration Date, if earlier. The
death of the Optionee during the 12-month period provided in this
Section 3(b) shall extend such period for another twelve (12) months
from the date of death or until the Expiration Date, if earlier.
(iii) Termination for Cause. If the Optionee's employment terminates
---------------------
for Cause, any Stock Option held by the Optionee shall terminate
immediately and be of no further force and effect. For purposes
hereof, termination of employment for "Cause" shall mean the
occurrence of one or more of the following: (i) the Optionee is
convicted of, pleads guilty to, or confesses to any
<PAGE>
felony or any act of fraud, misappropriation or embezzlement which has
an immediate and materially adverse effect on the Company or any
Subsidiary, as determined by the Administrator in good faith in its
sole discretion; (ii) the Optionee engages in a fraudulent act to the
material damage or prejudice of the Company or any Subsidiary or in
conduct or activities materially damaging to the property, business or
reputation of the Company or any Subsidiary, all as determined by the
Administrator in good faith in its sole discretion; (iii) any material
act or omission by the Optionee involving malfeasance or negligence in
the performance of the Optionee's duties to the Company or any
Subsidiary to the material detriment of the Company or any Subsidiary,
as determined by the Administrator in good faith in its sole
discretion, which has not been corrected by the Optionee within thirty
(30) days after written notice from the Company of any such act or
omission; (iv) failure by the Optionee to comply in any material
respect with the terms of [his/her] employment agreement, if any, or
any written policies or directives of the Board as determined by the
Administrator in good faith in its sole discretion, which has not been
corrected by the Optionee with thirty (30) days after written notice
from the Company of such failure; or (v) material breach by the
Optionee of [his/her] noncompetition agreement with the Company, if
any, as determined by the Administrator in good faith in its sole
discretion.
(iv) Other Termination. If the Optionee's employment terminates for
-----------------
any reason other than death, Disability, or Cause, and unless
otherwise determined by the Administrator, any Stock Option held by
the Optionee may be exercised, to the extent exercisable on the date
of termination, for a period of three (3) months from the date of
termination or until the Expiration Date, if earlier. Any Stock Option
that is not exercisable at such time shall terminate immediately and
be of no further force or effect.
The Administrator's determination of the reason for termination of the
Optionee's employment shall be conclusive and binding on the Optionee and
[his/her] representatives or legatees.
(b) The Optionee acknowledges and agrees that, upon termination of the
Optionee's employment with the Company (other than by death or Disability) prior
to the closing of an IPO, the Company may, in its sole discretion, repurchase
all or a portion of the shares of Stock that the Optionee has received upon any
exercise by the Optionee pursuant to Section 2 hereof and held by the Optionee
as of the date of such termination of employment (the "Exercised Shares"). The
right of the Company to repurchase any of the Exercised Shares ("the Repurchase
Option") is conferred only upon the Company, as follows: (i) the Company may
exercise the Repurchase Option (a "Repurchase") for any or all of the Optionee's
Exercised Shares by delivering to the Optionee written notice (the "Repurchase
Notice") of its intent to exercise the Repurchase Option within ninety (90) days
of the termination of the Optionee's employment, specifying therein the number
of the Exercised Shares to be repurchased (the "Repurchased Shares") and the
Repurchase Price (as defined below); and (ii) ten (10) business
<PAGE>
days after the Repurchase Notice is delivered to the Optionee, the Company shall
pay to the Optionee an amount equal to the Repurchase Price, and the Optionee
shall deliver the certificate or certificates representing the Repurchased
Shares to the Company (provided, however, that if the number of Repurchased
-------- -------
Shares is less than the number of Exercised Shares held by the Optionee, then
the Company shall reissue a certificate or certificates to the Optionee for the
Exercised Shares that have not been repurchased by the Company). For purposes of
this Section 3(b), the "Repurchase Price" shall be the Fair Market Value of the
Repurchased Shares as determined by the Board in its sole discretion at the time
of Repurchase.
4. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-
---------------
assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.
6. Status of the Stock Option. This Stock Option is intended to qualify
--------------------------
as an "incentive stock option" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), but the Company does not represent or warrant
that this Option qualifies as such. The Optionee should consult with his or her
own tax advisors regarding the tax effects of this Option and the requirements
necessary to obtain favorable income tax treatment under Section 422 of the
Code, including, but not limited to, holding period requirements. If the
Optionee intends to dispose or does dispose (whether by sale, gift, transfer or
otherwise) of any Option Shares within the one-year period beginning on the date
after the transfer of such shares to him or her, or within the two-year period
beginning on the day after the grant of this Stock Option, he or she will notify
the Company within thirty (30) days after such disposition.
7. Miscellaneous.
-------------
(a) Notice hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance of employment by the Company or any Subsidiary.
(c) Pursuant to Section 12 of the Plan, the Committee may at any time
amend or cancel any outstanding portion of this Stock Option, but no such action
may be taken
<PAGE>
which adversely affects the Optionee's rights under this Agreement without the
Optionee's consent.
MAC-GRAY II, INC.
By:________________________________________
Name:
Title:
<PAGE>
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated:_________________________ _________________________
Optionee's Signature
Optionee's name and address:
_________________________
_________________________
_________________________
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE MAC-GRAY II, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee:___________________________________
No. of Option Shares:_______________________________
Option Exercise Price per Share:____________________
[min. 85% of FMV]
Grant Date:______________________________
Expiration Date:_________________________________
[up to 10 years and 1 day]
Pursuant to the Mac-Gray II, Inc. 1997 Stock Option and Incentive Plan (the
"Plan") as amended through the date hereof, Mac-Gray II, Inc. (the "Company")
hereby grants to the Optionee named above an option (the "Stock Option") to
purchase on or prior to the Expiration Date specified above all or part of the
number of shares of Common Stock, par value $.01 per share (the "Stock") of the
Company specified above at the Option Exercise Price per Share specified above
subject to the terms and conditions set forth herein and in the Plan.
1. Vesting Schedule. No portion of this Stock Option may be exercised
----------------
until such portion shall have vested. This Stock Option shall become fully
vested and exercisable on the sixth anniversary of the Grant Date; provided,
--------
however, that except as set forth below, and subject to the discretion of the
- -------
Committee (as defined in Section 2 of the Plan) to accelerate the vesting
schedule hereunder, if the Company's Common Stock is offered for sale pursuant
to a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (an "IPO"),
prior to the sixth anniversary of the Grant Date, then this Stock Option shall
be vested and exercisable with respect to the following number of Option Shares
on the dates indicated:
<TABLE>
<CAPTION>
Number of
---------
Option Shares Exercisable Vesting Date
------------------------- ------------
<S> <C>
____________________ (20%) [First Anniversary]
____________________ (20%) [Second Anniversary]
____________________ (20%) [Third Anniversary]
____________________ (20%) [Fourth Anniversary]
</TABLE>
<PAGE>
____________________ (20%) [Fifth Anniversary]
-----------------
In the event of a sale of all or substantially all of the assets of the
Company, a merger or other consolidation which results in a change of control of
the Company, or the liquidation or dissolution of the Company, this Stock Option
shall become immediately vested and exercisable in full, whether or not this
Stock Option or any portion hereof is vested and exercisable at such time. Once
vested, this Stock Option shall continue to be exercisable at any time or times
prior to the close of business on the Expiration Date, subject to the provisions
hereof and of the Plan.
2. Manner of Exercise.
------------------
(a) The Optionee may exercise this Option only in the following
manner: from time to time on or prior to the Expiration Date of this Option, the
Optionee may give written notice to the Committee of his or her election to
purchase some or all of the vested Option Shares purchasable at the time of such
notice. This notice shall specify the number of Option Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any Company plan and that have been
held by the Optionee for at least six months; (iii) by the Optionee delivering
to the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price, provided
that in the event the Optionee chooses to pay the option purchase price as so
provided, the Optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure; or (iv) a combination
of (i), (ii) and (iii) above. Payment instruments will be received subject to
collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for shares of Stock purchased upon exercise of this
Stock Option shall be issued and delivered to the Optionee upon compliance to
the satisfaction of the Committee with all requirements under applicable laws or
regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee shall not be deemed to be
the holder of, or to have any of the rights of a holder with respect to,
<PAGE>
any shares of Stock subject to this Stock Option unless and until this Stock
Option shall have been exercised pursuant to the terms hereof, the Company shall
have issued and delivered the shares to the Optionee, and the Optionee's name
shall have been entered as the stockholder of record on the books of the
Company. Thereupon, the Optionee shall have full voting, dividend and other
ownership rights with respect to such shares of Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be 2 shares, unless the number of
shares with respect to which this Stock Option is being exercised is the total
number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. Termination of Employment.
-------------------------
(a) If the Optionee's employment by the Company or a Subsidiary (as
defined in the Plan) is terminated, the period within which to exercise the
Stock Option may be subject to earlier termination as set forth below.
(i) Termination Due to Death. If the Optionee's employment
------------------------
terminates by reason of death, any Stock Option held by the Optionee
shall become fully exercisable and may thereafter be exercised by the
Optionee's legal representative or legatee for a period of twelve (12)
months from the date of death or until the Expiration Date, if
earlier.
(ii) Termination Due to Disability. If the Optionee's employment
-----------------------------
terminates by reason of the Optionee's inability to perform [his/her]
normal required services for the Company and its Subsidiaries for a
period of six (6) consecutive months by reason of the Optionee's
mental or physical disability, as determined by the Administrator in
good faith in its sole discretion (a "Disability"), any Stock Option
held by the Optionee shall become fully exercisable and may thereafter
be exercised by the Optionee for a period of twelve (12) months from
the date of termination or until the Expiration Date, if earlier. The
death of the Optionee during the 12-month period provided in this
Section 3(b) shall extend such period for another twelve (12) months
from the date of death or until the Expiration Date, if earlier.
(iii) Termination for Cause. If the Optionee's employment terminates
---------------------
for Cause, any Stock Option held by the Optionee shall terminate
immediately and be of no further force and effect. For purposes
hereof, a termination for "Cause" shall mean the occurrence of one or
more of the following: (i) the Optionee is convicted of, pleads
guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and
<PAGE>
materially adverse effect on the Company or any Subsidiary, as
determined by the Administrator in good faith in its sole discretion;
(ii) the Optionee engages in a fraudulent act to the material damage
or prejudice of the Company or any Subsidiary or in conduct or
activities materially damaging to the property, business or reputation
of the Company or any Subsidiary, all as determined by the
Administrator in good faith in its sole discretion; (iii) any material
act or omission by the Optionee involving malfeasance or negligence in
the performance of the Optionee's duties to the Company or any
Subsidiary to the material detriment of the Company or any Subsidiary,
as determined by the Administrator in good faith in its sole
discretion, which has not been corrected by the Optionee within thirty
(30) days after written notice from the Company of any such act or
omission; (iv) failure by the Optionee to comply in any material
respect with the terms of [his/her] employment agreement, if any, or
any written policies or directives of the Board as determined by the
Administrator in good faith in its sole discretion, which has not been
corrected by the Optionee with thirty (30) days after written notice
from the Company of such failure; or (v) material breach by the
Optionee of [his/her] noncompetition agreement with the Company, if
any, as determined by the Administrator in good faith in its sole
discretion.
(iv) Other Termination. If the Optionee's employment terminates for
-----------------
any reason other than death, Disability or Cause, and unless otherwise
determined by the Administrator, any Stock Option held by the Optionee
may be exercised, to the extent exercisable on the date of
termination, for a period of three (3) months from the date of
termination or until the Expiration Date, if earlier. Any Stock Option
that is not exercisable at such time shall terminate immediately and
be of no further force or effect.
The Administrator's determination of the reason for termination of the
Optionee's employment shall be conclusive and binding on the Optionee and
[his/her] representatives or legatees.
(b) The Optionee acknowledges and agrees that, upon termination of the
Optionee's employment with the Company (other than by death or Disability) prior
to the closing of an IPO, the Company may, in its sole discretion, repurchase
all or a portion of the shares of Stock that the Optionee has received upon any
exercise by the Optionee pursuant to Section 2 hereof and held by the Optionee
as of the date of such termination of employment (the "Exercised Shares"). The
right of the Company to repurchase any of the Exercised Shares ("the Repurchase
Option") is conferred only upon the Company, as follows: (i) the Company may
exercise the Repurchase Option (a "Repurchase") for any or all of the Optionee's
Exercised Shares by delivering to the Optionee written notice (the "Repurchase
Notice") of its intent to exercise the Repurchase Option within ninety (90) days
of the termination of the Optionee's employment, specifying therein the number
of the Exercised Shares to be repurchased (the "Repurchased Shares") and the
Repurchase Price (as defined below); and (ii) ten (10) business days after the
Repurchase Notice is delivered to the Optionee, the Company shall pay to the
<PAGE>
Optionee an amount equal to the Repurchase Price, and the Optionee shall deliver
the certificate or certificates representing the Repurchased Shares to the
Company (provided, however, that if the number of Repurchased Shares is less
-------- -------
than the number of Exercised Shares held by the Optionee, then the Company shall
reissue a certificate or certificates to the Optionee for the Exercised Shares
that have not been repurchased by the Company). For purposes of this Section
3(b), the "Repurchase Price" shall be the Fair Market Value of the Repurchased
Shares as determined by the Board in its sole discretion at the time of
Repurchase.
4. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
5. Transferability. This Agreement is personal to the Optionee, is non-
---------------
assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.
6. Tax Withholding. The Optionee shall, not later than the date as of
---------------
which the exercise of this Stock Option becomes a taxable event for Federal
income tax purposes, pay to the Company or make arrangements satisfactory to the
Administrator for payment of any Federal, state, and local taxes required by law
to be withheld on account of such taxable event. Subject to the affirmative
consent or disapproval of the Administrator, the Optionee may elect to have such
tax withholding obligation satisfied, in whole or in part, by (i) authorizing
the Company to withhold from shares of Stock to be issued, or (ii) transferring
to the Company, a number of shares of Stock with an aggregate Fair Market Value
that would satisfy the withholding amount due.
7. Miscellaneous.
-------------
(a) Notice hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance of employment by the Company or any Subsidiary.
<PAGE>
(c) Pursuant to Section 12 of the Plan, the Committee may at any time
amend or cancel any outstanding portion of this Stock Option, but no such action
may be taken which adversely affects the Optionee's rights under this Agreement
without the Optionee's consent.
MAC-GRAY II, INC.
By: __________________________________
Name:
Title:
<PAGE>
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated: _________________________ _____________________________________
Optionee's Signature
Optionee's name and address:
_____________________________________
_____________________________________
_____________________________________
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR NON-EMPLOYEE DIRECTORS
UNDER THE MAC-GRAY II, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
Name of Optionee:______________________________
No. of Option Shares: __________
Option Exercise Price per Share:_______________
[FMV]
Grant Date:____________________________________
[fifth business day after each annual meeting]
Expiration Date:____________________
[10 years]
Pursuant to the Mac-Gray II, Inc. 1997 Stock Option and Incentive Plan (the
"Plan") as amended through the date hereof, the Mac-Gray II, Inc. (the
"Company") hereby grants to the Optionee named above, who is a Director of the
Company but is not an employee of the Company, an option (the "Stock Option") to
purchase on or prior to the Expiration Date specified above all or part of the
number of shares of Common Stock, par value $.01 per share (the "Stock") of the
Company specified above at the Option Exercise Price per Share specified above
subject to the terms and conditions set forth herein and in the Plan.
1. Vesting. No portion of this Stock Option may be exercised until this
-------
Stock Option shall have vested. Except as set forth below, this Stock Option
shall be fully vested and exercisable on the [Grant Date.]
In the event of (i) the termination of the Optionee's service as a director
of the Company because of the Optionee's inability to perform [his/her] normal
required services for the Company and its Subsidiaries for a period of six (6)
consecutive months by reason of the Optionee's mental or physical disability, as
determined by the Administrator in good faith in its sole discretion (a
"Disability"), death, the sale of all or substantially all of the assets of the
Company, a merger or other consolidation which results in a change in control of
the Company, or the liquidation or dissolution of the Company, this Stock Option
shall become immediately vested and exercisable in full, whether or not vested
and exercisable at such time. Once vested, this Stock Option shall continue to
be exercisable at any time or times prior to the close of business on the
Expiration Date, subject to the provisions hereof and of the Plan.
2. Exercise of Stock Option.
------------------------
(a) The Optionee may exercise this Stock Option only in the following
manner: from time to time on or prior to the Expiration Date of this Stock
Option, the Optionee may give written notice to the Administrator of his or her
election to purchase some or all of the vested Option Shares purchasable at the
time of such notice. This notice shall specify the number of Option Shares to
be purchased.
<PAGE>
Payment of the purchase price for the Option Shares may be made by one or
more of the following methods: (i) in cash, by certified or bank check or other
instrument acceptable to the Committee; (ii) in the form of shares of Stock that
are not then subject to restrictions under any Company plan and that have been
held by the Optionee for at least six months; (iii) by the Optionee delivering
to the Company a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the option purchase price, provided
that in the event the Optionee chooses to pay the option purchase price as so
provided, the Optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure; or (iv) a combination
of (i), (ii) and (iii) above. Payment instruments will be received subject to
collection.
The delivery of certificates representing the Option Shares will be
contingent upon the Company's receipt from the Optionee of full payment for the
Option Shares, as set forth above and any agreement, statement or other evidence
that the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Options under the Plan and any subsequent
resale of the shares of Stock will be in compliance with applicable laws and
regulations.
(b) Certificates for shares of Stock purchased upon exercise of this
Stock Option shall be issued and delivered to the Optionee upon compliance to
the satisfaction of the Committee with all requirements under applicable laws or
regulations in connection with such issuance and with the requirements hereof
and of the Plan. The determination of the Committee as to such compliance shall
be final and binding on the Optionee. The Optionee shall not be deemed to be
the holder of the shares subject to this Stock Option, or to have any of the
rights of a holder, unless and until this Stock Option shall have been exercised
pursuant to the terms hereof, the Company shall have issued and delivered the
shares to the Optionee, and the Optionee's name shall have been entered as the
stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to such
shares of Stock.
(c) The minimum number of shares with respect to which this Stock
Option may be exercised at any one time shall be [100] shares, unless the number
of shares with respect to which this Stock Option is being exercised is the
total number of shares subject to exercise under this Stock Option at the time.
(d) Notwithstanding any other provision hereof or of the Plan, no
portion of this Stock Option shall be exercisable after the Expiration Date
hereof.
3. Termination as Director. If the Optionee ceases to be a Director of
-----------------------
the Company, the period within which to exercise the Stock Option may be subject
to earlier termination as set forth below.
<PAGE>
(a) Termination by Reason of Death. If the Optionee ceases to be a
------------------------------
Director by reason of death, any Stock Option held by the Optionee may be
exercised by [his/or her] legal representative or legatee for a period of
[twelve (12)] months from the date of death or until the Expiration Date, if
earlier.
(b) Other Termination. If the Optionee ceases to be a Director for
-----------------
any reason other than for Cause or death, any Stock Option held by the Optionee
may be exercised for a period of [six (6) months] from the date of termination
or until the Expiration Date, if earlier. For purposes hereof, "Cause" shall
mean the occurrence of one or more of the following: (i) the Optionee is
convicted of, pleads guilty to, or confesses to any felony or any act of fraud,
misappropriation or embezzlement which has an immediate and materially adverse
effect on the Company or any Subsidiary, as determined by the Administrator in
good faith in its sole discretion; (ii) the Optionee engages in a fraudulent act
to the material damage or prejudice of the Company or any Subsidiary or in
conduct or activities materially damaging to the property, business or
reputation of the Company or any Subsidiary, all as determined by the
Administrator in good faith in its sole discretion; (iii) any material act or
omission by the Optionee involving malfeasance or negligence in the performance
of the Optionee's duties to the Company or any Subsidiary to the material
detriment of the Company or any Subsidiary, as determined by the Administrator
in good faith in its sole discretion, which has not been corrected by the
Optionee within thirty (30) days after written notice from the Company of any
such act or omission; (iv) failure by the Optionee to comply in any material
respect with the terms of his/her employment agreement, if any, or any written
policies or directives of the Board as determined by the Administrator in good
faith in its sole discretion, which has not been corrected by the Optionee with
thirty (30) days after written notice from the Company of such failure; or (v)
material breach by the Optionee of [his/her] noncompetition agreement with the
Company, if any, as determined by the Administrator in good faith in its sole
discretion.
4. Incorporation of Plan. Notwithstanding anything herein to the
---------------------
contrary, this Stock Option shall be subject to and governed by all the terms
and conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
[5. Transferability. This Agreement is personal to the Optionee, is non-
---------------
assignable and is not transferable in any manner, by operation of law or
otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee's lifetime, only by the
Optionee, and thereafter, only by the Optionee's legal representative or
legatee.]
6. Miscellaneous.
-------------
(a) Notice hereunder shall be given to the Company at its principal
place of business, and shall be given to the Optionee at the address set forth
below, or in either case at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Stock Option does not confer upon the Optionee any rights
with respect to continuance as a Director.
<PAGE>
(c) Pursuant to Section 12 of the Plan, the Committee may at any time
amend or cancel any outstanding portion of this Stock Option, but no such action
may be taken which adversely affects the Optionee's rights under this Agreement
without the Optionee's consent.
MAC-GRAY II, INC.
By: _______________________________
Name:
Title:
<PAGE>
The foregoing Agreement is hereby accepted and the terms and conditions thereof
hereby agreed to by the undersigned.
Dated: _________________________ ______________________________________
Optionee's Signature
Optionee's name and address:
______________________________________
______________________________________
______________________________________
<PAGE>
Exhibit 10.17
-------------
DIRECTOR INDEMNIFICATION AGREEMENT
This Indemnification Agreement is made and entered into this ___ day of
________, 1997 ("Agreement"), by and between Mac-Gray Corporation, a Delaware
corporation (together with any successor or successors thereto, the "Company,"
which term shall include, where appropriate, any Entity (as hereinafter defined)
controlled directly or individually by the Company), and name ("Indemnitee").
WHEREAS, it is essential to the Company that the Company be able to retain
and attract as directors the most capable persons available;
WHEREAS, increased corporate litigation has subjected directors to
litigation risks and expenses and the limitations on the availability of
directors and officers liability insurance have made it increasingly difficult
for the Company to attract and retain such persons;
WHEREAS, the Company's by-laws require the Company to indemnify its
directors to the fullest extent permitted by law and permit the Company to make
other indemnification arrangements and agreements;
WHEREAS, the Company desires to provide Indemnitee with specific
contractual assurance of Indemnitee's rights to full indemnification against
litigation risks and expenses (regardless, among other things, of any amendment
to or revocation of such by-laws or any change in the ownership of the Company
or the composition of its Board of Directors), which indemnification is intended
to be greater than that which is afforded by the Company's certificate of
incorporation, by-laws and, to the extent insurance is available, the coverage
of Indemnitee under the Company's directors and officers liability insurance
policies; and
WHEREAS, Indemnitee is relying upon the rights afforded under this
Agreement in initially becoming and for continuing in Indemnitee's position as a
director of the Company:
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
1. Definitions.
(a) "Corporate Status" describes the status of a person who is serving
or has served (i) as a director of the Company, (ii) in any capacity with
respect to any employee benefit plan of the Company, or (iii) as a director,
partner, member, trustee, officer, employee, or agent of any other Entity at the
request of the Company.
(b) "Entity" shall mean any corporation, partnership, limited liability
company, joint venture, trust, foundation, association, organization or other
legal entity and any group or division of the Company or any of its
Subsidiaries.
(c) "Expenses" shall mean all reasonable fees, costs and expenses
incurred in connection with any Proceeding (as defined below), including,
without limitation, attorneys'
<PAGE>
fees, disbursements and retainers (including, without limitation, any such fees,
disbursements and retainers incurred by Indemnitee pursuant to Section 10 of
this Agreement), fees and disbursements of expert witnesses, private
investigators and professional advisors (including, without limitation,
accountants and investment bankers), court costs, transcript costs, fees of
experts, travel expenses, duplicating, printing and binding costs, telephone and
fax transmission charges, postage, delivery services, secretarial services, and
other disbursements and expenses.
(d) "Indemnifiable Expenses," "Indemnifiable Liabilities" and
"Indemnifiable Amounts" shall have the meanings ascribed to those terms in
Section 3(a) below.
(e) "Liabilities" shall mean judgments, damages, liabilities, losses,
penalties, excise taxes, fines and amounts paid in settlement.
(f) "Proceeding" shall mean any threatened, pending or completed claim,
action, suit, arbitration, alternate dispute resolution process, investigation,
administrative hearing, appeal, or any other proceeding, whether civil,
criminal, administrative or investigative, whether formal or informal, including
a proceeding initiated by Indemnitee pursuant to Section 10 of this Agreement to
enforce Indemnitee's rights hereunder.
(g) "Subsidiary" shall mean any Entity that is directly or indirectly
wholly-owned or controlled by the Company.
2. Services of Indemnitee. In consideration of the Company's covenants
and commitments hereunder, Indemnitee agrees to serve or continue to serve as a
director of the Company. However, this Agreement shall not impose any
obligation on Indemnitee or the Company to continue Indemnitee's service to the
Company beyond any period otherwise required by law or by other agreements or
commitments of the parties, if any.
3. Agreement to Indemnify. Subject to the requirements of applicable law,
the Company agrees to indemnify Indemnitee as follows:
(a) Subject to the exceptions contained in Section 4(a) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the Company) by reason of
Indemnitee's Corporate Status, Indemnitee shall be indemnified by the Company
against all Expenses and Liabilities incurred or paid by Indemnitee in
connection with such Proceeding (referred to herein as "Indemnifiable Expenses"
and "Indemnifiable Liabilities," respectively, and collectively as
"Indemnifiable Amounts").
(b) Subject to the exceptions contained in Section 4(b) below, if
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding by or in the right of the Company to procure a judgment in its favor
by reason of Indemnitee's Corporate Status, Indemnitee shall be indemnified by
the Company against all Indemnifiable Expenses.
2
<PAGE>
4. Exceptions and Limitations to Indemnification.
(a) Exceptions. Indemnitee shall be entitled to indemnification under
----------
Sections 3(a) and 3(b) above in all circumstances other than the following:
(i) If indemnification is requested under Section 3(a) and it has
been adjudicated finally by a court of competent jurisdiction that, in
connection with the subject of the Proceeding out of which the claim for
indemnification has arisen, Indemnitee failed to act in good faith and in a
manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal action or
proceeding, Indemnitee had reasonable cause to believe that Indemnitee's
conduct was unlawful, Indemnitee shall not be entitled to payment of
Indemnifiable Amounts hereunder.
(ii) If indemnification is requested under Section 3(b) and
(A) it has been adjudicated finally by a court of competent
jurisdiction that, in connection with the subject of the Proceeding out
of which the claim for indemnification has arisen, Indemnitee failed to
act in good faith and in a manner Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, Indemnitee shall
not be entitled to payment of Indemnifiable Expenses hereunder; or
(B) it has been adjudicated finally by a court of competent
jurisdiction that Indemnitee is liable to the Company with respect to
any claim, issue or matter involved in the Proceeding out of which the
claim for indemnification has arisen, including, without limitation, a
claim that Indemnitee received an improper personal benefit, no
Indemnifiable Expenses shall be paid with respect to such claim, issue
or matter unless the Court of Chancery or another court in which such
Proceeding was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnity for
such Indemnifiable Expenses which such court shall deem proper.
(b) Limitations. In the event Indemnitee has requested indemnification
-----------
by the Company for Indemnifiable Amounts as a result of Indemnitee's Corporate
Status as described in Section 1(a)(iii), then the Company shall indemnify the
Indemnitee for Indemnifiable Amounts to the extent the Indemnitee is not
otherwise indemnified for such Indemnifiable Amounts by such other Entity.
5. Procedure for Payment of Indemnifiable Amounts. Indemnitee shall
submit to the Company a written request specifying the Indemnifiable Amounts for
which Indemnitee seeks payment under Section 3 of this Agreement and the basis
for the claim. The Company shall pay such Indemnifiable Amounts to Indemnitee
within twenty (20) calendar days of receipt of the request. At the request of
the Company, Indemnitee shall furnish such documentation and information as are
reasonably available to Indemnitee and necessary to establish that Indemnitee is
entitled to indemnification hereunder.
3
<PAGE>
6. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, and without
limiting any such provision, to the extent that Indemnitee is, by reason of
Indemnitee's Corporate Status, a party to and is successful, on the merits or
otherwise, in any Proceeding, Indemnitee shall be indemnified against all
Expenses reasonably incurred by Indemnitee or on Indemnitee's behalf in
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses reasonably incurred by Indemnitee or on
Indemnitee's behalf in connection with each successfully resolved claim, issue
or matter. For purposes of this Agreement, the termination of any claim, issue
or matter in such a Proceeding by dismissal, with prejudice, shall be deemed to
be a successful result as to such claim, issue or matter.
7. Effect of Certain Resolutions. Neither the settlement or termination
of any Proceeding nor the failure of the Company to award indemnification or to
determine that indemnification is payable shall create an adverse presumption
that Indemnitee is not entitled to indemnification hereunder. In addition, the
termination of any proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not create a presumption
that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that Indemnitee's action was unlawful.
8. Agreement to Advance Interim Expenses; Conditions. The Company shall
pay to Indemnitee all Indemnifiable Expenses incurred by Indemnitee in
connection with any Proceeding, including a Proceeding by or in the right of the
Company, in advance of the final disposition of such Proceeding, if Indemnitee
furnishes the Company with a written undertaking to repay the amount of such
Indemnifiable Expenses advanced to Indemnitee if it is finally determined by a
court of competent jurisdiction that Indemnitee is not entitled under this
Agreement to indemnification with respect to such Expenses. Such undertaking
shall be an unlimited general obligation of Indemnitee, shall be accepted by the
Company without regard to the financial ability of Indemnitee to make repayment,
and in no event shall be required to be secured.
9. Procedure for Payment of Interim Expenses. Indemnitee shall submit to
the Company a written request specifying the Indemnifiable Expenses for which
Indemnitee seeks an advancement under Section 8 of this Agreement, together with
documentation evidencing that Indemnitee has incurred such Indemnifiable
Expenses. Payment of Indemnifiable Expenses under Section 8 shall be made no
later than twenty (20) calendar days after the Company's receipt of such request
and the undertaking required by Section 8.
10. Remedies of Indemnitee.
(a) Right to Petition Court. In the event that Indemnitee makes a
-----------------------
request for payment of Indemnifiable Amounts under Sections 3 and 5 above or a
request for an advancement of Indemnifiable Expenses under Sections 8 and 9
above and the Company fails to make such payment or advancement in a timely
manner pursuant to the terms of this
4
<PAGE>
Agreement, Indemnitee may petition the appropriate judicial authority to enforce
the Company's obligations under this Agreement.
(b) Burden of Proof. In any judicial proceeding brought under Section
---------------
10(a) above, the Company shall have the burden of proving that Indemnitee is not
entitled to payment of Indemnifiable Amounts hereunder.
(c) Expenses. In the event that Indemnitee prevails on the merits for
--------
any claims brought under Section 10(a) above, the Company agrees to reimburse
Indemnitee in full for any Expenses incurred by Indemnitee in connection with
investigating, preparing for, litigating, defending or settling any action
brought by Indemnitee under Section 10(a) above, or in connection with any claim
or counterclaim brought by the Company in connection therewith.
(d) Validity of Agreement. The Company shall be precluded from asserting
---------------------
in any Proceeding, including, without limitation, an action under Section 10(a)
above, that the provisions of this Agreement are not valid, binding and
enforceable or that there is insufficient consideration for this Agreement and
shall stipulate in court that the Company is bound by all the provisions of this
Agreement.
(e) Failure to Act Not a Defense. The failure of the Company (including
----------------------------
its Board of Directors or any committee thereof, independent legal counsel, or
stockholders) to make a determination concerning the permissibility of the
payment of Indemnifiable Amounts or the advancement of Indemnifiable Expenses
under this Agreement shall not be a defense in any action brought under Section
10(a) above, and shall not create a presumption that such payment or advancement
is not permissible.
11. Representations and Warranties of the Company. The Company hereby
represents and warrants to Indemnitee as follows:
(a) Authority. The Company has all necessary power and authority to
---------
enter into, and be bound by the terms of, this Agreement, and the execution,
delivery and performance of the undertakings contemplated by this Agreement have
been duly authorized by the Company.
(b) Enforceability. This Agreement, when executed and delivered by the
--------------
Company in accordance with the provisions hereof, shall be a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally.
12. Insurance. The Company will use its commercially reasonable efforts
to obtain and maintain a policy or policies of insurance with reputable
insurance companies providing the Indemnitee with coverage for losses from
wrongful acts, and to ensure the Company's performance of its indemnification
obligations under this Agreement. In all policies of director and officer
liability insurance, Indemnitee shall be named as an insured in such a manner as
to provide Indemnitee at least the same rights and benefits as are accorded to
5
<PAGE>
the most favorably insured of the Company's officers and directors.
Notwithstanding the foregoing, if the Company, after employing commercially
reasonable efforts as provided in this section, determines in good faith that
such insurance is not reasonably available, if the premium costs for such
insurance are disproportionate to the amount of coverage provided, or if the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, the Company shall use its commercially reasonable efforts
to obtain and maintain a policy or policies of insurance with coverage having
features as similar as practicable to those described above.
13. Contract Rights Not Exclusive. The rights to payment of Indemnifiable
Amounts and advancement of Indemnifiable Expenses provided by this Agreement
shall be in addition to, but not exclusive of, any other rights which Indemnitee
may have at any time under applicable law, the Company's by-laws or certificate
of incorporation, or any other agreement, vote of stockholders or directors, or
otherwise, both as to action in Indemnitee's official capacity and as to action
in any other capacity as a result of Indemnitee's serving as a director of the
Company.
14. Successors. This Agreement shall be (a) binding upon all successors
and assigns of the Company (including any transferee of all or a substantial
portion of the business, stock and/or assets of the Company and any direct or
indirect successor by merger or consolidation or otherwise by operation of law)
and (b) binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of Indemnitee. This Agreement
shall continue for the benefit of Indemnitee and such heirs, personal
representatives, executors and administrators after Indemnitee has ceased to
have Corporate Status.
15. Subrogation. In the event of any payment of Indemnifiable Amounts
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of contribution or recovery of Indemnitee against
other persons, and Indemnitee shall take, at the request of the Company, all
reasonable action necessary to secure such rights, including the execution of
such documents as are necessary to enable the Company to bring suit to enforce
such rights.
16. Change in Law. To the extent that a change in applicable law (whether
by statute or judicial decision) shall permit broader indemnification than is
provided under the terms of the by-laws of the Company and this Agreement,
Indemnitee shall be entitled to such broader indemnification and this Agreement
shall be deemed to be amended to such extent.
17. Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement, or any clause thereof,
shall be determined by a court of competent jurisdiction to be illegal, invalid
or unenforceable, in whole or in part, such provision or clause shall be limited
or modified in its application to the minimum extent necessary to make such
provision or clause valid, legal and enforceable, and the remaining provisions
and clauses of this Agreement shall remain fully enforceable and binding on the
parties.
6
<PAGE>
18. Indemnitee as Plaintiff. Except as provided in Section 10(c) of this
Agreement and in the next sentence, Indemnitee shall not be entitled to payment
of Indemnifiable Amounts or advancement of Indemnifiable Expenses with respect
to any Proceeding brought by Indemnitee against the Company, any Entity which it
controls, any director or officer thereof, or any third party, unless the
Company has consented to the initiation of such Proceeding. This Section shall
not apply to counterclaims or affirmative defenses asserted by Indemnitee in an
action brought against Indemnitee.
19. Modifications and Waiver. Except as provided in Section 16 above with
respect to changes in applicable law which broaden the right of Indemnitee to be
indemnified by the Company, no supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by each of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions of this Agreement (whether or
not similar), nor shall such waiver constitute a continuing waiver.
20. General Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand, (b) when transmitted by facsimile and
receipt is acknowledged, or (c) if mailed by certified or registered mail with
postage prepaid, on the third business day after the date on which it is so
mailed:
(i) If to Indemnitee, at his mailing address as shown on the
signature page hereto, or at any other address designated
by the Indemnitee.
(ii) If to the Company, to:
Mac-Gray Corporation
22 Water Street
Cambridge, MA 02141
Facsimile: (617) 492-5386
Attn: Chief Executive Officer
or to such other address as may have been furnished in the same manner by any
party to the others.
21. Governing Law. This Agreement shall be governed by and construed and
enforced under the laws of the jurisdiction in which the Company or its
successor or successors are incorporated from time to time (the "Jurisdiction")
without giving effect to the provisions thereof relating to conflicts of law.
22. Consent to Jurisdiction. The Company hereby irrevocably and
unconditionally consents to the jurisdiction of the courts of the Jurisdiction
and the United States District Court in the Jurisdiction. The Company hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any Proceeding arising out of or relating to this Agreement in the courts of the
Jurisdiction or the United States District Court in the Jurisdiction, and hereby
7
<PAGE>
irrevocably and unconditionally waives and agrees not to plead or claim that any
such Proceeding brought in any such court has been brought in an inconvenient
forum.
23. Agreement Governs. This Agreement is to be deemed consistent wherever
possible with relevant provisions of the Company's by-laws and certificate of
incorporation; however, in the event of a conflict between this Agreement and
such provisions, the provisions of this Agreement shall control.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Director
Indemnification Agreement as of the day and year first written above.
MAC-GRAY CORPORATION
By:
------------------------------
Name: John S. Olbrych
Title: Chief Financial Officer
and Treasurer
INDEMNITEE
----------------------------------
Name: FIELD(name)
Address: FIELD(address)
Telephone: FIELD(telephone)
Facsimile: FIELD(fax)
1
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
Mac-Gray Investments, Inc., a Delaware corporation
Mac-Gray Services, Inc., a Delaware corporation
R. Bodden Coin-Op-Laundry, Inc., a Florida corporation
Sun Services of America, Inc., a Delaware corporation which does
business under its own name and under the following names:
Atlantic Coin Laundry
Bay & Gulf Laundry Equipment
Coin Laundry Leasing
Coin Operated Apartment Laundries
H & H Laundry Equipment
Hicks Laundry Equip-Leasing
Hicks Laundry Equipment
Hicks Laundry Supplies
JMN Laundry Equipment
Keewes Laundry Services
Laundry Concessions
Laundry Leasing Services
M & M Laundry Equipment
Rainbow Laundry Leasing
Sun Services
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports dated February 28, 1997 and
April 4, 1997, relating to the combined financial statements of Mac-Gray Co.,
Inc. and Mac-Gray L.P. and our report dated May 2, 1997 relating to the combined
financial statements of Sun Services of America, Inc. and R. Bodden Coin-Op-
Laundry, Inc., which appear in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Historical Combined
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Historical Combined
Financial Data."
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 2,844 2,660
<SECURITIES> 343 343
<RECEIVABLES> 1,970 2,099
<ALLOWANCES> 330 358
<INVENTORY> 1,509 1,649
<CURRENT-ASSETS> 1,699 8,649
<PP&E> 31,912 34,036
<DEPRECIATION> 35,430 40,428
<TOTAL-ASSETS> 54,108 68,971
<CURRENT-LIABILITIES> 14,104 10,872
<BONDS> 23,325 32,902
0 0
0 0
<COMMON> 154 64
<OTHER-SE> 2,413 0
<TOTAL-LIABILITY-AND-EQUITY> 54,108 68,971
<SALES> 64,427 38,288
<TOTAL-REVENUES> 64,427 38,288
<CGS> 48,120 28,477
<TOTAL-COSTS> 56,392 33,632
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,956 1,431
<INCOME-PRETAX> 5,992 3,264
<INCOME-TAX> 465 232
<INCOME-CONTINUING> 5,527 3,032
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,527 3,032
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
Exhibit 99.1
CONSENT OF FUTURE DIRECTOR
The undersigned consents to the inclusion in this Registration
Statement on Form S-1 of my name and biographied information as an individual
who will become a member of the Board of Directors of Mac-Gray Corporation upon
consummation of the offering contemplated by the prospectus which constitutes a
part of such Registration Statement on Form S-1.
/s/ Eugene B. Doggett
-------------------------------
Eugene B. Doggett
Cambridge, MA
August 14, 1997
