MAC-GRAY CORP, S-1, 1998-04-09

MAC-GRAY CORP
S-1, 1998-04-09
PERSONAL SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION STATEMENT NO. 333-

----------------
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
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE) IDENTIFICATION NO.)
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.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this Post-Effective Amendment 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. [X]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM PROPOSED
SECURITIES TO BE AMOUNT TO OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
REGISTERED BE REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value.................. 250,000 Shares $15.9375 $3,984,375 $1,176
</TABLE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Based upon the average of the high and low sale prices reported on the New
York Stock Exchange on April 7, 1998, and estimated solely for purposes of
calculating the registration fee in accordance with Rule 457(e) 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.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
DATED APRIL 9, 1998

MAC-GRAY CORPORATION

250,000 SHARES OF COMMON STOCK

This Prospectus relates to the sale of 250,000 shares (the "Shares") of
common stock, par value $.01 per share (the "Mac-Gray Common Stock"), of Mac-
Gray Corporation, a Delaware corporation ("Mac-Gray" or the "Company"), by
certain former shareholders (the "Selling Securityholders") of Copico, Inc., a
Massachusetts corporation ("Copico"). The Selling Securityholders will receive
the Shares in connection with Mac-Gray's acquisition of Copico, which is
expected to close as promptly as practicable following the effectiveness of the
registration statement of which this Prospectus is a part, pursuant to the
Stock Purchase Agreement, dated as of March 31, 1998 (the "Stock Purchase
Agreement"), by and among Mac-Gray Services, Inc., a Delaware corporation and a
wholly-owned subsidiary of Mac-Gray ("Mac-Gray Services"), Copico and the
Selling Securityholders, pursuant to which Mac-Gray Services will acquire all
of the issued and outstanding capital stock of Copico. See "Prospectus
Summary--Recent Developments."

The Selling Securityholders, directly or through agents, dealers or
underwriters designated from time to time, may sell all or a portion of the
Shares offered hereby from time to time on terms to be determined at the time
of sale. To the extent required by law, the specific Shares to be sold, the
names of the Selling Securityholders, the respective purchase prices and public
offering prices, the names of any such agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement. See "Plan of Distribution."
Each Selling Securityholder reserves the sole right to accept and, together
with such Selling Securityholder's agents, dealers or underwriters from time to
time, to reject, in whole or in part, any proposed purchase of Shares to be
made directly or through agents, dealers or underwriters.

The aggregate proceeds to the Selling Securityholders from the sale of the
Shares offered hereby (the "Offering") will be the purchase price of the Shares
sold less the aggregate agents' commissions and underwriters' discounts, if
any, and other expenses of issuance and distribution not borne by Mac-Gray.
Pursuant to an agreement with the Selling Securityholders, Mac-Gray has agreed
to pay the costs, fees and expenses incurred in connection with the
registration of the Shares; provided, however, that the Selling Securityholders
will be responsible for underwriting commissions or discounts, transfer taxes,
if any, attributable to the sale of the Shares, any fees or expenses of any
counsel, accountants or other persons retained or employed by the Selling
Securityholders and out-of-pocket expenses of the Selling Securityholders and
their agents, including, without limitation, any travel costs. See "The Selling
Securityholders and the Offered Shares--Registration Rights Agreement."

Mac-Gray will not receive any proceeds from the sale of the Shares offered
hereby by the Selling Securityholders.

The Selling Securityholders and any brokers, dealers or agents that
participate with the Selling Securityholders in the distribution of the Shares
may be deemed to be "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), and any profit on the sale of the
Shares by them and any discounts, concessions or commissions received by such
underwriters, brokers, dealers or agents may be deemed to be underwriting
discounts and commissions under the Securities Act. See "Plan of Distribution."

The Mac-Gray Common Stock is listed on the New York Stock Exchange (the
"NYSE") under the symbol "TUC." On April 7, 1998, the last reported sales price
for the Mac-Gray Common Stock on the NYSE was $15 7/8 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
SHARES 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/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE HEREIN
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION
OF THE SHARES OF MAC-GRAY COMMON STOCK HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF MAC-GRAY SINCE THE DATE HEREOF.

The date of this Prospectus is , 1998.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION.................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 1
PROSPECTUS SUMMARY....................................................... 2
Mac-Gray Corporation................................................... 2
Recent Developments.................................................... 2
Selected Historical Financial Data..................................... 3
RISK FACTORS............................................................. 5
Implementation of Acquisition Strategy; Integration of Acquired Busi-
nesses................................................................ 5
Competition............................................................ 6
Dependence Upon Senior Executives...................................... 6
Significant Capital Expenditures; Additional Financings................ 6
Uncertainty of Market Acceptance of New Products and Services.......... 6
Dependence Upon Lease Renewals......................................... 6
Dependence Upon Certain Suppliers...................................... 7
Restrictions Imposed by Mac-Gray's Indebtedness........................ 7
Voting Control by Principal Stockholders, Directors and Executive Offi-
cers.................................................................. 7
Common Stock Contingent Repurchase Obligation.......................... 8
Anti-takeover Effect of the Mac-Gray Charter, the Mac-Gray By-laws and
Delaware Law.......................................................... 8
Potential Volatility of Stock Price.................................... 8
Absence of Dividends................................................... 8
Material Benefits to Certain Insiders.................................. 9
BUSINESS................................................................. 10
General................................................................ 10
Financial Characteristics of Mac-Gray's Business....................... 10
Industry Overview...................................................... 10
Company Strategy....................................................... 11
Internal Growth........................................................ 12
Strategic Acquisitions................................................. 13
Card and Coin-Operated Laundry Route Business.......................... 13
Technology............................................................. 15
Competition............................................................ 16
Laundry Equipment Sales, Leasing and Service........................... 16
Employees.............................................................. 17
Properties............................................................. 17
Legal Proceedings...................................................... 17
SELECTED HISTORICAL FINANCIAL DATA....................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 20
Overview............................................................... 20
Recent Developments.................................................... 20
Results of Operations.................................................. 21
Seasonality............................................................ 23
Liquidity and Capital Resources........................................ 23
Inflation.............................................................. 25
Recently Issued Accounting Pronouncements.............................. 25
</TABLE>

(ii)
<PAGE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT................................................................. 26
Directors and Executive Officers......................................... 26
Board of Directors....................................................... 27
Executive Compensation................................................... 28
1997 Stock Option and Incentive Plan..................................... 30
Stock Appreciation Rights................................................ 33
Employment Agreements with Executive Officers............................ 33
Compensation Committee Interlocks and Insider Participation.............. 33
Certain Relationships and Related Transactions........................... 33
PRINCIPAL STOCKHOLDERS..................................................... 35
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................... 38
MARKET PRICES AND DIVIDEND DATA............................................ 39
DESCRIPTION OF CAPITAL STOCK............................................... 39
Authorized and Outstanding Capital Stock................................. 39
Certain Provisions of Charter and By-laws................................ 40
Statutory Business Combination Provision................................. 41
Transfer Agent and Registrar............................................. 42
THE SELLING SECURITYHOLDERS AND THE OFFERED SHARES......................... 42
Background............................................................... 42
Registration Rights Agreement............................................ 42
PLAN OF DISTRIBUTION....................................................... 44
LEGAL MATTERS.............................................................. 44
EXPERTS.................................................................... 44
INDEX TO FINANCIAL STATEMENTS.............................................. F-1
</TABLE>

(iii)
<PAGE>

AVAILABLE INFORMATION

Mac-Gray is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information concerning Mac-Gray can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a site
on the Internet's World Wide Web at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including Mac-Gray. In addition,
reports, proxy statements and other information concerning Mac-Gray may be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York
10005, on which shares of Mac-Gray Common Stock are traded under the symbol
"TUC."

This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement,
which is available for inspection and copying as set forth above. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to herein or therein are not necessarily complete (though to
the extent of the provisions referred to herein, such statements are complete
in all material respects), and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

No information relating to Mac-Gray is incorporated herein by reference.

1
<PAGE>

PROSPECTUS SUMMARY

The following is a brief summary, which is necessarily incomplete, of certain
information contained elsewhere in this Prospectus. Reference is made to, and
this summary is qualified in its entirety by, the more detailed information
contained herein, and in the exhibits and appendices hereto, all of which
should be reviewed carefully. 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 Mac-Gray or 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 "Business."

Certain of the information contained in this Prospectus may constitute
forward-looking statements. There are a number of important factors that could
cause actual results to differ materially from those indicated by such forward-
looking statements. Such factors include, but are not limited to, those set
forth in this Prospectus under the heading "Risk Factors."

MAC-GRAY CORPORATION

Mac-Gray 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, condominiums
and public housing complexes. Mac-Gray operates its laundry rooms under long-
term leases with property owners, colleges and universities and governmental
agencies. The leases typically grant Mac-Gray the exclusive right to operate
laundry rooms of the lessor's premises for a fixed term, which is generally
seven to ten years, in exchange for a percentage of the revenue collected. Mac-
Gray's laundry room business consists of more than 120,000 laundry machines,
operated in over 17,000 multiple housing laundry rooms located in 26 states
east of the Rocky Mountains. Mac-Gray's principal offices are located at 22
Water Street, Cambridge, Massachusetts 02141, and its telephone number at that
location is (617) 492-4040.

RECENT DEVELOPMENTS

On March 31, 1998, Mac-Gray entered into a Stock Purchase Agreement, pursuant
to which Mac-Gray Services will acquire one hundred percent of the outstanding
capital stock of Copico. Founded in 1978, Copico is a major provider of card
and coin-operated reprographics equipment and services to the academic and
public library markets in New England, New York and Florida. Copico provides
and services copiers, laser printers and microform reader-printers for
libraries of colleges, universities and graduate schools. Copico also is the
sole provider of reprographics services to the New York public library system,
as well as other public libraries. Copico had revenues of approximately $7.1
million for its fiscal year ended January 1, 1998 and has operations facilities
in Canton, Massachusetts, New York, New York and Miramar, Florida. The purchase
price will be approximately $10.95 million in cash, less the assumption of
certain debt, and 250,000 shares of Mac-Gray Common Stock. Mac-Gray will fund
the cash portion of the purchase price by drawing on its existing $50 million
revolving credit facility with State Street Bank and Trust Company and
CoreStates Bank (the "Credit Facility"). The transaction is subject to
customary closing conditions and is expected to close during the second quarter
of 1998.

On March 12, 1998, Mac-Gray acquired Intirion Corporation, a Delaware
corporation ("Intirion"), pursuant to an Agreement and Plan of Merger, dated as
of December 22, 1997 (the "Merger Agreement"), by and among

2
<PAGE>

Mac-Gray, MI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Mac-Gray ("MIAC"), Intirion and Robert P. Bennett, pursuant to
which Mac-Gray acquired Intirion by merging (the "Merger") MIAC with and into
Intirion. Pursuant to the Merger, Mac-Gray issued 1,592,992 shares of Mac-Gray
Common Stock and approximately $1 million in cash, which cash was paid to the
holder of Intirion's Senior Redeemable Preferred Stock, par value $.01 per
share (the "Intirion Senior Preferred Stock"). Intirion is a supplier of
combination refrigerator/freezer/microwave ovens to multiple housing facilities
such as colleges and universities, military bases, economy hotels and motels
and assisted living facilities. For the twelve month period ended June 30,
1997, Intirion had total revenues of approximately $23.5 million. The
transaction is being accounted for as a pooling of interests.

On March 4, 1998, Mac-Gray entered into a Stock and Asset Purchase Agreement,
pursuant to which Mac-Gray Services will acquire one hundred percent of the
outstanding capital stock of Amerivend Corporation and the assets of Amerivend
Southeast Corporation (together, "Amerivend"). Amerivend is a provider of card
and coin-operated laundry equipment in Florida and Georgia. Amerivend is also
the principal distributor of the Maytag Corporation's ("Maytag") commercial
laundry products in Alabama, Georgia and Florida. Founded in 1959, Amerivend
had 1997 revenues of $18.6 million and has offices in Miami, Orlando, Tampa and
Atlanta. The purchase price, which is subject to certain adjustments, will be
approximately $33.5 million in cash, including the payment of certain debt. The
purchase price will be funded by Mac-Gray by drawing on the Credit Facility.
The transaction is subject to customary closing conditions, including
regulatory filings, and is expected to close in the second quarter of 1998.

SELECTED HISTORICAL FINANCIAL DATA

Set forth below are selected historical financial data of Mac-Gray as of the
dates and for the periods indicated. The selected historical financial data of
Mac-Gray for the three years in the period ended December 31, 1997 were derived
from the historical consolidated financial statements of Mac-Gray that were
audited by Price Waterhouse LLP, whose report appears elsewhere in this
Prospectus. The selected consolidated 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 consolidated financial statements of Mac-Gray and the notes thereto
included elsewhere in this Prospectus.

On March 12, 1998, Mac-Gray completed its acquisition of Intirion which has
been accounted for as a pooling of interests. Supplemental consolidated
financial statements giving effect to the business combination between Mac-Gray
and Intirion have been included in this Registration Statement beginning on
page F-47. These supplemental financial statements will become the restated
historical financial statements of Mac-Gray upon publication of the combined
results of the companies covering a period subsequent to the combination.
Estimated transaction costs of approximately $860,000 associated with the
Intirion transaction will be expensed in the period they were incurred,
primarily in the first quarter of 1998.

3
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996 1997(1)
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue......................... $44,942 $48,031 $50,710 $ 64,427 $ 81,370
Cost of revenue:
Commissions.................... 17,762 19,168 20,471 25,760 31,717
Laundry route expenditures..... 7,458 7,889 8,251 10,955 12,232
Depreciation and amortization.. 4,377 4,756 4,899 6,216 8,635
Cost of equipment sales........ 1,700 2,673 2,938 5,189 8,187
------- ------- ------- -------- --------
Total cost of revenue.......... 31,297 34,486 36,559 48,120 60,771
Operating expenses:
General and administration..... 3,383 3,085 3,901 3,952 4,699
Sales and marketing............ 2,445 2,501 2,531 3,803 5,165
Depreciation................... 421 442 455 517 503
------- ------- ------- -------- --------
Total operating expenses....... 6,249 6,028 6,887 8,272 10,367
------- ------- ------- -------- --------
Income from operations.......... 7,396 7,517 7,264 8,035 10,232
Interest expense............... (1,437) (1,217) (1,175) (1,956) (2,521)
Other income (expense), net.... 71 70 55 (87) 181
------- ------- ------- -------- --------
Income before provision for in-
come taxes..................... 6,030 6,370 6,144 5,992 7,892
Provision for income taxes(2).. (330) (388) (374) (465) (5,206)
------- ------- ------- -------- --------
Net income...................... $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 2,686
======= ======= ======= ======== ========
Net income per common share(4).. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.37
======= ======= ======= ======== ========
Weighted average common shares
outstanding(4)................. 6,368 6,368 6,368 6,368 7,263
======= ======= ======= ======== ========
Net income per common share--as-
suming dilution(4)............. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.36
======= ======= ======= ======== ========
Weighted average common shares
outstanding--assuming dilu-
tion(4)........................ 6,368 6,368 6,368 6,368 7,391
======= ======= ======= ======== ========
TAX ADJUSTED EARNINGS PER SHARE
DATA(3):
Pro forma net income........... $ 3,595 $ 4,735
======== ========
Pro forma net income per common
share(4)...................... $ 0.56 $ 0.65
======== ========
Pro forma net income per common
share--assuming dilution(4)... $ 0.56 $ 0.64
======== ========
OTHER FINANCIAL DATA:
EBITDA(5)...................... $12,265 $12,785 $12,673 $ 14,681 $ 19,551
Depreciation and amortization.. 4,798 5,198 5,354 6,733 9,138
Capital expenditures........... 5,407 5,679 4,421 7,635 8,681
Cash flows from operating ac-
tivities...................... 9,405 10,650 10,417 13,650 10,942
Cash flows used in investing
activities.................... (5,689) (5,613) (5,105) (22,070) (20,544)
Cash flows provided by (used
in) financing activities...... (3,744) (6,128) (3,549) 7,382 10,532
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $(3,437) $(4,181) $(2,237) $ (6,069) $ (885)
Total assets................... 32,713 33,292 36,754 54,108 84,374
Long-term debt, net of current
portion....................... 15,718 13,544 11,843 23,325 5,395
Redeemable common stock(6)..... -- -- -- -- 7,797
Stockholders' equity........... 6,783 9,439 12,850 14,683 49,161
</TABLE>
- --------
(1) The financial data for the year ended December 31, 1997 includes the
results of the Sun Services Acquisition subsequent to the acquisition date
of April 17, 1997.
(2) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(3) Tax adjusted earnings per share data have been adjusted to give effect to
Mac-Gray's operations as if Mac-Gray were subject to federal and state
income taxes on a corporate level (at an estimated income tax rate of 40%)
during the periods presented.
(4) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, Mac-Gray
has complied with Staff Accounting Bulletin No. 98 (SAB 98) issued by the
Commission. Accordingly, earnings per share data have been restated for all
periods presented to give effect to both pronouncements. Earnings per share
data are reflective of the Mac-Gray Combination for all periods presented.
(5) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA
should not be considered as an alternative to net income as a measure of
operating results or as an alternative to cash flows as a measure of
liquidity and it is not a measure of performance or financial condition
under generally accepted accounting principles. EBITDA is presented because
Mac-Gray's management believes that certain investors may find it to be a
useful tool for measuring Mac-Gray's ability to meet its future debt
service obligations, make capital expenditures and satisfy working capital
requirements.
(6) Shares of Mac-Gray Common Stock issued in connection with the Sun Services
Acquisition are redeemable pursuant to a contractual arrangement.

4
<PAGE>

RISK FACTORS

Information provided by Mac-Gray, including information contained in this
Prospectus, or by its spokespersons from time to time may contain forward-
looking statements concerning projected financial performance, market and
industry segment growth, product development and commercialization or other
aspects of future operations. Such statements, made pursuant to the safe
harbor established by recent securities legislation, will be based on the
assumptions and expectations of Mac-Gray's management at the time such
statements are made. Mac-Gray cautions investors that its performance and,
therefore, any forward-looking statement is subject to risks and
uncertainties. Various important factors, including, but not limited to, those
set forth below, may cause Mac-Gray's future results to differ materially from
those projected in any forward-looking statement.

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 Mac-Gray Common Stock offered hereby.

IMPLEMENTATION OF ACQUISITION STRATEGY; INTEGRATION OF ACQUIRED BUSINESSES

Mac-Gray's growth strategy depends, in part, on its ability to acquire and
successfully integrate and operate additional businesses. In order to pursue
this strategy, Mac-Gray continually evaluates potential acquisition candidates
that provide services to the multi-housing market, including laundry route
businesses as well as businesses that could provide ancillary services to Mac-
Gray's customer base and target markets. In connection with such evaluations,
Mac-Gray may, from time to time, enter into non-binding letters of intent
with, and conduct due diligence with respect to, potential acquisition
candidates. The success of any completed acquisition will depend in large
measure on Mac-Gray'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 or operations outside Mac-Gray's core
business, with Mac-Gray's business may involve unforeseen difficulties and may
require a disproportionate amount of Mac-Gray's financial and other resources,
including management time. While Mac-Gray generally believes that its
management team and business structure enable it to operate a significantly
larger and more diverse operation, there is no assurance that Mac-Gray will be
able to successfully integrate acquired businesses into its existing
operations and to implement effective cost savings programs.

Mac-Gray 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
uneconomical. 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 Mac-Gray's net income. If further
acquisitions are made, Mac-Gray expects to continue to use cash and
securities, including shares of Mac-Gray Common Stock, as consideration for
such acquisitions. Use of Mac-Gray Common Stock as acquisition consideration
may result in dilution to Mac-Gray's stockholders. In the event that Mac-Gray
Common Stock does not maintain a sufficient valuation or if potential
acquisition candidates are unwilling to accept shares of Mac-Gray Common Stock
as consideration, Mac-Gray will be required to use more cash resources or
other consideration to continue its acquisition program. In addition, if Mac-
Gray is unable to generate sufficient cash for further acquisitions from
existing operations, Mac-Gray's acquisition program could be adversely
affected unless Mac-Gray 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 Mac-Gray's stockholders. There can be no assurance that suitable
additional acquisitions can be identified, financed, consummated on acceptable
terms and integrated into Mac-Gray's operations or that future acquisitions
will be financially and operationally successful. Failure to identify, finance
and consummate acquisitions on acceptable terms, or to integrate acquired
operations into Mac-Gray's operations could have a material adverse effect on
Mac-Gray's business, results of operations, financial condition and prospects.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Business--Company
Strategy."

5
<PAGE>

COMPETITION

The card and coin-operated laundry services industry is highly competitive.
In most of Mac-Gray'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. In the competition to supply services to property
owners, local private businesses tend to have long-standing relationships with
customers in their specific geographic market, and the two larger companies
participating in the industry consolidation, each of which has significantly
larger installed machine bases than Mac-Gray's, 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 Mac-Gray
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

Mac-Gray is currently dependent to a significant degree upon the ability and
experience of its senior executives. Mac-Gray has elected not to enter into
employment agreements with any of these executives. Mac-Gray's preference to
not utilize employment agreements for its senior executives may affect Mac-
Gray's ability to attract and retain senior executives in the future. The loss
of any of Mac-Gray's senior executives could adversely affect Mac-Gray's
ability to maintain its current operating performance or to achieve growth
through acquisitions. See "Management."

SIGNIFICANT CAPITAL EXPENDITURES; ADDITIONAL FINANCINGS

The industry in which Mac-Gray operates is capital intensive. Accordingly,
Mac-Gray must continue to make capital expenditures in order to periodically
replace its existing equipment. In addition, Mac-Gray's plan to utilize smart-
card based technologies with its equipment will also result in significant
capital expenditures. While Mac-Gray anticipates that its existing capital
resources, 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,
Mac-Gray may need to raise additional funds through public or private
financings that may or may not be on terms favorable to Mac-Gray and, in the
case of equity financings, could result in dilution to Mac-Gray'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."

UNCERTAINTY OF MARKET ACCEPTANCE OF NEW PRODUCTS AND SERVICES

Mac-Gray is currently introducing, and intends to introduce in the future,
new products and services utilizing smart card based technologies. While Mac-
Gray believes that cashless transactions will be attractive to its customers
and will provide Mac-Gray 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. A lack of
market acceptance of these new products and services could have a material
adverse effect on Mac-Gray's business, results of operations, financial
condition and prospects. See "Business--Technology."

DEPENDENCE UPON LEASE RENEWALS

Mac-Gray's business is highly dependent upon the renewal of its leases with
property owners, colleges and universities and public housing authorities.
Mac-Gray 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 Mac-Gray will be able to

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<PAGE>

continue to secure long-term exclusive leases with its customers or that it
will continue to successfully renew expiring leases. Any failure by Mac-Gray
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 Mac-Gray's business, results of
operations, financial condition and prospects. In addition, Mac-Gray 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 CERTAIN SUPPLIERS

Mac-Gray currently purchases more than 90% of the equipment that it utilizes
in its laundry route business from Maytag. In addition, Mac-Gray 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 Mac-Gray and Maytag are terminable by either party upon written
notice, Mac-Gray has never had such an agreement terminated by Maytag. Mac-
Gray also currently purchases substantially all of its smart-card based
equipment from Schlumberger Technologies, Inc. ("Schlumberger"), a
manufacturer of card-based electronic transaction systems. 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 Mac-Gray's business, results of operations, financial
condition and prospects. See "Business--Technology" and "--Laundry Equipment
Sales, Leasing and Service."

RESTRICTIONS IMPOSED BY MAC-GRAY'S INDEBTEDNESS

In the event Mac-Gray borrows significant amounts under the Credit Facility,
such level of indebtedness could have important consequences to Mac-Gray and
its stockholders, including the following: (i) a substantial portion of Mac-
Gray's cash flow from operations would need to be dedicated to the payment of
the principal of and interest on such indebtedness and would not be available
for other purposes; (ii) the ability of Mac-Gray to obtain financing in the
future for working capital needs, capital expenditures, acquisitions,
investments, general corporate purposes or other purposes could be materially
limited or impaired; and (iii) Mac-Gray's level of indebtedness could reduce
Mac-Gray's flexibility to respond to changing business and economic
conditions. The Credit Facility contains various covenants limiting the
discretion of Mac-Gray's management with respect to certain business matters,
including financial and other operating covenants. Failure to comply with any
such covenants, which failure is not waived by the lender, would permit the
lender to accelerate the maturity of the loan, which could have a material
adverse effect on Mac-Gray's business, results of operations, financial
condition and prospects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."

VOTING CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS

As of the date of this Prospectus, the principal stockholders, directors and
executive officers of Mac-Gray and their affiliates beneficially own in the
aggregate approximately 53% of the outstanding shares of Mac-Gray Common
Stock. This percentage ownership does not include options to purchase 428,315
shares of Mac-Gray Common Stock (options to acquire 80,330 shares of Mac-Gray
Common Stock are currently exercisable) held by certain of these persons,
which, if exercised in whole or in part, will further concentrate ownership of
Mac-Gray Common Stock. As a result, the above-referenced stockholders, if they
act together, possess the voting power required to elect all of Mac-Gray's
directors and to approve all other matters requiring approval by a majority of
the stockholders of Mac-Gray including, in many cases, significant corporate
transactions, such as mergers and sales of all or substantially all of Mac-
Gray's assets. Such concentration of ownership, together, in some cases, with
certain provisions of Mac-Gray's Amended and Restated Certificate of
Incorporation (the "Mac-Gray Charter") and Mac-Gray's By-laws (the "Mac-Gray
By-laws") and certain sections of the Delaware General Corporation Law (the
"DGCL"), may have the effect of delaying or preventing a change in control of

7
<PAGE>

Mac-Gray. See "--Anti-takeover Effect of Certificate of Incorporation and By-
law Provisions and Delaware Law," "Management--Directors and Executive
Officers" and "Principal Stockholders."

COMMON STOCK CONTINGENT REPURCHASE OBLIGATION

Mac-Gray is obligated to repurchase up to 612,026 shares of Mac-Gray 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
elect to require Mac-Gray to repurchase such shares (the "Put Right"). The Put
Right terminates on October 22, 2000. 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, Mac-Gray will be able to obtain
financing to satisfy such Put Right on terms satisfactory to Mac-Gray, if at
all. In the event Mac-Gray becomes required to repurchase such shares, it may
be required to incur additional indebtedness under its Credit Facility to fund
such repurchase. If Mac-Gray were unable to borrow such funds under its Credit
Facility, Mac-Gray would need to pursue alternative financing sources which,
if available, might be at higher interest rates than presently available under
the Credit Facility. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Management--Certain Relationships and Related Transactions."

ANTI-TAKEOVER EFFECT OF THE MAC-GRAY CHARTER, THE MAC-GRAY BY-LAWS AND
DELAWARE LAW

Certain provisions of the Mac-Gray Charter and the Mac-Gray By-laws, certain
sections of the DGCL and the ability of Mac-Gray's Board of Directors (the
"Mac-Gray Board") 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 Mac-Gray Board, including takeovers which certain stockholders may deem
to be in their best interests. These provisions and the ability of the Mac-
Gray Board 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 Mac-Gray Board serving staggered three-year terms, the elimination
of stockholder voting by written consent, the absence of cumulative voting for
directors, the removal of directors only for cause, the vesting of exclusive
authority in the Mac-Gray Board to determine the size of the Mac-Gray Board
and (subject to certain limited exceptions) to fill vacancies thereon, the
vesting of exclusive authority in the Mac-Gray Board (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 Mac-Gray Board. Mac-Gray is subject to Section 203 of the DGCL ("Section
203") which, in general, imposes restrictions upon certain acquirors
(including their affiliates and associates) of 15% or more of Mac-Gray Common
Stock. See "Description Capital Stock--Certain Provisions of Charter and By-
laws" and "--Statutory Business Combination Provision."

POTENTIAL VOLATILITY OF STOCK PRICE

The trading price of Mac-Gray 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 Mac-Gray, 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 Mac-Gray Common Stock.

ABSENCE OF DIVIDENDS

Mac-Gray 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

8
<PAGE>

upon, among other things, Mac-Gray'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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."

MATERIAL BENEFITS TO CERTAIN INSIDERS

Mac-Gray is obligated to make certain payments to a current director of Mac-
Gray as a result of an agreement entered into in connection with the Sun
Services Acquisition, which was owned by such director. In addition, Mac-Gray
is obligated to make certain payments to the wife of Mac-Gray's co-founder and
former Chief Executive Officer for the remainder of her life. See
"Management--Certain Relationships and Related Transactions."

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<PAGE>

BUSINESS

GENERAL

Mac-Gray 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,
condominiums and public housing complexes. Mac-Gray operates its laundry rooms
under long-term leases with property owners, colleges and universities and
governmental agencies. The leases typically grant Mac-Gray 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. Mac-Gray's laundry route business consists of more than 120,000
laundry machines, operated in over 17,000 multiple housing laundry rooms
located in 26 states east of the Rocky Mountains.

A substantial portion of Mac-Gray's revenue is derived from the operation of
washers and dryers in laundry rooms under long-term leases with property
owners. Under Mac-Gray's long-term leases, Mac-Gray typically receives the
exclusive right to operate laundry rooms within a multiple housing property in
exchange for a percentage of the revenue collected. The property owner or
manager is usually responsible for maintaining and cleaning the premises and
for payment of the utilities. Mac-Gray 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. Mac-Gray sets and adjusts the pricing for its machines
based upon local market conditions.

Mac-Gray is also a significant distributor for several major equipment
manufacturers, including Maytag. As an equipment distributor, Mac-Gray sells
commercial laundry equipment to public laundromats, as well as to the real
estate industry. Mac-Gray is also certified by the manufacturers to service
the commercial laundry equipment that it sells. Mac-Gray also sells commercial
laundry equipment directly to institutional purchasers, including hospitals,
restaurants and hotels, for use in their own on-premise laundry facilities.

Mac-Gray 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. Mac-Gray 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 MAC-GRAY'S BUSINESS

Mac-Gray's business has the following financial and operational
characteristics:

RECURRING REVENUE--Mac-Gray operates laundry equipment located in
multiple housing facilities under long-term leases with property owners. In
addition, Mac-Gray's efforts are designed to maintain customer
relationships over the long-term.

HISTORICALLY NON-CYCLICAL BUSINESS--Mac-Gray 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.

DIVERSIFIED AND STABLE CUSTOMER BASE--Mac-Gray provides laundry services
to more than 17,000 laundry rooms located in 26 states east of the Rocky
Mountains. Mac-Gray serves customers in a number of markets including
apartment buildings, colleges and universities, condominiums 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, condominiums
and public housing complexes. Mac-Gray estimates, based upon its analysis of
1990 U.S. Department of Census data on multi-family housing units and colleges
and

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<PAGE>

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 Mac-Gray'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 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 served 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, Mac-Gray believes, will
lead to more cashless, card-based laundry rooms. The benefits of cashless
payment technology include enhanced user convenience, the potential for modest
incremental price increases, variable time pricing, reduced administrative
burden and improved cash controls. Cashless payment technology will also
provide property owners with the ability to integrate laundry room services
with previously unrelated amenities, such as door and area 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. Mac-Gray
believes that the trend towards multi-family housing will lead to increased
demand for on-premise, modern laundry rooms as well as other amenities.

Mac-Gray 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

Mac-Gray'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, Mac-Gray intends to:

EXPAND CUSTOMER BASE IN EXISTING MARKETS--Mac-Gray intends to use its
sales and marketing resources to secure additional customers in its
existing markets. Mac-Gray's sales force is organized to focus on specific
markets including larger property owners, such as REITs and public housing
authorities,

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<PAGE>

geographically diversified property managers and colleges and universities.
Mac-Gray relies substantially on referrals from existing customers and
intends to continue its historic, proactive attention to customer service
and satisfaction.

IMPLEMENT NEWLY AVAILABLE TECHNOLOGY--Mac-Gray has installed smart card
readers in more than 5,100 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 Mac-Gray 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 Mac-Gray providing a broader product
offering.

Mac-Gray 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. Mac-Gray 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 Mac-Gray to offer other smart-card
based services to its customers, including door and area access,
photocopying, vending machines, telephones, rent collection and other
ancillary services.

PURSUE STRATEGIC ACQUISITION OPPORTUNITIES--Mac-Gray intends to continue
to acquire and integrate businesses that both increase penetration in
existing markets and also strategically expand Mac-Gray's geographic
presence. Mac-Gray believes that in-market acquisitions will allow it to
capitalize on operating efficiencies and increase market penetration. In
addition, Mac-Gray intends to acquire laundry room operations in new
markets in order to increase its geographic diversity and broaden its
potential customer base. Mac-Gray will continue its disciplined approach to
evaluating expansion opportunities, including an analysis of each
acquisition candidate's projected cash flow as compared to Mac-Gray's
desired internal rate of return.

INCREASE POSITION IN COLLEGE AND UNIVERSITY MARKET--Mac-Gray intends to
strengthen its position in the college and university market and to use it
as a foundation for growth in both existing and new geographic markets.
Mac-Gray 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, Mac-Gray intends to broaden, through
acquisitions, the services offered to its existing college and university
customers, including ancillary services typically used by college students,
which may be outside Mac-Gray's current core business.

INTERNAL GROWTH

Mac-Gray'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. Mac-Gray has significantly increased its sales and
marketing resources in order to take advantage of opportunities which have
arisen as a result of the consolidation in the real estate industry. Nearly
all of Mac-Gray's employees are eligible for incentive bonuses based upon the
net growth of Mac-Gray's customer base. Mac-Gray's internal growth strategy,
which is intended to expand Mac-Gray'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 Mac-Gray-operated laundry rooms and (iii) secure new locations that
were previously served by other independent operators.

USE EMERGING PAYMENT TECHNOLOGY--Mac-Gray intends to use smart-card based
cashless payment systems to generate incremental revenue at existing
locations. For example, Mac-Gray's smart-card based payment systems,
including those available through Mac-Gray's arrangements with
Schlumberger, permit Mac-Gray or the property owner to implement modest
periodic price increases and to use variable time pricing. 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. Mac-Gray intends to accelerate
its use of smart-card based payment technology at existing locations by
converting coin-operated equipment in response to customer demand.

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<PAGE>

Mac-Gray 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--Mac-Gray actively markets to property owners and
managers who own and operate on-premise laundry rooms. By outsourcing their
laundry service operations to Mac-Gray, 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.

SECURE NEW LOCATIONS PREVIOUSLY SERVED BY COMPETITORS--Mac-Gray's sales
and marketing efforts focus significantly on properties where leases with
competitors are nearing expiration. Mac-Gray's marketing department
maintains an extensive database of prospective customers, including
competitors' customers, which includes detailed information that assists
Mac-Gray in its efforts to secure new customers. Mac-Gray has also
historically achieved significant growth in this area through referrals
from existing customers.

STRATEGIC ACQUISITIONS

Mac-Gray 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. Since
May 1996, Mac-Gray has acquired more than eight laundry route businesses,
contributing to the growth in its machine base.

Mac-Gray's acquisition strategy has historically included both in-market
acquisitions, which increase Mac-Gray's presence in its existing geographic
markets, as well as add-on acquisitions, which establish Mac-Gray in a
geographic market in which it does not have a significant presence. Mac-Gray's
acquisition efforts have historically focused on both small, local, as well as
regional, laundry route operators.

In order to offer its customers a comprehensive set of products and services
to meet their residents' increasing demands, Mac-Gray may also choose to
pursue acquisitions of businesses that can provide additional services to Mac-
Gray's customer base and target markets. Mac-Gray believes that, although
certain of these ancillary services may be outside Mac-Gray's current core
business, certain operating characteristics, such as the similarity of sales
distribution networks, customer decision makers and payment and collection
procedures, may present Mac-Gray with attractive growth opportunities.

CARD AND COIN-OPERATED LAUNDRY ROUTE BUSINESS

Mac-Gray currently owns and operates more than 120,000 machines in over
17,000 laundry rooms located in multiple housing facilities. The principal
aspects of Mac-Gray's laundry route operations include sales and marketing,
facility leasing, service, collections and security and equipment
refurbishment.

Sales and Marketing. Mac-Gray markets its products and services through a
sales and marketing staff of more than 40 people. Mac-Gray's sales staff is
dispersed geographically throughout Mac-Gray's principal markets in order to
support Mac-Gray's customer and prospective customer base. As discussed below,
Mac-Gray primarily focuses its sales efforts on two markets: real estate
(apartments and public housing complexes) and colleges and universities. Mac-
Gray's sales force is charged with two primary functions: maintaining existing
customer relationships and soliciting new relationships. Mac-Gray's marketing
staff is located at its corporate headquarters in Cambridge, Massachusetts.

Real Estate. Mac-Gray'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, Mac-Gray has assigned
primary responsibility for the geographically dispersed

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<PAGE>

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. Mac-Gray'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.

Facility Leasing. Mac-Gray 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, Mac-Gray will frequently refurbish the premises by painting the room
and/or installing ventilation, lighting, plumbing and drainage. These
improvements are designed to create a laundry room which is clean and
convenient, thus encouraging maximum usage of the equipment by the residents
of the property. Mac-Gray 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, Mac-Gray
leases a room or dedicated area within a multi-housing facility from the
property owner, public housing agency or college or university. Mac-Gray'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............................. 68%
Colleges, universities and schools..................................... 24%
Public housing......................................................... 4%
Other.................................................................. 4%
</TABLE>

Mac-Gray operates card and coin-operated laundry rooms in approximately 350
of the more than 1,600 public and private residential institutions in the
North American college and university market. Mac-Gray's strategy has been to
pursue additional college and university accounts both through acquisitions
and through entering into new geographic markets.

A substantial portion of Mac-Gray's revenue is derived from the operations
of washers and dryers in laundry rooms pursuant to long-term leases with
property owners. The leases provide Mac-Gray with the exclusive right to
operate the laundry room on the premises, typically require Mac-Gray 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 Mac-Gray's significant initial
capital investment, Mac-Gray's leases may only be terminated by the customer
prior to their stated expiration date for non-performance by Mac-Gray.

Service. Mac-Gray delivers, installs, services and collects revenue from the
laundry equipment used in Mac-Gray-operated laundry rooms. Mac-Gray's
maintenance program is intended to limit unnecessary capital expenditures and
extend the useful life of Mac-Gray's laundry equipment, thus realizing optimal
lifetime revenue per machine. Mac-Gray 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. Mac-Gray primarily installs equipment
manufactured by Maytag. Mac-Gray 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. Mac-Gray also purchases equipment from other
leading manufacturers, including Whirlpool Corporation ("Whirlpool") and
General Electric Company, and believes that such manufacturers are willing
to increase their sales to Mac-Gray. See "Risk Factors-- Dependence Upon
Certain Suppliers."

Periodic Preventive Maintenance. Mac-Gray performs scheduled, periodic,
preventive maintenance on Mac-Gray's equipment at its various leased
laundry rooms.

14
<PAGE>

On-Call Service. Mac-Gray employs approximately 100 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. Mac-Gray's Director of Service Training is responsible for
evaluating and training the service force. Mac-Gray has won the prestigious
Maytag Red Carpet Service Award twice within the past ten years.

Collections and Security. Revenues from Mac-Gray's laundry rooms are
collected periodically based upon the historical use at each property. The
collection routes are altered frequently and Mac-Gray 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. Mac-Gray 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

Mac-Gray maintains a significant information technology system to facilitate
its lease monitoring, commission paying and product purchasing activities.
Mac-Gray has recently implemented and/or expanded its use of technologies that
Mac-Gray 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. Mac-Gray operates both smart-card and debit-card
based payment systems. Since 1991, Mac-Gray has installed more than 15,500
debit card operated laundry machines in response to customer demand in the
college and university market.

Mac-Gray has installed smart card readers in more than 5,100 laundry
machines 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 which is 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
Mac-Gray's laundry equipment to provide laundry users the convenience and
security of cashless transactions. Mac-Gray has experienced increased usage at
existing facilities which have been equipped with smart card readers. The
additional benefits associated with smart-card based transactions include
reduced administrative burdens and expenditures, reduced vandalism, improved
security and more efficient revenue collections.

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 eliminates the on-line requirement
and makes conversions and new installations more cost-effective.

On April 1, 1997, Mac-Gray commenced a roll-out of smart-card based
payment systems. Mac-Gray has equipped more than 5,100 laundry machines
with smart card readers since the commencement of this roll-out.

Pricing Flexibility. By equipping its machines with cashless payment
technology, Mac-Gray believes that it can go beyond providing a more
efficient laundry facility. The use of smart card technology will enable
Mac-Gray to make modest incremental price adjustments over time rather than
in twenty-five cent increments. In addition, cashless technology will
enable Mac-Gray to establish variable time pricing

15
<PAGE>

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.

Information Services. Mac-Gray is employing an integrated approach to the
underlying technology required to support its sales and administrative
functions. Mac-Gray provides its sales personnel with laptop computers for use
in communicating with Mac-Gray, accessing pricing and related information and
preparing customer presentations and analyses. Mac-Gray also operates a data
warehousing software system to assist Mac-Gray in its operational and
financial data management. For example, the data warehousing software system
aids Mac-Gray's senior management in analyzing geographic and product line
trends, as well as individual property and regional performance. Mac-Gray can
also use this data warehousing system to seamlessly import operational
information of a laundry service provider that Mac-Gray may be interested in
acquiring.

COMPETITION

The card and coin-operated laundry services industry is highly competitive,
capital intensive and requires reliable and prompt service. Mac-Gray believes
that customers consider different factors in selecting a laundry service
provider including customer service, reputation, commission rates (including
advance commissions) and range of products and services. Mac-Gray believes
that different types of customers assign varied weight to each of these
factors and that no one factor materially influences a customer's selection of
a laundry service provider. Within any given geographic area, Mac-Gray may
compete with local independent-operators, regional operators and multi-
regional operators. Although the industry is highly fragmented, Mac-Gray and
several other independent-operators have chosen to grow by acquisitions, as
well as through new machine placement. Mac-Gray believes that it is the third
largest card and coin-operated laundry services provider in North America.
Mac-Gray believes that only Coinmach Laundry Corporation ("Coinmach") and Web
Service Company, Inc. ("Web") maintain larger machine bases than Mac-Gray.

LAUNDRY EQUIPMENT SALES, LEASING AND SERVICE

Mac-Gray has been a Maytag distributor since 1927. Mac-Gray 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. To these, the acquisition
of Amerivend will add Alabama, Florida and Georgia. Mac-Gray is currently the
principal or sole distributor of Maytag commercial laundry equipment in each
of its areas. As a distributor, Mac-Gray sells laundry equipment to laundromat
owners, apartment and condominium owners and institutions such as hospitals,
restaurants and elder care facilities. Mac-Gray'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. Mac-Gray also sells
equipment manufactured by American Dryer Corporation ("American Dryer"), The
Dexter Company ("Dexter") and Whirlpool when such equipment better suits a
customer's needs.

Mac-Gray has also established a leasing program for commercial laundry
customers who choose neither to purchase equipment nor to become a laundry
route customer. This program involves the leasing of commercial laundry
equipment to customers who maintain their own coin-operated laundry rooms, as
well as to customers (such as hotels) who operate their own on-premise laundry
equipment.

Mac-Gray also offers potential owner-operators of independent laundromats
complete design, construction, installation and set-up of turn-key
laundromats. Mac-Gray derives its revenue by selling the equipment to the
owner-operator and through ongoing service contracts with the owner-operator.

16
<PAGE>

EMPLOYEES

Mac-Gray has approximately 350 employees. None of Mac-Gray's employees is
covered by a collective bargaining agreement. Mac-Gray believes its relations
with its employees are good.

PROPERTIES

Mac-Gray owns its 40,000 square foot corporate headquarters in Cambridge,
Massachusetts which houses Mac-Gray's administrative and central services,
including a 20,000 square foot warehouse for equipment and parts. Mac-Gray
also leases the following regional facilities, which are largely operated as
sales and service facilities, though limited administrative functions are also
performed at many of them:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
Buffalo, New York........................................... 9,500
Charlotte, North Carolina................................... 7,600
Chula Vista, California..................................... 25,000
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
Tucker (Atlanta), Georgia................................... 8,000
Walpole, Massachusetts...................................... 19,000
</TABLE>

Mac-Gray believes that its properties are generally well maintained and in
good condition. Mac-Gray believes that its properties are adequate for present
needs and that suitable additional or replacement space will be available as
required.

LEGAL PROCEEDINGS

Mac-Gray is from time to time a party to litigation arising in the ordinary
course of business. There can be no assurance that Mac-Gray's insurance
coverage will be adequate to cover all liabilities resulting from such claims.
In the opinion of management, any liability that Mac-Gray 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 Mac-
Gray.

17
<PAGE>

SELECTED HISTORICAL FINANCIAL DATA
Set forth below are selected historical financial data of Mac-Gray as of the
dates and for the periods indicated. The selected historical financial data of
Mac-Gray for the three years in the period ended December 31, 1997 were
derived from the historical consolidated financial statements of Mac-Gray that
were audited by Price Waterhouse LLP, whose report appears elsewhere in this
Prospectus. The selected 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
consolidated financial statements of Mac-Gray and the notes thereto included
elsewhere in this Prospectus.

On March 12, 1998, Mac-Gray completed its acquisition of Intirion which has
been accounted for as a pooling of interests. Supplemental consolidated
financial statements giving effect to the business combination between Mac-
Gray and Intirion have been included in this Registration Statement beginning
on page F-47. These supplemental financial statements will become the restated
historical financial statements of Mac-Gray upon publication of the combined
results of the companies covering a period subsequent to the combination.
Estimated transaction costs of approximately $860,000 associated with the
Intirion transaction will be expensed in the period they were incurred,
primarily in the first quarter of 1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997(1)
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue........................... $44,942 $48,031 $50,710 $64,427 $81,370
Cost of revenue:
Commissions...................... 17,762 19,168 20,471 25,760 31,717
Laundry route expenditures....... 7,458 7,889 8,251 10,955 12,232
Depreciation and amortization.... 4,377 4,756 4,899 6,216 8,635
Cost of equipment sales.......... 1,700 2,673 2,938 5,189 8,187
------- ------- ------- ------- -------
Total cost of revenue............ 31,297 34,486 36,559 48,120 60,771
Operating expenses:
General and administration....... 3,383 3,085 3,901 3,952 4,699
Sales and marketing.............. 2,445 2,501 2,531 3,803 5,165
Depreciation..................... 421 442 455 517 503
------- ------- ------- ------- -------
Total operating expenses......... 6,249 6,028 6,887 8,272 10,367
------- ------- ------- ------- -------
Income from operations............ 7,396 7,517 7,264 8,035 10,232
Interest expense................. (1,437) (1,217) (1,175) (1,956) (2,521)
Other income (expense), net...... 71 70 55 (87) 181
------- ------- ------- ------- -------
Income before provision for income
taxes............................ 6,030 6,370 6,144 5,992 7,892
Provision for income taxes(2).... (330) (388) (374) (465) (5,206)
------- ------- ------- ------- -------
Net income........................ $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 2,686
======= ======= ======= ======= =======
Net income per common share(4).... $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.37
======= ======= ======= ======= =======
Weighted average common shares
outstanding(4)................... 6,368 6,368 6,368 6,368 7,263
======= ======= ======= ======= =======
Net income per common share--
assuming dilution(4)............. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.36
======= ======= ======= ======= =======
Weighted average common shares
outstanding--assuming
dilution(4)...................... 6,368 6,368 6,368 6,368 7,391
======= ======= ======= ======= =======
TAX ADJUSTED EARNINGS PER SHARE
DATA(3):
Pro forma net income.............. $ 3,595 $ 4,735
======= =======
Pro forma net income per common
share(4)......................... $ 0.56 $ 0.65
======= =======
Pro forma net income per common
share--assuming dilution(4)...... $ 0.56 $ 0.64
======= =======
OTHER FINANCIAL DATA:
EBITDA(5)........................ $12,265 $12,785 $12,673 $14,681 $19,551
Depreciation and amortization.... 4,798 5,198 5,354 6,733 9,138
Capital expenditures............. 5,407 5,679 4,421 7,635 8,681
Cash flows from operating
activities...................... 9,405 10,650 10,417 13,650 10,942
Cash flows used in investing
activities...................... (5,689) (5,613) (5,105) (22,070) (20,544)
Cash flows provided by (used in)
financing activities............ (3,744) (6,128) (3,549) 7,382 10,532
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $(3,437) $(4,181) $(2,237) $(6,069) $ (885)
Total assets..................... 32,713 33,292 36,754 54,108 84,374
Long-term debt, net of current
portion......................... 15,718 13,544 11,843 23,325 5,395
Redeemable common stock(6)....... -- -- -- -- 7,797
Stockholders' equity............. 6,783 9,439 12,850 14,683 49,161
</TABLE>
- --------
(1) The financial data for the year ended December 31, 1997 include the
results of Sun Services subsequent to the acquisition date of April 17,
1997.
(2) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(3) Tax adjusted earnings per share data have been adjusted to give effect to
Mac-Gray's operations as if Mac-Gray were subject to federal and state
income taxes on a corporate level (at an estimated income tax rate of 40%)
during the periods presented.

18
<PAGE>

(4) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, Mac-Gray
has complied with Staff Accounting Bulletin No. 98 (SAB 98) issued by the
Commission. Accordingly, earnings per share data have been restated for
all periods presented. Earnings per share data are reflective of the Mac-
Gray Combination for all periods presented.
(5) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA
should not be considered as an alternative to net income as a measure of
operating results or as an alternative to cash flows as a measure of
liquidity and it is not a measure of performance or financial condition
under generally accepted accounting principles. EBITDA is presented
because Mac-Gray's management believes that certain investors may find it
to be a useful tool for measuring Mac-Gray's ability to meet its future
debt service obligations, make capital expenditures and satisfy working
capital requirements.
(6) Shares of Mac-Gray Common Stock issued in connection with the Sun Services
Acquisition are redeemable pursuant to a contractual arrangement.

19
<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. Mac-Gray'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: implementation of acquisition strategy; integration of acquired
businesses; ability to meet future capital requirements; dependence upon
certain suppliers, lease renewals; retention of senior executives; market
acceptance of new products and services; and those factors discussed in Mac-
Gray's filings with the Commission. The historical financial information
presented herein represents (i) consolidated results of Mac-Gray, (ii) the
combined results of Mac-Gray Co. and the Limited Partnership and (iii) the
combined results of Sun Services for the period subsequent to the Sun Services
Acquisition. 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

Mac-Gray also derives revenue as a distributor and servicer of commercial
laundry equipment manufactured by Maytag. Mac-Gray has Maytag distributor
agreements for 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. Mac-Gray also sells or rents laundry equipment manufactured by
American Dryer, Dexter and Whirlpool to provide several alternatives in
machine type, cost and capacity. Additionally, Mac-Gray sells or rents laundry
equipment to restaurants, hotels, health clubs and similar institutional users
that operate their own on-premise laundry facilities.

On October 22, 1997, Mac-Gray completed its initial public offering (the
"IPO"). Upon consummation of the IPO, Mac-Gray's status as an S corporation
automatically terminated and Mac-Gray became subject to taxation as a C
corporation for federal and state income tax purposes.

RECENT DEVELOPMENTS

On March 31, 1998, Mac-Gray entered into a Stock Purchase Agreement,
pursuant to which Mac-Gray Services will acquire one hundred percent of the
outstanding capital stock of Copico. Founded in 1978, Copico is a major
provider of card and coin-operated reprographics equipment and services to the
academic and public library markets in New England, New York and Florida.
Copico provides and services copiers, laser printers and microform reader-
printers for the libraries of colleges, universities and graduate schools.
Copico also is the sole provider of reprographics services to the New York
public library system, as well as other public libraries. Copico had revenues
of approximately $7.1 million for its fiscal year ended January 1, 1998 and
has operations facilities in Canton, Massachusetts, New York, New York and
Miramar, Florida. The purchase price will be approximately $10.95 million in
cash, less the assumption of certain debt, and 250,000 shares of Mac-Gray
Common Stock. Mac-Gray will fund the cash portion of the purchase price by
drawing on its existing Credit Facility. The transaction is subject to
customary closing conditions and is expected to close during the second
quarter of 1998.

On March 12, 1998, Mac-Gray acquired Intirion pursuant to the Merger for
1,592,992 shares of Mac-Gray Common Stock and approximately $1 million in
cash, which cash was paid to the holder of the Intirion Senior

20
<PAGE>

Preferred Stock. Intirion is a supplier of combination
refrigerator/freezer/microwave ovens to multiple housing facilities such as
colleges and universities, military bases, economy hotels and motels and
assisted living facilities. For the twelve month period ended June 30, 1997,
Intirion had total revenues of approximately $23.5 million. The transaction is
being accounted for as a pooling of interests. Mac-Gray and Intirion incurred
aggregate transaction costs of $860,000 associated with the Merger, primarily
in the first quarter of 1998.

On March 4, 1998, Mac-Gray entered into a Stock and Asset Purchase
Agreement, pursuant to which Mac-Gray Services will acquire one hundred
percent of the outstanding capital stock of Amerivend. Amerivend is a provider
of card and coin-operated laundry equipment in Florida and Georgia. Amerivend
is also the principal distributor of Maytag commercial laundry products in
Alabama, Georgia and Florida. Founded in 1959, Amerivend had 1997 revenues of
$18.6 million and has offices in Miami, Orlando, Tampa and Atlanta. The
purchase price, which is subject to certain adjustments, will be approximately
$33.5 million in cash, including the payment of certain debt. The purchase
price will be funded by Mac-Gray by drawing on the Credit Facility. The
transaction is subject to customary closing conditions, including regulatory
filings, and is expected to close in the second quarter of 1998.

RESULTS OF OPERATIONS

Fiscal year ended December 31, 1997 compared to fiscal year ended December
31, 1996

Revenue. Revenue increased by $16,943,000, or 26%, to $81,370,000 in 1997
from $64,427,000 in 1996. This increase was primarily attributable to growth
in existing laundry route revenue, the Sun Services Acquisition and the impact
of a full year's operation of businesses acquired in 1996. Laundry route
revenue increased $12,826,000, due to the expansion of existing operations and
to an increase in the number of machines operated as a result of the nine
acquisitions of laundry route businesses subsequent to March 31, 1996. Sales
of equipment increased by $4,117,000, due to growth of revenue from existing
distributorships and the distributorships acquired during 1996 and 1997. Mac-
Gray believes that its increased focus on sales and marketing efforts since
mid-1996 has had a significant impact on the growth of revenue from existing
laundry routes and distributorships.

Commissions. Commissions increased by $5,957,000, or 23%, to $31,717,000 in
1997 from $25,760,000 in 1996. This increase was primarily attributable to an
increase in laundry route revenue, since commissions are generally paid based
upon a percentage of laundry route revenue.

Laundry Route Expenditures. Laundry route expenditures, which are primarily
variable expenses which change with the increases and decreases in revenue and
include costs associated with installing and servicing machines, as well as
the costs of collecting, counting and depositing the revenue, increased by
$1,277,000, or 12%, to $12,232,000 in 1997 from $10,955,000 in 1996. This
increase was due to the general increase in revenue, which resulted in
increased servicing, collecting, counting and depositing activity, increased
levels of expenses associated with improving service in some of the acquired
businesses, and other associated costs.

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 $2,405,000, or 36%, to $9,138,000
in 1997 from $6,733,000 in 1996. This increase was primarily attributable to
the acquisition of nine laundry route businesses in 1996 and 1997, which
resulted in additional machines to depreciate, as well as an increase in
intangible assets to amortize, and the placement of additional machines on
Mac-Gray's existing laundry routes.

Cost of Equipment Sales. Cost of equipment sales increased by $2,998,000, or
58%, to $8,187,000 in 1997 from $5,189,000 in 1996. This increase was a direct
result of increased equipment sales.

General and Administration. General and administration expenses increased by
$747,000, or 19%, to $4,699,000 in 1997 from $3,952,000 in 1996. This increase
was attributable to an increase in professional fees and to the hiring of
additional clerical and administrative staff to support the growth in Mac-
Gray's business.

Sales and Marketing. Sales and marketing expense increased by $1,362,000, or
36%, to $5,165,000 in 1997 from $3,803,000 in 1996. This increase was
attributable to the expansion of the marketing department, led

21
<PAGE>

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, net of interest income, increased by
$565,000, or 29%, to $2,521,000 in 1997 from $1,956,000 in 1996. This increase
was primarily attributable to the increased borrowings incurred to finance the
acquisitions made during 1996 and 1997. Interest expense was minimal
subsequent to the IPO because a portion of the net proceeds from that offering
was used to repay the existing indebtedness under the Credit Facility, as
further described below.

Income Tax Expense. Income tax expense increased by $4,741,000 to $5,206,000
in 1997 from $465,000 in 1996 due to the termination of Mac-Gray's S
corporation status concurrent with the IPO. Upon termination of the S
corporation status, Mac-Gray became subject to federal and state income taxes,
with a statutory rate of approximately 40%. As a result, Mac-Gray recognized a
non-recurring charge to income tax expense of approximately $4,037,000 in
October 1997, representing additional net deferred tax liabilities as of the
date the S corporation election was terminated. As the historical income tax
provision prior to the termination of the S corporation status was established
only to provide for income taxes in states that do not recognize Subchapter S
corporations, the income tax provision recorded in 1997 was significantly
higher than the amount recorded in 1996.

Fiscal year ended December 31, 1996 compared to fiscal year ended December
31, 1995.

Revenue. Revenue increased by $13,717,000, or 27%, to $64,427,000 in 1996
from $50,710,000 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 $9,506,000, of
which $3,596,000 was attributable to the expansion of existing operations and
$5,910,000 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 $4,211,000, of which $3,111,000 was attributable to the
growth of revenue from existing distributorships and $1,100,000 was
attributable to revenue from two newly acquired distributorships. Mac-Gray
believes that a substantial portion of the growth of revenue from existing
laundry routes and from existing distributorships was attributable to Mac-
Gray's increased expenditures on sales and marketing efforts, which are
described below.

Commissions. Commissions increased by $5,289,000, or 26%, to $25,760,000 in
1996 from $20,471,000 in 1995. This increase was primarily attributable to an
increase in laundry route revenue, which resulted in an increase in variable
expenses, including commissions, related thereto, as well as slightly higher
commission rates applicable to the new leases that Mac-Gray acquired or
entered into during 1995 and 1996.

Laundry Route Expenditures. Laundry route expenditures, which include costs
associated with installing and servicing machines and cost of equipment sales,
as well as the cost of collecting, counting and depositing the revenue,
increased by $2,704,000, or 33%, to $10,955,000 in 1996 from $8,251,000 in
1995. This increase was primarily attributable to the increase in laundry
route business, which resulted in increased servicing and collecting activity.

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 $1,379,000, or 26%, to
$6,733,000 in 1996 from $5,354,000 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 Mac-
Gray's existing laundry routes.

Cost of Equipment Sales. Cost of equipment sales increased by $2,251,000, or
77%, to $5,189,000 in 1996 from $2,938,000 in 1995. This increase was
attributable to increased equipment sales.

22
<PAGE>

General and Administration. General and administration expenses increased by
$51,000, or 1%, to $3,952,000 in 1996 from $ 3,901,000 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 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 expenses increased by $1,272,000,
or 50%, to $3,803,000 in 1996 from $2,531,000 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 by $781,000, or 66%, to
$1,956,000 in 1996 from $1,175,000 in 1995. This increase was primarily
attributable to increased borrowings incurred to finance the six acquisitions
completed during 1996.

Income Tax Expense. Income tax expenses increased by $91,000, or 24%, to
$465,000 in 1996 from $374,000 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.

The statutory income tax rate utilized by Mac-Gray during 1995 and 1996 is
not indicative of the statutory income tax rate of approximately 40% that has
been utilized since termination of Mac-Gray's S corporation status on October
16, 1997.

SEASONALITY

Mac-Gray 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 of Mac-
Gray's total revenue. These revenues are derived substantially during the
school year which includes the first, second and fourth quarters. Conversely,
Mac-Gray increases its operating expenditures during the third quarter when
colleges and universities are not in session as a result of Mac-Gray's
increased machine installation activities.

LIQUIDITY AND CAPITAL RESOURCES

Mac-Gray's primary sources of cash have been operating activities, bank
borrowings, and the proceeds of the IPO. Mac-Gray's primary uses of cash have
been the acquisitions consummated since May 1996, capital expenses, including
the purchase of new laundry machines and smart card based payment systems, the
payment of a dividend of $9,000,000 to shareholders in October 1997 and the
repayment of the Credit Facility. Mac-Gray anticipates that it will continue
to use cash flow from its operating activities to finance working capital
needs, including interest payments on any outstanding indebtedness, as well as
capital expenditures. Funds available under the Credit Facility may also be
used to finance the cash outlay for the proposed Merger. Mac-Gray also
anticipates that it will use additional funds available to it under the Credit
Facility to finance additional possible acquisitions, larger capital
expenditures and, as needed, working capital.

Cash flow from operations was $10,942,000, $13,650,000 and $10,417,000 for
the years ended December 31, 1997, 1996, 1995, 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 $20,544,000, $22,070,000 and
$5,105,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. Mac-Gray invested $12,196,000, $14,487,000 and $821,000

23
<PAGE>

for the fiscal years ended December 31, 1997, 1996 and 1995 in connection with
the acquisitions consummated during those years. Capital expenditures were
$8,681,000, $7,635,000 and $4,421,000 for the years ended December 31, 1997,
1996 and 1995, respectively.

Net cash flows provided by (used in) financing activities were $10,532,000,
$7,382,000, and $(3,549,000) for the years ended December 31, 1997, 1996, and
1995, respectively. Financing activities consist primarily of proceeds from
the IPO, proceeds from and repayments of bank borrowings, and payments of
dividends. Mac-Gray also utilized $125,000 as a portion of the consideration
paid in connection with the redemption of 2,275 shares of Mac-Gray Common
Stock as of January 1, 1996.

Mac-Gray maintains a $50 million revolving line of credit under its Credit
Facility with State Street Bank and CoreStates Bank. All borrowings under the
Credit Facility were repaid in October 1997 using proceeds from the IPO.
Borrowings under the Credit Facility bear interest, at Mac-Gray's option, at a
rate equal to the prime rate minus 0.5% or LIBOR plus 2.0%. There were no
borrowings under the Credit Facility as of December 31, 1997. The Credit
Facility imposes certain financial covenants on Mac-Gray, including (i) a
limit on Mac-Gray's senior liabilities of 3.5 times and 2.5 times EBITDA for
the prior four quarters ending as of the end of each quarter of 1997 and for
the prior four quarters ending as of the end of each quarter after 1997,
respectively; (ii) a requirement to maintain minimum shareholders equity (as
specifically defined in the Credit Facility), as measured at the end of each
quarter, of $23,000,000 as of December 31, 1996, increasing by $4,000,000 per
year thereafter; (iii) a limit on aggregate capital expenditures of
$7,000,000, $8,000,000 and $9,000,000 for the years ending December 31, 1996,
1997, and 1998 and thereafter, respectively; (iv) minimum EBITDA, measured on
a quarterly basis for the immediately preceding four quarters, of $4,000,000;
(v) a minimum fixed charge coverage ratio (EBITDA to scheduled principal and
interest payments) of 1.3:1, 1.1:1 and 1.3:1 for the quarters during 1996,
1997 and 1998 and thereafter, respectively; and (vi) a requirement that Mac-
Gray have minimum annual net income of $4,000,000. Mac-Gray was in compliance
with all such covenants, or received a written waiver with respect to any non-
compliance therewith, as of the year ended December 31, 1997. The Credit
Facility under certain limited circumstances, also 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 Mac-Gray's
assets and the assets of each of its subsidiaries, as well as a pledge by Mac-
Gray of all of the capital stock of its subsidiaries.

In connection with the Sun Services Acquisition in April 1997, Mac-Gray
issued 612,026 shares of Mac-Gray Common Stock to the owner of Sun Services.
As a privately owned company issuing shares of its common stock, which, at
that point, were substantially illiquid, Mac-Gray provided the Sun Services
owner with the right to require Mac-Gray to repurchase the shares of Mac-Gray
Common Stock issued by Mac-Gray as consideration in the acquisition. Mac-Gray
also received certain rights ( the "Call Rights") to repurchase such shares of
Mac-Gray Common Stock. Upon consummation of the IPO, the Call Rights
terminated. Mac-Gray remains obligated to repurchase the 612,026 shares of
Mac-Gray 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, representing an
aggregate purchase price of approximately $7.8 million. Such remaining Put
Rights expire on October 22, 2000. In the event such Put Rights are exercised,
Mac-Gray would likely fund the purchase price for such shares of Mac-Gray
Common Stock by incurring additional indebtedness under its Credit Facility.
See "Management--Certain Relationships and Related Transactions."

Mac-Gray has used all of the net proceeds from the IPO to repay existing
outstanding indebtedness under the Credit Facility, to fund a $9,000,000
dividend paid to shareholders in October 1997 and to provide partial funding
for two laundry route acquisitions. The cash paid in connection with the
acquisitions of Intirion, Amerivend and Copico, including expenses related
thereto, has been or will be paid from amounts available under the Credit
Facility (Mac-Gray intends to increase the availability under its Credit
Facility) and cash flow generated from operating activities. Mac-Gray believes
that amounts available under the Credit Facility and cash flow generated by
operations will be sufficient to fund Mac-Gray's normal working capital needs
and capital expenditures for the foreseeable future, including Mac-Gray's
current purchase commitment with Schlumberger to purchase smart-card based
equipment. Based upon the purchase commitment with Schlumberger, such
purchases, in the aggregate,

24
<PAGE>

could represent a material portion of Mac-Gray's capital expenditures for
fiscal year 1998. In addition, if Mac-Gray were to borrow all amounts then
available to it under the Credit Facility in connection with one or more
acquisitions, or in connection with significant capital expenditures, either
in the short-term or in the long-term, management believes that cash generated
from operating activities would be sufficient to fund Mac-Gray's operating
expenses and debt service needs for the foreseeable future. Additional
financing under the Credit Facility or otherwise may, however, be required in
connection with an acquisition or acquisitions which Mac-Gray may consummate
in the future. If any such additional financing were needed, and could not be
obtained on terms favorable to Mac-Gray, if at all, Mac-Gray's ongoing capital
improvement efforts and acquisition activity would likely be reduced or
delayed as cash generated from operating activities was used for operating
expenses and debt service. See "Risk Factors--Risks Associated with
Acquisitions; Integration of Acquired Businesses."

INFLATION

Mac-Gray 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. 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 Mac-Gray 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. Mac-Gray is currently reviewing the impact of SFAS 130 and SFAS
131 on its financial statements.

25
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of Mac-Gray, their positions with Mac-
Gray and their ages as of April 9, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman, Chief Executive Officer and
Stewart Gray MacDonald, Jr. ......... 48 Director
Executive Vice President, Sales and
Neil F. MacLellan, III............... 38 Marketing
John S. Olbrych...................... 42 Chief Financial Officer and Treasurer
Patrick A. Flanagan.................. 45 Executive Vice President, Mergers and
Acquisitions, Secretary and Director
Eugene B. Doggett.................... 61 Director
Jeffrey C. Huenink................... 41 Director
John P. Leydon....................... 65 Director
Jerry A. Schiller.................... 65 Director
</TABLE>

STEWART GRAY MACDONALD, JR. serves as Chairman of the Board and Chief
Executive Officer and has served as a Director of Mac-Gray since 1983. Mr.
MacDonald served Mac-Gray in various executive capacities from 1989 until his
election as Chairman of the Board in 1992. Mr. MacDonald, the son of Mac-
Gray's co-founder and first President, is the fourth member of Mac-Gray'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, also had an academic career for fifteen years. He received his
B.A. from the University of Wisconsin.

NEIL F. MACLELLAN, III has been with Mac-Gray since 1985 and has served as
Executive Vice President, Sales and Marketing since December 1995. From
January 1991 through December 1995, Mr. MacLellan served as Mac-Gray's
Director of Finance and Administration and from March 1985 through January
1991, Mr. MacLellan served as Controller of Mac-Gray. Mr. MacLellan received
his B.S. in Accounting from Bentley College.

JOHN S. OLBRYCH has served as Chief Financial Officer of Mac-Gray since
April 1996 and served as a Director of Mac-Gray 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. He remains on the board of directors of
both Carus Corporation and Carus Publishing Company. From 1986 through 1991,
Mr. Olbrych served as a Vice President of State Street Bank. 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 Mac-Gray since 1992 and has
served as Executive Vice President, Mergers and Acquisitions of Mac-Gray 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 serves as a director
of Cains Foods, Inc. and National Forge Corporation. Mr. Flanagan holds a B.S.
from Purdue University and received his M.B.A. from Harvard Business School.

26
<PAGE>

EUGENE B. DOGGETT has been a Director of Mac-Gray since October 1997. Mr.
Doggett is an Executive Vice President and Director of Iron Mountain
Incorporated ("Iron Mountain"), 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.

JEFFREY C. HUENINK has been a Director of Mac-Gray since April 1997. From
1986 until the Sun Services Acquisition in April 1997, Mr. Huenink was the
President and owner of Sun Services. Mr. Huenink 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.

JOHN P. LEYDON has been a Director of Mac-Gray since April 1997. Mr. Leydon
has been the Chief Financial Officer of Pacific Packaging Products, Inc. since
December 1996. 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 Mac-Gray 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.

Executive officers are elected annually by the Mac-Gray Board and serve at
its discretion. There are no family relationships among any of the directors
and executive officers of Mac-Gray except that Eugene B. Doggett is the uncle
of Cynthia V. Doggett, Stewart Gray MacDonald, Jr.'s wife.

BOARD OF DIRECTORS

The business of Mac-Gray is managed under the direction of the Mac-Gray
Board and the number of directors of Mac-Gray is currently fixed at six. The
Mac-Gray Charter provides that the Mac-Gray Board shall be divided into three
classes. The members of each class of directors serve for staggered three-year
terms. The Mac-Gray Board is composed of two Class I Directors (Messrs.
Flanagan and Leydon), two Class II Directors (Messrs. Huenink and Schiller)
and two Class III Directors (Messrs. MacDonald and 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 Mac-Gray Board has established an Audit Committee (the "Audit
Committee") and a Compensation Committee (the "Compensation Committee"). The
Audit Committee recommends to the Mac-Gray Board 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 Mac-Gray's 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 Mac-Gray Board
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 Mac-Gray. The
Compensation Committee also determines the number of options to be granted or
shares of Mac-Gray Common Stock to be issued to eligible persons under Mac-
Gray's 1997 Stock Option and Incentive Plan (the "1997 Stock Plan") and
prescribes the terms and provisions of each

27
<PAGE>

grant made under the 1997 Stock Plan other than with respect to the
eligibility of Mr. MacDonald, as to whom the full Mac-Gray Board 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. The Mac-Gray Board does not have a nominating committee.

Members of the Mac-Gray Board who are also employees of Mac-Gray do not
receive compensation for their services on the Mac-Gray Board or any committee
thereof. Each director who is not an employee of Mac-Gray (an "Independent
Director") receives an annual fee of $12,000 and an additional fee of $500 per
meeting of the Mac-Gray Board. In addition, upon consummation of the IPO, each
Independent Director was granted an option to purchase 1,000 shares of Mac-
Gray Common Stock at an exercise price equal to the fair market value of Mac-
Gray 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 Mac-Gray Common Stock upon his or her election to the Mac-Gray
Board, and each Independent Director who is serving as a director of Mac-Gray
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 Mac-Gray 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 Mac-Gray Board are reimbursed for travel expenses
incurred in attending meetings of the Mac-Gray Board and its committees.

EXECUTIVE COMPENSATION

Summary Compensation. The following summary compensation table sets forth
information concerning compensation paid or awarded during the last three
years to Mac-Gray's Chief Executive Officer and the other executive officers
named in the table (the "Named Executive Officers"). Other than the Named
Executive Officers, no other executive officer of Mac-Gray who held office as
of December 31, 1997 met the definition of "highly compensated" within the
meaning of the Commission's executive compensation disclosure rules for this
period.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
--------------------- COMPENSATION
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
- --------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stewart Gray MacDonald,
Jr........................ 1997 176,596 30,000 14,870 5,349
Chairman and Chief Execu-
tive Officer 1996 131,976 98,380 148,700 2,245
Neil F. MacLellan, III..... 1997 158,846 25,000 8,180 15,971
Executive Vice President,
Sales and Marketing 1996 85,000 115,188 81,800 8,624
John S. Olbrych(3)......... 1997 187,500 25,000 8,180 6,634
Chief Financial Officer
and Treasurer 1996 88,411 70,000 81,800 --
Patrick A. Flanagan(4)..... 1997 160,144 20,000 7,435 --
Executive Vice President, 1996 97,500 89,133 74,350 --
Mergers and
Acquisitions and Secretary
</TABLE>
- --------
(1) Mac-Gray's executive officers are eligible for annual cash bonuses. Such
bonuses are based upon achievement of individual or corporate performance
objectives determined by the Mac-Gray Board.
(2) Includes contributions made on the executive's behalf to Mac-Gray's profit
sharing plan and, in the case of Mr. MacLellan, premiums paid by Mac-Gray
for life insurance benefitting such executive's spouse.
(3) Mr. Olbrych was appointed Mac-Gray's Chief Financial Officer in April
1996.
(4) Mr. Flanagan was appointed Mac-Gray's Executive Vice President, Merger and
Acquisitions in April 1996.

28
<PAGE>

Option Grants. The following table sets forth information concerning options
granted to the Chief Executive Officer and the other Named Executive Officers
during the fiscal year ended December 31, 1997.

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..................... 14,870 16.6% 9.25 8/14/07 86,503 219,215
Neil F. MacLellan, III.. 8,180 9.1 9.25 8/14/07 47,585 120,591
John S. Olbrych......... 8,180 9.1 9.25 8/14/07 47,585 120,591
Patrick A. Flanagan..... 7,435 8.3 9.25 8/14/07 43,251 109,608
</TABLE>
- --------
(1) Each option agreement with respect to one or more shares of Mac-Gray
Common Stock provides that such option will vest and become exercisable
with respect to twenty percent (20%) of the shares of Mac-Gray Common
Stock to which such option agreement relates on each of August 14, 1998,
1999, 2000, 2001 and 2002.
(2) All options were granted at fair market value as determined by the Mac-
Gray Board 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 Commission and do not
represent Mac-Gray's estimate or projection of future Mac-Gray Common
Stock prices. Actual gains, if any, on stock option exercises will depend
on the future performance of the Mac-Gray Common Stock, the optionholders'
continued employment through the option period and the date on which the
options are exercised.

Option Exercises and Holdings. The following table sets forth information
concerning the number and value of unexercised options to purchase shares of
Mac-Gray Common Stock held by the Chief Executive Officer and the other Named
Executive Officers who held such options at December 31, 1997. None of the
Chief Executive Officer or the other Named Executive Officers exercised any
stock options during the fiscal year ended December 31, 1997.

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, 1997 AT DECEMBER 31, 1997(1)
-------------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Stewart Gray MacDonald,
Jr. ................... 29,740 133,830 $202,975 $906,698
Neil F. MacLellan, III.. 16,360 73,620 111,657 498,776
John S. Olbrych......... 16,360 73,620 111,657 498,776
Patrick A. Flanagan..... 14,870 66,915 101,488 453,349
</TABLE>
- --------
(1) These values have been calculated based upon the closing sale price of
Mac-Gray Common Stock, as reported by the NYSE, on December 31, 1997
($15.625) less the applicable exercise price.

29
<PAGE>

1997 STOCK OPTION AND INCENTIVE PLAN

In December 1996, the Mac-Gray Board adopted, and the Mac-Gray stockholders
approved, the Mac-Gray Co., Inc. 1996 Stock Option and Incentive Plan (the
"Predecessor Plan"). On April 7, 1997, the Mac-Gray Board adopted and Mac-
Gray's stockholders approved the 1997 Stock Plan, which replaced the
Predecessor Plan and is designed and intended as a performance incentive for
officers, employees, consultants and Independent Directors to promote the
financial success and progress of Mac-Gray. Mac-Gray anticipates that
providing such persons with a direct stake in Mac-Gray's welfare will assure a
closer identification of their interests with those of Mac-Gray, thereby
stimulating their efforts on Mac-Gray's behalf and strengthening their desire
to remain with Mac-Gray. 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 Mac-Gray Common Stock or (ii) ten percent of the then
outstanding shares of Mac-Gray Common Stock. As of the date of this
Prospectus, Mac-Gray has reserved 1,317,412 shares of Mac-Gray Common Stock
for issuance under the 1997 Stock Plan, of which 727,290 shares are subject to
outstanding options and 590,122 remain available for issuance. Pursuant to
Section 162(m) of the Code, options with respect to no more than 150,000
shares of Mac-Gray 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 Mac-Gray, options
to purchase 148,700, 81,800, 81,800 and 74,350 shares, respectively, of Mac-
Gray Common Stock (the "1996 Options") pursuant to the Predecessor Plan. The
1996 Options were subsequently assumed by Mac-Gray under the 1997 Stock Plan,
and the Predecessor Plan was terminated. On August 14, 1997, Mac-Gray granted
to Messrs. MacDonald, MacLellan, Olbrych and Flanagan, as well as certain
other employees of Mac-Gray, options to purchase 14,870, 8,180, 8,180 and
7,435 shares, respectively, of Mac-Gray Common Stock (the "1997 Options")
pursuant to the 1997 Stock Plan. The vesting schedule of the 1996 Options and
the 1997 Options provide that an additional twenty percent (20%) of such
options are exercisable on each of the first through fifth anniversaries of
the date of grant of such options. Accordingly, twenty percent (20%) of the
1996 Options and none of the 1997 Options, which have exercise prices of $8.80
and $9.25 per share, respectively, are currently exercisable. The exercise
prices of $8.80 and $9.25 per share were determined by the Mac-Gray Board 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.

Plan Administration; Eligibility. The 1997 Stock Plan is administered by the
Mac-Gray Board or the Compensation Committee. All members of the Compensation
Committee must be "disinterested persons" as that term is defined under the
rules promulgated by the Commission and "outside directors" as defined in
Section 162(m) of the Code and the regulations promulgated thereunder.

The Compensation 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 Compensation Committee may permit Mac-
Gray Common Stock, and other amounts payable pursuant to an award, to be
deferred. In such instances, the Compensation 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 Mac-Gray
and its subsidiaries who are responsible for or contribute to the management,
growth or profitability of Mac-Gray and its subsidiaries, as selected from
time to time by the Compensation Committee. Independent Directors will also be
eligible for certain awards under the 1997 Stock Plan.

30
<PAGE>

Stock Options. The 1997 Stock Plan permits the granting of (i) options to
purchase Mac-Gray 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 Mac-Gray and its
subsidiaries may be granted Incentive Options. The option exercise price of
each option will be determined by the Compensation Committee but may not be
less than 100% of the fair market value of the Mac-Gray 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 Mac-Gray 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 Compensation 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 Mac-Gray Common Stock on the date of grant.

The term of each option will be fixed by the Compensation Committee and may
not exceed ten years from the date of grant in the case of an Incentive
Option. The Compensation 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 Compensation 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 Compensation Committee or, if the Compensation Committee so permits, by
delivery of shares of Mac-Gray Common Stock already owned by the optionee. The
exercise price may also be delivered to Mac-Gray by a broker pursuant to
irrevocable instructions to the broker from the optionee.

At the discretion of the Compensation 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 Mac-Gray Common
Stock would automatically be granted an additional stock option (with an
exercise price equal to the fair market value of the Mac-Gray Common Stock on
the date the additional stock option is granted) to purchase that number of
shares of Mac-Gray 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 Mac-Gray 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. Pursuant to the 1997 Stock
Plan, upon the consummation of the IPO, each Independent Director was
automatically granted a Non-Qualified Option to purchase 1,000 shares of Mac-
Gray Common Stock. 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 Mac-Gray Common Stock upon his or her initial election to the Mac-
Gray Board. In addition, each Independent Director who is serving as a
director of Mac-Gray 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 Mac-Gray
Common Stock. The exercise price of each such Non-Qualified Option is the fair
market value of the Mac-Gray Common Stock on the date of grant. All of such
Non-Qualified Options granted to Independent Directors are exercisable
immediately and terminate on the tenth anniversary of the date of grant.

Stock Appreciation Right. The Compensation 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 Mac-Gray 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 Mac-Gray Common Stock on the date of
grant) times the number of shares of Mac-Gray

31
<PAGE>

Common Stock with respect to which the SAR is exercised. This amount may be
paid in cash, Mac-Gray Common Stock, or a combination thereof, as determined
by the Compensation 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 Compensation Committee may also award shares of Mac-
Gray Common Stock to officers, other employees and key persons of Mac-Gray
subject to such conditions and restrictions as the Compensation Committee may
determine ("Restricted Stock"). These conditions and restrictions may include
the achievement of certain performance goals and/or continued employment with
Mac-Gray through a specified restricted period. The purchase price of shares
of Restricted Stock will be determined by the Compensation Committee. If the
performance goals and other restrictions are not attained, the employees will
forfeit their awards of Restricted Stock.

Unrestricted Stock. The Compensation 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 Compensation Committee, an employee or key
person of Mac-Gray 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).

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 Mac-Gray. During the
period of deferral, the deferred Unrestricted Stock would receive dividend
equivalent rights.

Performance Share Awards. The Compensation Committee may also grant
performance share awards to employees or other key persons of Mac-Gray
entitling the recipient to receive shares of Mac-Gray Common Stock upon the
achievement of individual or company performance goals and such other
conditions as the Compensation Committee shall determine ("Performance Share
Award").

Dividend Equivalent Rights. The Compensation 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 Mac-
Gray 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 Mac-Gray 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 Mac-Gray'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 Compensation 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 Mac-Gray or similar event, the Compensation 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 Mac-Gray Board may at any time amend or
discontinue the 1997 Stock Plan and the Compensation 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,

32
<PAGE>

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 Mac-Gray's stockholders if and to the extent required by the
Exchange Act, to ensure that awards granted under the 1997 Stock Plan are
exempt under Rule 16b-3 promulgated under the Exchange 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 Mac-Gray Common Stock,
a merger or consolidation which results in a change in control of Mac-Gray or
the liquidation or dissolution of Mac-Gray (a "Change in Control"), all stock
options and SARs shall automatically become fully exercisable. In addition, at
any time prior to or after a Change in Control, the Compensation Committee may
accelerate awards and waive conditions and restrictions on any awards to the
extent it may determine appropriate.

STOCK APPRECIATION RIGHTS

Prior to the IPO, Mac-Gray 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.

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS

Mac-Gray 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 are made by the Compensation
Committee. The Compensation Committee reviews and makes recommendations
regarding the compensation for management and key employees of Mac-Gray,
including salaries and bonuses. The members of the Compensation Committee are
Messrs. MacDonald, Leydon and Schiller. Mr. MacDonald, the Chairman and Chief
Executive Officer of Mac-Gray, does not participate in the review and
decisions regarding his own compensation. Prior to May 2, 1997, and prior to
the creation of the Compensation Committee, each of Messrs. MacDonald, Olbrych
and Flanagan participated in deliberations of the Mac-Gray Board concerning
executive compensation.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In April 1997, Mac-Gray consummated the Sun Services Acquisition whereby it
acquired Sun Services via mergers in which it issued an aggregate
consideration of approximately $2 million and 612,026 shares of Mac-Gray
Common Stock to Jeffrey C. Huenink, who is currently a member of the Mac-Gray
Board and a stockholder of Mac-Gray. In connection with the Sun Services
Acquisition, Mac-Gray entered into a non-competition agreement (the "Huenink
Non-Competition Agreement") and a Consulting Agreement (the "Consulting
Agreement") with Mr. Huenink, the former owner of Sun Services. The Huenink
Non-Competition Agreement prohibits Mr. Huenink from conducting business in
Mac-Gray'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 Mac-Gray. Pursuant to the terms of the
Consulting Agreement, Mr. Huenink is to advise Mac-Gray through April 16, 2002
with respect to its acquisition strategy and assist Mac-Gray in seeking out
acquisition candidates that complement this strategy. Mac-Gray has provided
Mr. Huenink with incentives to identify acquisition candidates that may be
successfully integrated into Mac-Gray including a combined fixed rate/bonus
compensation package. The fixed rate portion of the compensation package
provides Mr. Huenink with an annual consulting payment of $50,000 during each
of the first and second years of the Consulting Agreement and $100,000 for
each of the third through fifth years. In addition, the bonus portion of the
compensation package is computed based upon a percentage (1% during the first
and second years and .75% during each of the third through fifth years) of
revenues of certain acquired businesses and is guaranteed to be at least
$225,000 during each of the first and second years of the Consulting
Agreement.

In connection with the Sun Services Acquisition, Mac-Gray entered into a
Stockholders' Agreement (the "First Stockholders' Agreement") with Mr. Huenink
and certain principal stockholders of Mac-Gray pursuant

33
<PAGE>

to which (i) Mr. Huenink received demand and "piggy-back" registration rights,
(ii) each such stockholder agreed to vote their respective shares in favor of
Mr. Huenink's election to the Mac-Gray Board, which voting obligation
terminated upon the consummation of the Intirion acquisition, (iii) Mr.
Huenink received the Put Right, and (iv) Mac-Gray received the Call Right,
which Call Right terminated upon the consummation of the IPO. The Put Right
expires on October 22, 2000. See "Mac-Gray's Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources" and Footnote 3 to the table included under "Principal
Stockholders of Mac-Gray."

In connection with the Mac-Gray Combination, Mac-Gray (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 Mac-Gray 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 Mac-Gray Common Stock. Immediately
after the Mac-Gray Combination, Mac-Gray effected the merger of the Limited
Partnership with and into Mac-Gray Co., the Limited Partnership's sole general
partner. Mac-Gray 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 Mac-Gray Board, 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 Mac-Gray
Common Stock.

Pursuant to a Stockholders' Agreement by and among Mac-Gray 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 rights of first offer to purchase shares of
Mac-Gray Common Stock offered for sale by another stockholder who is a party
thereto and (iii) the MacDonalds granted to Mac-Gray rights of second offer to
purchase such shares. See Footnote 3 to the table included under "Principal
Stockholders of Mac-Gray."

In 1977, Mac-Gray Co. entered into an arrangement with Mac-Gray's co-founder
and then Chief Executive Officer that provided his wife, Ms. Evelyn C.
MacDonald ("Ms. E. MacDonald"), with an annual payment following his death.
Mac-Gray, through its subsidiary, Mac-Gray Services, pays Ms. E. MacDonald,
the mother of Mr. S. MacDonald, Jr., Mac-Gray's Chairman and Chief Executive
Officer, a fixed amount of $104,000 per year pursuant to this arrangement,
which is not evidenced by a comprehensive written agreement, and will continue
to make such payments for the remainder of Ms. E. MacDonald's life. See Note 8
of the Notes to Combined Financial Statements of Mac-Gray Corporation.

Immediately following the consummation of the IPO, Mac-Gray distributed
approximately $9.0 million of the proceeds thereof to its stockholders of
record as of a date immediately prior to the consummation of the IPO. This
distribution represented a significant portion of Mac-Gray's and certain of
its predecessor's historical, undistributed earnings through June 30, 1997,
which were previously taxed for federal and state income tax purposes directly
to the stockholders of Mac-Gray.

34
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of Mac-Gray Common Stock as of April 7, 1998 by (i) each
person known by Mac-Gray to own beneficially five percent or more of the
outstanding shares of the Mac-Gray Common Stock, (ii) each director of Mac-
Gray, the Chief Executive Officer and each of the Named Executive Officers,
and (iii) all directors and executive officers of Mac-Gray as a group. Except
as otherwise indicated, Mac-Gray believes that the beneficial owners of Mac-
Gray 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>
SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER(1) OWNED (2)(3) BENEFICIALLY OWNED
--------------------------- ------------ --------------------
<S> <C> <C>
Evelyn C. MacDonald(3)(4).................... 1,700,000 12.9%
Stewart Gray MacDonald, Jr.(3)(4)(5)......... 1,944,340 14.7%
Sandra E. MacDonald(3)(4)(6)................. 3,209,250 24.4%
Daniel W. MacDonald(3)(4)(7)................. 2,122,600 16.1%
Patrick A. Flanagan(3)(4)(8)................. 1,716,370 13.0%
Peter C. Bennett(3)(4)(9).................... 1,700,000 12.9%
R. Robert Woodburn, Jr.(3)(4)(10)............ 1,700,000 12.9%
Cynthia V. Doggett(3)(11).................... 1,435,100 10.9%
Richard G. MacDonald(3)(12).................. 459,750 3.5%
Gilbert M. Roddy, Jr.(3)(13)................. 580,000 4.4%
Jeffrey C. Huenink(14)....................... 613,026 4.7%
Jerry A. Schiller............................ 1,000 *
John P. Leydon(14)........................... 2,000 *
Eugene B. Doggett(14)........................ 3,000 *
Neil F. MacLellan, III(15)................... 18,860 *
John S. Olbrych(15).......................... 16,360 *
All executive officers and directors as a
group (8 persons)........................... 3,748,289 28.3%
</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
Commission. In computing the number of shares of Mac-Gray Common Stock
beneficially owned by a person, shares of Mac-Gray Common Stock subject
to options and warrants held by that person that are currently
exercisable or exercisable within 60 days of the date of this Prospectus
are deemed outstanding. As of April 7, 1998, a total of 13,174,118 shares
of Mac-Gray Common Stock were issued and outstanding.
(3) Mac-Gray and certain stockholders of Mac-Gray, 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 GST Trust-1997, The Whitney E. MacDonald
Gift Trust, The Jonathan S. MacDonald Gift Trust, The Robert C. MacDonald
Gift Trust and Jeffrey C. Huenink are parties to the First 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 Mac-Gray. See "Management of Mac-Gray
Certain Relationships and Related Transactions." In addition, the First
Stockholders' Agreement provides Mr. Huenink with certain rights to put
his shares of Mac-Gray Common Stock to

35
<PAGE>

Mac-Gray. As a result of the First Stockholders' Agreement, each
stockholder may be deemed to beneficially own all of the issued and
outstanding shares of Mac-Gray Common Stock owned by the other parties
thereto, although such beneficial ownership is not reflected in the table
of shares beneficially owned. Mac-Gray 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, The Robert C. MacDonald Gift Trust, and Cynthia V. Doggett are
parties to 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 who is a party thereto, as
well as providing Mac-Gray 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 Mac-Gray Common Stock owned by the other parties
thereto, although such beneficial ownership is not reflected in the table
of shares beneficially owned.
(4) Includes 1,700,000 shares of Mac-Gray Common Stock held in trust pursuant
to The Evelyn C. MacDonald Family Trusts (the "ECM Trust"), the grantor
of which is 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
Mac-Gray Common Stock held by the ECM Trust are held in a Sub-Trust for
the benefit of Mr. S. MacDonald, Jr., 566,667 shares of Mac-Gray 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 Mac-Gray 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 Mac-Gray 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 Mac-Gray 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 Mac- Gray 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 Mac-Gray Common Stock
attributed to such Sub-Trust and, therefore, may be deemed to have
beneficial ownership of the shares of Mac-Gray Common Stock held by such
Sub-Trust.
(5) Includes (i) 655,000 shares of Mac-Gray 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 Mac-Gray Common Stock held by the New
Century Trust, of which Mr. S. MacDonald, Jr. is the grantor, and (iii)
566,667 shares of Mac-Gray 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 Mac-Gray Common Stock held by the New Century Trust at any
time with property of equivalent value and therefore may be deemed to
beneficially own all such shares of Mac-Gray Common Stock. Mr. S.
MacDonald, Jr. disclaims beneficial ownership of such shares of Mac-Gray
Common Stock. Mr. S. MacDonald, Jr. holds options to purchase up to
163,570 shares of Mac-Gray Common Stock, 29,740 of which are exercisable
and included in shares beneficially owned.
(6) Includes (i) 148,800 shares of Mac-Gray Common Stock held by The Whitney
E. MacDonald GST Trust-1997, (ii) 148,800 shares of Mac-Gray Common Stock
held by The Jonathan S. MacDonald GST Trust-1997, (iii) 148,800 shares of
Mac-Gray 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 Mac-Gray Common Stock held by
the DWM Trust, of which Ms. S. MacDonald serves as co-trustee. Richard G.
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 Mac-Gray 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

36
<PAGE>

time by Ms. S. MacDonald, the grantor of such trusts, with property of
equivalent value and, therefore, Ms. S. MacDonald may be deemed to
beneficially own all such shares of Mac-Gray Common Stock. Ms. S.
MacDonald disclaims beneficial ownership of the shares of Mac-Gray Common
Stock held by the GST Trusts and the 1,100,000 shares of Mac-Gray Common
Stock held by the DWM Trust.
(7) Includes (i) 1,100,000 shares of Mac-Gray Common Stock held by the DWM
Trust, of which Mr. D. MacDonald is co-trustee and sole beneficiary, and
(ii) 566,667 shares of Mac-Gray 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 Mac-Gray 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 Mac-Gray Common Stock.
Mr. Flanagan disclaims beneficial ownership of the shares of Mac-Gray
Common Stock held by the ECM Trust. Mr. Flanagan holds options to
purchase up to 81,785 shares of Mac-Gray Common Stock, 14,870 of which
are exercisable and included in shares of Mac-Gray Common Stock
beneficially owned.
(9) Includes 1,700,000 shares of Mac-Gray Common Stock held by the ECM Trust
for which Mr. P. Bennett serves as co-trustee and shares voting and
dispositive power over the shares of Mac-Gray Common Stock. Mr. P.
Bennett disclaims beneficial ownership of the shares of Mac-Gray Common
Stock held by the ECM Trust. Mr. P. 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 Mac-Gray 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 Mac-Gray Common Stock. Mr. Woodburn
disclaims beneficial ownership of the shares of Mac-Gray 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) 655,100 shares of Mac-Gray Common Stock held by the SGM
Trust, of which Ms. Doggett serves as co-trustee, and (ii) 580,000 shares
of Mac-Gray Common Stock held by the New Century Trust, of which Ms.
Doggett serves as co-trustee. The shares of Mac-Gray 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 Mac-Gray Common Stock held by
such trusts.
(12) Includes (i) 148,800 shares of Mac-Gray Common Stock held by The Whitney
E. MacDonald GST Trust-1997, (ii) 148,800 shares of Mac-Gray Common Stock
held by The Jonathan S. MacDonald GST Trust-1997, (iii) 148,800 of Mac-
Gray Common Stock shares held by The Robert C. MacDonald GST Trust-1997,
(iv) 4,450 shares of Mac-Gray Common Stock held by The Whitney E.
MacDonald Gift Trust, (v) 4,450 shares of Mac-Gray Common Stock held by
The Jonathan S. MacDonald Gift Trust, and (vi) 4,450 shares of Mac-Gray
Common Stock held by The Robert C. MacDonald Gift Trust (together with
The Whitney E. MacDonald Gift Trust and The Jonathan S. MacDonald Gift
Trust, collectively, the "Gift Trusts"). Mr. R. MacDonald is the sole
trustee of each of the aforementioned trusts and may be deemed to
beneficially own all such shares of Mac-Gray Common Stock. The 459,750
shares of Mac-Gray Common Stock held by the GST Trusts and the Gift
Trusts may be replaced at any time by Ms. S. MacDonald, the grantor, with
property of equivalent value, all 459,750 shares of Mac-Gray Common Stock
of which Mr. R. MacDonald disclaims beneficial ownership.
(13) Includes 580,000 shares of Mac-Gray Common Stock held by the New Century
Trust, of which Mr. Roddy serves as co-trustee. The shares of Mac-Gray
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 Mac-Gray Common Stock Mr. Roddy disclaims
beneficial ownership. Mr. Roddy's mailing address is c/o Loring, Wolcott
& Coolidge, 230 Congress Street, Boston, Massachusetts 02110.
(14) Each of Messrs. Doggett, Huenink and Leydon holds options to purchase up
to 1,000 shares of Mac-Gray Common Stock, all of which are exercisable
and included in shares of Mac-Gray Common Stock beneficially owned.
(15) Each of Messrs. MacLellan and Olbrych holds options to purchase up to
89,980 shares of Mac-Gray Common Stock, 16,360 of which are exercisable
and included in shares of Mac-Gray Common Stock beneficially owned.

37
<PAGE>

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

The following unaudited pro forma combined statement of income for the year
ended December 31, 1997 has been adjusted to reflect the Sun Services
Acquisition as if it occurred on January 1, 1997. For the year ended December
31, 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
Mac-Gray.

MAC-GRAY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME

<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, SUN SERVICES PRO FORMA ACQUISITION DECEMBER 31,
1997 (1) ACQUISITION (2) COMBINED ADJUSTMENTS 1997
------------ --------------- --------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue................. $104,847 $2,032 $106,879 $ $106,879
Cost of revenue......... 75,912 1,353 77,265 146(3) 77,411
-------- ------ -------- ---- --------
Gross profit........ 28,935 679 29,614 (146) 29,468
Operating expenses...... 17,857 360 18,217 (69)(4) 18,148
-------- ------ -------- ---- --------
Income from operations.. 11,078 319 11,397 (77) 11,320
Interest expense,
net.................. (2,975) (89) (3,064) (3,064)
Other income
(expense), net....... 181 -- 181 181
-------- ------ -------- ---- --------
Income before provision
for income taxes....... 8,284 230 8,514 (77) 8,437
Provision for income
taxes(5)............. (5,228) -- (5,228) (5,228)
-------- ------ -------- ---- --------
Net income.............. $ 3,056 $ 230 $ 3,286 $(77) $ 3,209
-------- ------ -------- ---- --------
Accretion and
dividends on
redeemable preferred
stock................ 320 -- 320 -- 320
-------- ------ -------- ---- --------
Income available to
common stockholders.... $ 2,736 $ 230 $ 2,966 $(77) $ 2,889
======== ====== ======== ==== ========
Net income per common
share(7)............... $ 0.34
========
Weighted average common
shares outstanding(7).. 8,449
========
Net income (loss) per
common share--assuming
dilution(7)............ $ 0.33
========
Weighted average common
shares outstanding--
assuming dilution(7)... 8,709
========
Pro forma tax adjusted
net income(6).......... $ 5,105 $ 138 $ 5,243 $(46) $ 5,197
======== ====== ======== ==== ========
Pro forma tax adjusted
net income available to
common
stockholders(6)........ 4,785 138 4,923 (46) 4,877
======== ====== ======== ==== ========
Pro forma tax adjusted
net income per common
share(7)............... $ 0.58
========
Pro forma tax adjusted
net income per common
share-assuming
dilution(7)............ $ 0.56
========
</TABLE>
- --------
(1) Includes the consolidated results of operations of Mac-Gray for the year
ended December 31, 1997 and Intirion Corporation for the year ended June
30, 1997. See Note 1 to Supplemental Consolidated Financial Statements.
(2) For the year ended December 31, 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 Mac-Gray.
(3) Reflects increased amortization, due to Mac-Gray 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) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(6) Pro forma tax adjusted net income has been adjusted to give effect to Mac-
Gray's operations as if Mac-Gray were subject to federal and state income
taxes on a corporate level (at an estimated income tax rate of 40%) during
the periods presented.
(7) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, the
Company has complied with Staff Accounting Bulletin No. 98 (SAB 98) issued
by the Commission. Accordingly, earnings per share data have been restated
for all periods presented to give effect to both pronouncements. Earnings
per share data are reflective of the Mac-Gray Combination for all periods
presented.

38
<PAGE>

MARKET PRICES AND DIVIDEND DATA

Mac-Gray first issued Mac-Gray Common Stock to the public in October 1997.
The following table sets forth the high and low sales prices on the NYSE.

<TABLE>
<CAPTION>
SALE PRICES
----------------
HIGH LOW
------ -----
<S> <C> <C>
Fourth Quarter (from October 17, 1997)................ $15 7/8 $13 11/16
First Quarter ........................................ $20 1/2 $15 3/8
Second Quarter (through April 7, 1998)................ $ 16 15/16 $15 7/8
</TABLE>

On April 7, 1998, the closing sales price of Mac-Gray Common Stock, as
reported on the NYSE, was $15 7/8 per share. As of April 7, 1998, there were
13,174,118 shares of Mac-Gray Common Stock outstanding held by 87 holders of
record.

Mac-Gray does not currently pay dividends on Mac-Gray Common Stock. The Mac-
Gray Board currently intends to retain future earnings, if any, for the
development of Mac-Gray's businesses and does not anticipate paying cash
dividends on Mac-Gray Common Stock in the foreseeable future. Future
determinations by the Mac-Gray Board to pay dividends on Mac-Gray Common Stock
would be based primarily upon the financial condition, results of operations
and business requirements of Mac-Gray. Dividends, if any, would be payable in
the sole discretion of Mac-Gray Board out of the funds legally available
therefor. In addition, the payment of dividends is restricted under the Credit
Facility.

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The authorized capital stock of Mac-Gray consists of 30,000,000 shares of
Mac-Gray Common Stock, $.01 par value per share, and 5,000,000 shares of
undesignated preferred stock issuable in series by the Mac-Gray Board
("Preferred Stock"). As of April 7, 1998, there were 13,174,118 shares of Mac-
Gray Common Stock (including 612,026 shares of Mac-Gray Common Stock subject
to the Put Right) outstanding that were held of record by 87 stockholders. The
following summary description of the capital stock of Mac-Gray does not
purport to be complete and is qualified in its entirety by reference to the
Mac-Gray Charter and the Mac-Gray By-laws. The Mac-Gray Charter and the Mac-
Gray By-laws have been adopted by the stockholders of Mac-Gray and the Mac-
Gray Board.

Mac-Gray Common Stock. The holders of Mac-Gray 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 Mac-Gray Board from funds legally available therefor. The possible
issuance of Preferred Stock with a preference over Mac-Gray Common Stock as to
dividends could impact the dividend rights of holders of Mac-Gray Common
Stock. Holders of Mac-Gray 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 Mac-Gray 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 Mac-Gray Common
Stock. Upon the voluntary or involuntary liquidation, dissolution or winding
up of Mac-Gray, the net assets of Mac-Gray shall be distributed pro rata to
the holders of the Mac-Gray 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 Mac-Gray Common
Stock, including the shares to be issued pursuant to the Merger Agreement,
are, or will be upon consummation of the Merger, fully paid and non-
assessable.

39
<PAGE>

The Mac-Gray Charter and the Mac-Gray 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 Mac-Gray Board. 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 Mac-Gray 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 Mac-Gray Board is authorized, without
further action of the stockholders of Mac-Gray, 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 Mac-Gray Charter. Any such Preferred
Stock issued by Mac-Gray may rank prior to the Mac-Gray Common Stock as to
dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Mac-Gray Common Stock.

The purpose of authorizing the Mac-Gray Board to issue Preferred Stock is,
in part, to eliminate delays associated with a stockholder vote on specific
issuances. The issuance of Preferred Stock 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
Mac-Gray Common Stock.

CERTAIN PROVISIONS OF CHARTER AND BY-LAWS

General. A number of provisions of the Mac-Gray Charter and the Mac-Gray By-
laws concern matters of corporate governance and the rights of stockholders.
Certain of these provisions, as well as the ability of the Mac-Gray Board 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 Mac-Gray Board,
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 Mac-Gray Common Stock, which may result
from actual or rumored takeover attempts, may be inhibited. These provisions,
together with the classified Mac-Gray Board and the ability of the Mac-Gray
Board 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 Mac-Gray. 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 Mac-Gray Common Stock.
The Mac-Gray Board believes that these provisions are appropriate to protect
the interests of Mac-Gray and all of its stockholders. The Mac-Gray Board 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 Mac-Gray By-laws provide that a special
meeting of stockholders may be called only by the Mac-Gray Board unless
otherwise required by law. The Mac-Gray 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 Mac-Gray 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 Mac-Gray Charter provides
that, for so long as Mac-Gray has a class of stock registered pursuant to the
provisions of the Exchange Act, any action required or permitted to be taken
by the stockholders of Mac-Gray 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.

40
<PAGE>

Indemnification and Limitation of Liability. The Mac-Gray By-laws provide
that directors and officers of Mac-Gray shall be, and in the discretion of the
Mac-Gray Board non-officer employees may be, indemnified by Mac-Gray 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 Mac-Gray, and further permits the
advancing of expenses incurred in defense of claims. The Mac-Gray 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 Mac-Gray Charter 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 DGCL or obtained an improper
personal benefit. This provision does not alter a director's liability under
the 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 Mac-Gray Charter. The Mac-Gray Charter provides that an
amendment thereof must first be approved by a majority of the Mac-Gray Board
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 Mac-Gray Charter relating to the prohibition of stockholder
action by written consent, the establishment, composition and powers of the
Mac-Gray Board, the limitation of director liability and amendments to the
Mac-Gray Charter.

Amendment of the Mac-Gray By-laws. The Mac-Gray Charter provides that the
Mac-Gray By-laws may be amended or repealed by the Mac-Gray Board or by the
stockholders. Such action by the Mac-Gray Board 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 Mac-Gray Board 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 Mac-Gray Board 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 Mac-Gray by means of a
merger, tender offer, proxy contest or otherwise, if such change in control is
not in the best interests of Mac-Gray and its stockholders. The Mac-Gray Board
has no present intention of adopting a stockholder rights plan and is not
aware of any attempt to obtain control of Mac-Gray.

STATUTORY BUSINESS COMBINATION PROVISION

Mac-Gray is subject to the provisions of Section 203 of the DGCL. 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,

41
<PAGE>

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 two-thirds 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 (x) the owner of 15% or more
of the outstanding voting stock of the corporation or (y) 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 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 Mac-Gray
Charter nor the Mac-Gray By-laws contains any such exclusion.

TRANSFER AGENT AND REGISTRAR

State Street Bank and Trust Company is the transfer agent and registrar for
Mac-Gray Common Stock.

THE SELLING SECURITYHOLDERS AND THE OFFERED SHARES

BACKGROUND

The Shares will be acquired by the Selling Securityholders pursuant to the
Stock Purchase Agreement upon consummation of the acquisition of Copico.

REGISTRATION RIGHTS AGREEMENT

In connection with the acquisition of Copico, Mac-Gray and the Selling
Securityholders will enter into a registration rights agreement (the
"Registration Rights Agreement"). The material provisions of the Registration
Rights Agreement are set forth below. A copy of the form of the Registration
Rights Agreement which will be entered into in connection with the
consummation of the acquisition of Copico has been filed as an exhibit to the
Registration Statement and can be obtained in the manner described under
"Available Information."

Resale Registration. To facilitate the resale by the Selling Securityholders
of the Shares, Mac-Gray has agreed to use commercially reasonable efforts to
keep the Registration Statement continuously effective for a period ending
with the earlier of (a) the sale of all the Shares and (b) the first
anniversary of the issuance of such Shares, which issuance will occur upon
consummation of the acquisition of Copico.

Certain Other Provisions. All expenses incident to Mac-Gray's performance of
its registration obligations under the Registration Rights Agreement will be
paid by Mac-Gray. The Selling Securityholders will be responsible for
underwriting commissions or discounts, transfer taxes, if any, attributable to
the sale of the Shares, any fees or expenses of any counsel, accountants or
other persons retained or employed by the Selling Securityholders and out-of-
pocket expenses of the Selling Securityholders and their agents, including,
without limitation, any travel costs.

42
<PAGE>

The Registration Rights Agreement contains customary indemnification
provisions whereby Mac-Gray is obligated to indemnify and hold harmless the
Selling Securityholders and certain related parties, and the Selling
Securityholders are obligated under certain circumstances to indemnify and
hold harmless Mac-Gray and certain related parties, in each case in connection
with liabilities relating to the registration of the Shares.

<TABLE>
<CAPTION>
MAC-GRAY MAC-GRAY MAC-GRAY
COMMON STOCK COMMON STOCK COMMON STOCK
NAME OF OWNED PRIOR TO REGISTERED FOR OWNED AFTER
SECURITYHOLDER RESALE(1) RESALE RESALE(2)
- -------------- -------------- -------------- ------------
<S> <C> <C> <C>
Peter B. Finn...................... 2,500 2,500 --
Edward J. Goulart.................. 67,900 67,900 --
Ronald R. Jalbert.................. 58,200 58,200 --
Robert W. LaRoche.................. 67,900 67,900 --
David Luongo....................... 2,500 2,500 --
Joseph J. Tischler................. 2,500 2,500 --
Massachusetts Capital Resource Com-
pany.............................. 48,500 48,500 --
</TABLE>
- --------
(1) Based upon the number of shares of Mac-Gray Common Stock to be received by
such Selling Securityholder pursuant to the Stock Purchase Agreement.

(2) Assumes that the Selling Securityholders sell all the Shares and do not
acquire additional shares of Mac-Gray Common Stock.

43
<PAGE>

PLAN OF DISTRIBUTION

The Selling Securityholders may sell the shares (i) directly to purchasers
as principals or through one or more underwriters, brokers, dealers or agents
from time to time in one or more transactions (which may involve crosses or
block transactions), (ii) on any exchange or in the over-the-counter market,
(iii) in transactions otherwise than in the over-the-counter market or on an
exchange or (iv) through the writing of options (whether such options are
listed on an options exchange or otherwise) on, or settlement of short sales
of, the Shares. Any such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by the Selling Securityholders or by
agreement between the Selling Securityholders and underwriters, brokers,
dealers or agents or purchasers. If the Selling Securityholders effect such
transactions by selling the Shares to or through underwriters, brokers,
dealers or agents, such underwriters, brokers, dealers or agents may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders or commissions from purchasers of the Shares for whom
they may act as agent (which discounts, concessions or commissions as to
particular underwriters, brokers, dealers or agents may be in excess of those
customary in the types of transactions involved). The Selling Securityholders
and any brokers, dealers or agents that participate in the distribution of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any profit on the sale of the Shares by them and any discounts,
concessions or commissions received by any such underwriters, brokers, dealers
or agents may be deemed to be underwriting discounts and commissions under the
Securities Act.

In the event of a "distribution" of the Shares, the Selling Securityholders,
any selling broker-dealer or agent and any "affiliated purchasers" may be
subject to Regulation M under the Exchange Act, which would prohibit, with
certain exceptions, each such person from bidding for, purchasing or
attempting to induce any person to bid for or purchase any security which is
the subject of such distribution until his participation in that distribution
is completed. In addition, Regulation M under the Exchange Act prohibits
certain "stabilizing bids" or "stabilizing purchases" for the purpose of
pegging, fixing or maintaining the price of Mac-Gray Common Stock in
connection with any offer of the Shares by the Selling Securityholders.

To the extent not described herein and as otherwise required by law, the
specific amount of the Shares being offered or sold, the names of the Selling
Securityholders, the respective purchase prices and public offering prices,
the names of any agent, dealer or underwriter, and any applicable commissions
or discounts with respect to a particular offer or sale will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the Registration Statement of which this Prospectus is a part.

Mac-Gray will not receive any of the proceeds of the sale of the Shares by
any Selling Securityholder.

Under the securities laws of certain states, the Shares may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
certain states the Shares may not be sold unless the Shares have been
registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.

LEGAL MATTERS

The validity of the shares of Mac-Gray Common Stock offered hereby will be
passed upon by Goodwin, Procter & Hoar LLP.

EXPERTS

The supplemental consolidated financial statements of Mac-Gray Corporation
as of December 31, 1997 and 1996 and for each of the three years ended
December 31, 1997, the consolidated financial statements of Mac-Gray
Corporation as of December 31, 1997 and 1996 and for each of the three years
ended December 31, 1997, the combined financial statements of Sun Services of
America, Inc. and R. Bodden Coin-Op-Laundry, Inc. as of and for the year ended
December 31, 1996 and the consolidated financial statements of Intirion
Corporation as of June 30, 1997 and 1996 and for each of the three years ended
June 30, 1997 included in this Prospectus have been so included in reliance of
the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.

44
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
MAC-GRAY CORPORATION
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet as of December 31, 1996 and 1997............. F-3
Consolidated Statement of Income for the Years Ended December 31, 1995,
1996 and 1997.......................................................... F-4
Consolidated Statement of Stockholders' Equity for the Years Ended De-
cember 31, 1995, 1996 and 1997......................................... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-6
Notes to Supplemental Consolidated Financial Statements................. F-7
SUN SERVICES OF AMERICA, INC. AND R. BODDEN COIN-OP -LAUNDRY, INC.
Report of Independent Accountants....................................... F-19
Combined Balance Sheet as of December 31, 1996 and March 31, 1997 (unau-
dited)................................................................. F-20
Combined Statement of Income for the Year Ended December 31, 1996 and
for the Three Months Ended March 31, 1996 and 1997 (unaudited)......... F-21
Combined Statement of Stockholder's Equity for the Year Ended December
31, 1996 and the Three Months Ended March 31, 1997 (unaudited)......... F-22
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-23
Notes to Combined Financial Statements.................................. F-24
INTIRION CORPORATION
Report of Independent Accountants....................................... F-29
Consolidated Balance Sheet as of June 30, 1996 and 1997 and December 31,
1997 (unaudited)....................................................... F-30
Consolidated Statement of Operations for the Years Ended June 30, 1995,
1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997
(unaudited)............................................................ F-31
Consolidated Statement of Changes in Stockholders' Deficit for the Years
Ended June 30, 1995, 1996 and 1997 and for the Six Months Ended Decem-
ber 31, 1997 (unaudited)............................................... F-32
Consolidated Statement of Cash Flows for the Years Ended June 30, 1995,
1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997
(unaudited)............................................................ F-33
Notes to Consolidated Financial Statements.............................. F-35
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS............................ F-46
Report of Independent Accountants....................................... F-47
Supplemental Consolidated Balance Sheet as of December 31, 1996 and
1997................................................................... F-48
Supplemental Consolidated Statement of Income for the Years Ended Decem-
ber 31, 1995, 1996 and 1997............................................ F-49
Supplemental Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997........................... F-50
Supplemental Consolidated Statement of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997....................................... F-51
Notes to Supplemental Consolidated Financial Statements................. F-52
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Mac-Gray Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Mac-Gray Corporation (the "Company"), at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits 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
January 30, 1998

F-2
<PAGE>

MAC-GRAY CORPORATION

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,844 $ 3,774
Trade receivables, net of allowance for doubtful accounts.. 1,640 4,256
Available-for-sale security................................ 343 --
Inventory.................................................. 1,509 2,886
Deferred income taxes...................................... -- 548
Prepaid commissions and other current assets............... 1,699 2,270
------- -------
Total current assets..................................... 8,035 13,734
Property, plant and equipment, net......................... 31,912 37,699
Intangible assets, net..................................... 11,491 27,926
Prepaid commissions and other assets....................... 2,670 5,015
------- -------
Total assets............................................. $54,108 $84,374
======= =======
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt.......................... $ 4,042 $ 1,550
Current portion of capital lease obligations............... 251 476
Accounts payable........................................... 3,876 5,002
Accrued commissions........................................ 4,940 5,585
Accrued expenses........................................... 995 2,006
------- -------
Total current liabilities................................ 14,104 14,619
Long-term debt............................................... 23,325 5,395
Long-term capital lease obligations.......................... 193 491
Deferred income taxes........................................ 647 5,430
Deferred retirement obligation............................... 1,156 1,052
Other liabilities............................................ -- 429
Commitments and contingencies (Note 12)...................... -- --
Redeemable common stock, 612,026 shares...................... -- 7,797
Stockholder's equity:
Preferred stock of Mac-Gray Corporation ($.01 par value,
5,000,000 shares authorized, no shares issued and
outstanding).............................................. -- --
Common stock of Mac-Gray Co., Inc. ($1 par value; 200,000
shares authorized, 154,275 shares issued and outstanding
at December 31, 1996)..................................... 154 --
Common stock of Mac-Gray Corporation ($.01 par value;
30,000,000 shares authorized, 10,967,800 shares issued and
outstanding at
December 31, 1997)........................................ -- 110
Additional capital......................................... 2,413 51,035
Retained earnings (deficit)................................ 20,788 (1,984)
Net unrealized gain on available-for-sale security, net of
tax....................................................... 258 --
Less: 54,275 shares held in treasury at cost............... (8,930) --
------- -------
Total stockholders' equity................................. 14,683 49,161
------- -------
Total liabilities, redeemable common stock and stockhold-
ers' equity............................................. $54,108 $84,374
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements

F-3
<PAGE>

MAC-GRAY CORPORATION

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenue............................................. $50,710 $64,427 $81,370
Cost of revenue:
Commissions....................................... 20,471 25,760 31,717
Laundry route expenditures........................ 8,251 10,955 12,232
Depreciation and amortization..................... 4,899 6,216 8,635
Cost of equipment sales........................... 2,938 5,189 8,187
------- ------- -------
Total cost of revenue........................... 36,559 48,120 60,771
------- ------- -------
Operating expenses:
General and administration........................ 3,901 3,952 4,699
Sales and marketing............................... 2,531 3,803 5,165
Depreciation...................................... 455 517 503
------- ------- -------
Total operating expenses........................ 6,887 8,272 10,367
------- ------- -------
Income from operations.............................. 7,264 8,035 10,232
Interest expense, net............................. (1,175) (1,956) (2,521)
Other income (expense), net....................... 55 (87) 181
------- ------- -------
Income before provision for income taxes.......... 6,144 5,992 7,892
Provision for income taxes........................ (374) (465) (5,206)
------- ------- -------
Net income...................................... $ 5,770 $ 5,527 $ 2,686
======= ======= =======
Net income per common share......................... $ 0.91 $ 0.87 $ 0.37
======= ======= =======
Weighted average common shares outstanding.......... 6,368 6,368 7,263
======= ======= =======
Net income per common share--assuming dilution...... $ 0.91 $ 0.87 $ 0.36
======= ======= =======
Weighted average common shares outstanding--assuming
dilution........................................... 6,368 6,368 7,391
======= ======= =======
UNAUDITED PRO FORMA TAX ADJUSTED DATA (NOTE 15):
Income before provision for income taxes.......... $ 6,144 $ 5,992 $ 7,892
Provision for income taxes........................ (2,458) (2,397) (3,157)
------- ------- -------
Pro forma tax adjusted net income................. $ 3,686 $ 3,595 $ 4,735
======= ======= =======
Pro forma tax adjusted net income per common
share............................................ $ 0.58 $ 0.56 $ 0.65
======= ======= =======
Pro forma tax adjusted net income per common
share-assuming dilution.......................... $ 0.58 $ 0.56 $ 0.64
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

MAC-GRAY CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED TREASURY STOCK
----------------- GAINS (LOSSES) ------------------
NUMBER OF ADDITIONAL 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,
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 capi-
tal................... -- -- 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 redemp-
tion.................. -- -- -- -- -- 2,275 (546) (546)
Contribution of capi-
tal................... -- -- 1,404 -- -- -- -- 1,404
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1996................... 154,275 154 2,413 20,788 258 54,275 (8,930) 14,683
Net income............. -- -- -- 2,686 -- -- -- 2,686
Elimination of capital
structure (Note 1).... (154,275) (154) (2,413) (6,363) -- (54,275) 8,930 --
Reorganization of the
Company (Note 1)...... 6,367,800 64 -- (64) -- -- -- --
Sale of common stock... 4,600,000 46 45,128 -- -- -- -- 45,174
Contribution of capital
(Note 3).............. -- -- 5,907 (5,907) -- -- -- --
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (258) -- -- (258)
Dividends.............. -- -- -- (13,124) -- -- -- (13,124)
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1997................... 10,967,800 $ 110 $51,035 $ (1,984) $ -- -- $ -- $ 49,161
========== ===== ======= ======== ===== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE>

MAC-GRAY CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 5,770 $ 5,527 $ 2,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 5,354 6,733 9,138
(Gain) loss on sale of assets................... (11) 43 (246)
Deferred income taxes........................... 71 60 4,235
Decrease (increase) in accounts receivable........ 69 (577) (2,572)
(Increase) decrease in inventory.................. (137) 224 (1,067)
(Increase) in prepaid expenses and other assets... (1,386) (1,299) (2,900)
Increase in accounts payable, accrued commissions
and accrued expenses............................. 687 2,939 1,668
------- ------- -------
Net cash flows provided by operating activi-
ties........................................... 10,417 13,650 10,942
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (4,421) (7,635) (8,681)
Acquisition of businesses (Note 2)................ (821) (14,487) (12,196)
Proceeds from sale of property and equipment...... 137 52 --
Proceeds from sale of securities.................. -- -- 333
------- ------- -------
Net cash flows used in investing activities..... (5,105) (22,070) (20,544)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital
lease obligations................................ (2,490) (2,171) (3,529)
Retirement of line of credit and term loan........ -- (5,378) (19,512)
Advances on line-of-credit, net................... 1,327 18,247 1,823
Contribution of capital and proceeds from sale of
common stock..................................... 1,009 1,404 45,174
Cash dividends paid............................... (3,395) (4,520) (13,124)
Cash paid to repurchase shares of common stock.... -- (125) --
Cash paid for refinancing of long term debt....... -- (75) (300)
------- ------- -------
Net cash flows provided by (used in) financing
activities..................................... (3,549) 7,382 10,532
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 1,763 (1,038) 930
Cash and cash equivalents, beginning of year........ 2,119 3,882 2,844
------- ------- -------
Cash and cash equivalents, end of year.............. $ 3,882 $ 2,844 $ 3,774
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................... $ 1,161 $ 1,944 $ 2,884
Income taxes paid................................. 242 384 1,036
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:

During the year ended December 31, 1997, common stock with an approximate
value of $7,797 was issued in connection with the Sun Services Acquisition.
Such common stock is redeemable at a negotiated price pursuant to a
contractual arrangement.

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS

Basis of Presentation--The historical financial statements include the
combined accounts of Mac-Gray Co., Inc. and Mac-Gray, L.P. 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. Concurrently, Mac-Gray, L.P. was merged with and into Mac-Gray
Co., Inc. which continued to operate as a wholly owned subsidiary of the
Parent (collectively, the "Company"). The consolidated financial statements
for the current fiscal year include the accounts of Mac-Gray Corporation and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in the consolidation.

2. ACQUISITIONS

In 1995, the Company acquired certain assets of Commercial Appliance, Inc.
for $821 and recorded goodwill of approximately $564. During 1996, the Company
acquired certain assets of six coin-operated laundry businesses or divisions
for an aggregate purchase price of $15,561 and recorded goodwill of $10,184.
Non-compete agreements valued at $1,250 were also recorded in 1996 in
connection with these acquisitions. These acquisitions were accounted for
using the purchase method of accounting. Pro forma financial information has
not been provided for these acquisitions due to lack of historical financial
data of the acquired entities.

On April 17, 1997, the Company 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 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 Company's common stock
are redeemable at the election of the shareholder. The redeemable common stock
has been valued at a contractual put price of $12.74 per common share (which
was in excess of market as of that date). The redemption feature of these
shares expires on October 22, 2000. Sun Services of America, Inc. and R.
Bodden Coin-Op Laundry were 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, and resulted in
goodwill of approximately $11,600.

The following pro forma financial information reflects the Sun Services
Acquisition as if it occurred on January 1, 1996. For the year ended December
31, 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.

<TABLE>
<CAPTION>
UNAUDITED PRO FORMA RESULTS FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
Revenue................................ $ 71,091 $ 83,402
Net Income............................. 5,680 2,839
Pro Forma tax adjusted net income (Note
15)................................... 3,687 4,827
Pro Forma tax adjusted net income Per
Share................................. $ 0.58 $ 0.66
Pro Forma tax adjusted net income Per
Share--assuming dilution.............. $ 0.58 $ 0.65
</TABLE>

F-7

<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

In October and November, 1997, the Company acquired certain assets of two
additional coin-operated laundry businesses for approximately $7,150. These
acquisitions were also accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired was the fair
market value on the respective acquisition dates. Purchase price in excess of
the fair value of assets acquired was allocated to goodwill and amounted to
approximately $6,228. Pro forma financial information for the October and
November 1997 acquisitions has not been presented due to their insignificance
in relation to the Company as a whole. The Company's consolidated financial
statements include the results of the 1995, 1996, and 1997 acquisitions from
their respective acquisition dates.

3. INITIAL PUBLIC OFFERING OF COMMON STOCK

Mac-Gray Corporation completed its initial public offering of 4,600,000
shares of common stock at $11 per share on October 22, 1997. The net proceeds
from the sale of the common stock of $45,174 were used primarily to repay
existing indebtedness outstanding under the Credit Facility (Note 9) and to
fund a distribution of $9,000 of previously taxed but undistributed earnings
to the Company's shareholders of record as of October 16, 1997. As a result of
the initial public offering, the Company's S corporation status was
terminated. Retained earnings of $5,907 as of that date were reclassified to
additional paid-in capital to reflect additional contributions of capital by
the S-corporation shareholders.

4. 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 invests excess cash in repurchase agreements and other highly
liquid short term investments. Accordingly, the investments are subject to
minimal credit and market risk. All of the Company's investments are
classified as available-for-sale. As such, unrealized gains and losses are
excluded from earnings and reported as a separate component of stockholders'
equity, net of tax.

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, 1996 and $490 at December 31, 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, 1996 and 1997, 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.

F-8
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Intangible Assets--Intangible assets primarily consist of various non-
compete agreements and goodwill recorded in connection with the 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 using the straight-line method over fifteen or twenty
years from the acquired companies respective dates of acquisitions.

Impairment of Long-Lived Assets--Impairment losses are recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount.

Income Taxes--Mac-Gray Co., Inc. which elected S corporation status, and
Mac-Gray, L.P. were "pass through" entities for income tax purposes prior to
the reorganization on April 17, 1997. From April 17, 1997 through October 16,
1997, Mac-Gray Corporation also elected S corporation status. Accordingly,
earnings and losses were included on the income tax returns of the respective
equity owners through October 16, 1997. On October 16, 1997, the Company's S
corporation status was terminated as a result of the initial public offering.

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 determined 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.

Stock Compensation--The Company's stock option plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". In fiscal 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation".

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--The Company accounts for earnings per share in
accordance with Statement of Financial Accounting Standard No. 128, "Earnings
Per Share" (SFAS 128). SFAS 128 replaces APB Opinion No. 15 "Earnings Per
Share" and requires the presentation of basic earnings per share and diluted
earnings per share (EPS). Basic EPS includes no dilution and is computed by
dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted EPS under APB 15. Diluted earnings per share has been calculated using
the treasury stock method and prior period earnings per share have been
restated in accordance with SFAS 128. Net income per share gives effect to the
exchange of shares between the Parent and the Company (Note 1).

F-9
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

statements, the Company plans to implement SFAS 130 which requires
presentation of certain information related to comprehensive income and SFAS
131 which requires that certain additional information related to operating
segments be reported during fiscal year 1998. The Company is currently
reviewing the impact of these statements on its financial statements.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ---------------
(YEARS) 1996 1997
----------- ------- -------
<S> <C> <C> <C>
Coin route equipment........................... 10 $58,610 $68,179
Buildings and improvements..................... 15-32 6,531 7,388
Furniture, fixtures and computer equipment..... 5-7 4,062 5,092
Trucks and autos............................... 3-5 1,776 2,600
Land and improvements.......................... -- 309 309
------- -------
71,288 83,568
Less: accumulated depreciation................. 40,428 46,869
------- -------
30,860 36,699
Coin route equipment, not yet placed in serv-
ice........................................... 1,052 1,000
------- -------
Property, plant and equipment, net............. $31,912 $37,699
======= =======
</TABLE>

Depreciation and amortization of property, plant and equipment totaled
$4,477, $5,176 and $6,441 for the years ended December 31, 1995, 1996 and
1997, respectively.

During 1995, 1996 and 1997, the Company acquired vehicles under capital
leases with a cost of $356, $328 and $892, respectively.

At December 31, 1996 and 1997, trucks and autos includes $1,449 and $2,284,
respectively, of capital leased equipment with an accumulated amortization
balance of $1,052 and $1,307, respectively.

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Goodwill.................................................... $10,348 $28,208
Covenants-not-to-compete.................................... 2,549 2,869
Other....................................................... 153 451
------- -------
13,050 31,528
Less: accumulated amortization.............................. 1,559 3,602
------- -------
Intangible assets, net...................................... $11,491 $27,926
======= =======
</TABLE>

Amortization expense associated with the above intangible assets amounted to
$650, $841 and $1,811 for the years ended December 31, 1995, 1996 and 1997,
respectively.

F-10
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
-------------
<S> <C> <C>
Accrued interest.............................................. $134 $ 101
Accrued salaries.............................................. 78 233
Current portion of deferred retirement obligation............. 104 104
Current portion of deferred payment obligation................ -- 392
Other......................................................... 679 1,176
----- -------
$ 995 $ 2,006
===== =======
</TABLE>

8. DEFERRED RETIREMENT OBLIGATION

The deferred retirement obligation at December 31, 1996 and 1997 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, 1996 and 1997 has been estimated
based upon the life expectancy of the shareholder utilizing actuarial tables.

9. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------- ------
<S> <C> <C>
Credit agreement and revolving credit facility.............. $17,668 $ --
Unsecured notes payable to former shareholders:
Variable rate note, lesser of prime rate plus 2% or 9%,
quarterly principal payments beginning January 1, 1996
(9% at December 31, 1997)................................ 3,360 2,560
Fixed rate notes, 8.4% interest rate, due September 1, 1997
and June 1, 2000........................................... 2,046 746
Discount note, 6% imputed interest rate (estimated fair
market rate), quarterly installments, due December 31,
2003....................................................... 2,613 2,239
Fixed note, 8.75% interest rate, due January 1, 2001........ 421 317
Note payable, 11.5% fixed interest rate, monthly principal
payments,
due September 1, 1999...................................... 249 172
Acquisition note payable, 8% imputed interest rate
(estimated fair
market rate), monthly payments, due May 31, 2006........... 1,010 911
------- ------
Total long-term debt.................................... 27,367 6,945
Less: current portion....................................... 4,042 1,550
------- ------
$23,325 $5,395
======= ======
</TABLE>

Credit Agreement and Revolving Credit Facility

F-11
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Senior Secured Credit Facility 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 Senior Secured Credit Facility bears interest at the
Company'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 October
22, 1997 due to the initial public offering of the Company's common stock
(Note 3) to the prime rate less .5% or LIBOR plus 2.0%. The Senior Secured
Credit Facility restricts payments of dividends and other distributions,
restricts the Company from making certain acquisitions and incurring
indebtedness, and requires it to maintain certain financial ratios. The Senior
Secured Credit Facility is secured by pledges of assets of the Parent and its
subsidiaries. The Senior Secured Credit Facility provides for the issuance of
standby letters of credit of up to $15,000 in the aggregate. At December 31,
1997, outstanding letters of credit amounted to $1,302. There is no
outstanding balance on the Senior Secured Credit Facility at December 31,
1997. The interest rate for the Senior Secured Credit Facility at December 31,
1997 was 8.0%.

In connection with the financing of the 1996 Acquisitions (Note 2), the
Company entered into a Credit Agreement with a bank which provided 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 were restricted to
providing working capital requirements of the Company and funding future
acquisitions.

During June 1996, the Company entered into an agreement with a bank which
provided 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. 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.

The Credit Agreement and the Revolving Credit Facility provided 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.

Borrowings under the 1996 Credit Agreement and the Revolving Credit Facility
bore 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 were offered in the interbank Eurodollar market (the
"LIBOR Rate") or (3) 2.5% plus the rate at which funds were offered in the
secondary markets (the "Cost of Funds Rate").

Future Payments

As of December 31, 1997, the scheduled future principal payments of long-
term debt are as follows:

<TABLE>
<S> <C>
1998................................................................. $ 1,550
1999................................................................. 1,401
2000................................................................. 2,088
2001................................................................. 887
2002................................................................. 602
Thereafter........................................................... 417
-------
$ 6,945
=======
</TABLE>

10. INCOME TAXES

On October 16, 1997, the Company's S corporation status was automatically
terminated due to the initial public offering (Note 3). As a result, the
current year provision includes a charge of $4,037 to provide for net deferred
tax liabilities resulting from the change in income tax status from an S
corporation to a C corporation,

F-12
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The following information relates to the
temporary differences at October 16, 1997.

<TABLE>
<S> <C>
Accounts receivable................................................ (627)
Fixed assets....................................................... 16,051
Deferred compensation.............................................. (3,415)
Other.............................................................. (147)
--------
Total............................................................ $ 11,862
========
</TABLE>

Prior to October 16, 1997, the historical income tax provision was
established only to provide for income taxes in states that do not recognize
Subchapter S corporations, using a statutory income tax rate of 6%. The
effective rate differed from the statutory rate in 1996 and 1997 (prior to
October 16, 1997) due to meals and entertainment expenses and goodwill
amortization recorded for book purposes 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 provision for state and federal income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Current state income tax................................... $305 $405 $ 454
Deferred state income tax.................................. 69 60 505
Current federal income tax................................. -- -- 517
Deferred federal income tax................................ -- -- 3,730
---- ---- ------
Total income taxes....................................... $374 $465 $5,206
==== ==== ======
</TABLE>

The net deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and liabilities at December 31:

<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable........................................... $ 40 $ 369
Deferred compensation......................................... 202 1,366
Other......................................................... 33 49
---- ------
275 1,784
---- ------
Deferred tax liabilities:
Fixed assets.................................................. 915 6,619
Other......................................................... 7 47
---- ------
922 6,666
---- ------
Net deferred tax liabilities.................................... $647 $4,882
==== ======
</TABLE>

It is not expected that a valuation allowance will be needed for the
deductible differences at December 31, 1997.

As the Company maintained its S corporation election through October 16,
1997, the provision for income taxes recorded for the year ended December 31,
1997 differs significantly from the amount of income taxes

F-13
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

determined by applying the applicable U.S. statutory federal income tax rate
to pretax income. For the period subsequent to the termination of the S
corporation, the statutory income tax rate differed from the effective rate
primarily as a result of the following differences:

<TABLE>
<CAPTION>
%
----
<S> <C>
Taxes computed at federal statutory rate............................... 34.0%
State income taxes, net of federal benefit............................. 2.3
Other.................................................................. (1.0)
----
Income tax provision................................................. 35.3%
====
</TABLE>

The current provision for income taxes recorded for fiscal 1997 includes
$314 in tax while the Company was an S corporation and $657 in tax for the
period subsequent to the termination of the S corporation election.

11. 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.

12. 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>
1998................................................... $ 538 $ 379
1999................................................... 389 302
2000................................................... 133 218
2001................................................... -- 66
------ -----
Future lease payments.................................. 1,060 $ 965
=====
Less: amount representing interest (8.5% at December
31, 1997)............................................. 93
------
967
Present value future minimum lease payments less
amounts due within one year........................... 476
------
Amounts due after one year............................. $ 491
======
</TABLE>

Rent expense incurred by the Company under non-cancelable operating leases
totaled $123, $256 and $520 for the years ended December 31, 1995, 1996 and
1997, 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

F-14
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

payments required under these lease agreements that have initial or remaining
non-cancelable contract terms in excess of one year as of December 31, 1997:

<TABLE>
<S> <C>
1998.................................................................. $1,633
1999.................................................................. 1,395
2000.................................................................. 1,375
2001.................................................................. 826
2002.................................................................. 735
Thereafter............................................................ 1,876
------
$7,840
======
</TABLE>

Guarantee of Indebtedness--At December 31, 1997, Mac-Gray Co., Inc. is a
guarantor on a line-of-credit for a customer in the amount of $706. The
customer has incurred substantial losses. 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, 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 December 31,
1997 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.

13. 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 $535, $532 and $285 for the years ended
December 31, 1995, 1996 and 1997, respectively.

1997 Stock Option and Incentive Plans--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 directors to promote the
financial success and progress of the Company. All officers, employees and
independent directors are eligible to participate in the 1997 Stock 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, Mac-Gray Co. granted 556,350 options to purchase
shares of common stock with an exercise price of $9.99 per share pursuant to
the Predecessor Plan. Concurrent with the reorganization of the Company, the
options issued pursuant to the Predecessory Plan were assumed by the Company
under the 1997 Stock Plan, and the Predecessory Plan was terminated. The
options assumed by the Company under the 1997 Plan were reflective of the
exchange of common stock between the Parent and Mac-Gray Co., Inc. The
exercise price of the options was adjusted to $8.80 in August 1997, in order
to restore the economic position of the option holders as a result of the
$9,000 distribution (Note 3). The change in the exercise price of these
options has been

F-15
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

reflected as a cancellation of the $9.99 options and a grant of the $8.80
options on the following option rollforward. Employee options vest so that
twenty percent (20%) of the options will become exercisable on each of the
first through fifth anniversaries of the date of grant of the options. In the
event of termination of the optionees' relationship with the Company, options
not yet exercised terminate within 90 days. The 1997 Stock Plan also provided
for the automatic grant to each of the four independent directors to purchase
1,000 shares of common stock. The non-qualified options granted to independent
directors were exercisable immediately and will terminate on the tenth
anniversary of the grant. The exercise prices were determined by the Board of
Directors to be the fair market value of the shares underlying the options on
the respective dates of the grants. Other than the stock option grants, there
were no other grants of equity-based compensation awards during 1996 and 1997.

The 1997 Stock Plan provides for the issuance of up to the greater of
750,000 shares of common stock or ten percent of the then outstanding shares
of common stock. Subsequent to the initial public offering (Note 3), a total
of 1,157,982 shares of common stock are reserved for issuance under the 1997
Stock Plan, of which 638,590 shares are subject to outstanding options and
519,392 remain available for issuance.

The following is a summary of stock option plan activity.

<TABLE>
<CAPTION>
1996 1997
---------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year........... -- $ -- 556,350 $ 9.99
Granted.................................. 556,350 $ 9.99 649,840 $ 8.88
Exercised................................ -- $ -- -- $ --
Canceled................................. -- $ -- (556,350) $ 9.99
Forfeited................................ -- $ -- (11,250) $ 8.89
------- ------ -------- ------
Outstanding, end of year................. 556,350 $ 9.99 638,590 $ 8.88
======= ====== ======== ======
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$8.80--$9.25..... 634,590 9 $ 8.86 109,470 $ 8.80
$11.00--$16.06... 4,000 10 $12.27 4,000 $12.27
------- --- ------ ------- ------
638,590 9 $ 8.88 113,470 $ 8.92
======= === ====== ======= ======
</TABLE>

F-16
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." The Company continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion 25. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and pro forma net income per share would have been reduced to $2,314 in 1997,
or $0.32 per share compared to reported net income of $2,686, or $0.37 per
share and $0.36 per share-assuming dilution.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Fair value of options granted at grant date................ $ 3.10 $ 3.61
Risk free interest rate.................................... 6% 6%
Expected option term--Employees............................ 7 years 7 years
Expected option term--independent directors................ -- 3 years
Expected volatility........................................ -- 50%
Option valuation method.................................... Black-Scholes
option-pricing
model
</TABLE>

In accordance with the provisions of SFAS 123, a volatility assumption was
not used to calculate the fair value of options granted prior to the Company's
initial public offering.

Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected
to be made each year, the above pro forma disclosures are not representative
of pro forma effects of reported net income for future periods.

14. EARNINGS PER SHARE

<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1997
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Pro forma net income per common share:
Net income................................. $2,686 7,263 $0.37
====== ===== =====
Effect of dilutive securities:
Stock options.............................. 128
-----
Pro forma net income per common share-assum-
ing dilution:
Net income................................. $2,686 7,391 $0.36
====== ===== =====
</TABLE>

F-17
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net income per common share:
Net income................................. $3,595 6,368 $0.56
====== ===== =====
Effect of dilutive securities:
Stock options.............................. --
-----
Net income per common share--assuming dilu-
tion:
Pro forma as adjusted net income........... $3,595 6,368 $0.56
====== ===== =====
</TABLE>

15. UNAUDITED PRO FORMA TAX ADJUSTED DATA

Statement of Income--Unaudited pro forma tax adjusted data reflects
adjustments to the consolidated statement of income for year ended December
31, 1997. Such adjustments consider the effect of the Company's operations as
if the Company was subject to federal and state income taxes on a corporate
level. Accordingly, the pro forma income tax provision and 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
entire year.

16. SUBSEQUENT EVENTS--UNAUDITED

On December 22, 1997, the Company entered into a merger agreement with
Intirion Corporation ("Intirion"), pursuant to which Intirion equity
securities were expected to be exchanged for approximately 1.6 million shares
of the Company's common stock and approximately $1 million in cash. The merger
was consummated on March 12, 1998 and was accounted for as a pooling of
interests. A prospectus/proxy statement describing the terms of the proposed
merger and containing financial statements of both companies was prepared
subsequent to year end.

On March 4, 1998, the Company entered into a Stock and Asset Purchase
Agreement pursuant to which Mac-Gray will acquire one hundred percent of the
outstanding capital stock of Amerivend Corporation and the assets of Amerivend
Southeast Corporation. The purchase price, which is subject to certain
adjustments, will be approximately $33.5 million. The acquisition is expected
to be accounted for as a purchase transaction and is expected to close in the
second quarter of 1998.

On March 31, 1998, the Company entered into a Stock Purchase Agreement
pursuant to which Mac-Gray will acquire one hundred percent of the outstanding
capital stock of Copico, Inc., a provider of card and coin-operated
reprographics equipment and services to the academic and public library
markets in New England, New York and Florida. The purchase price will be
approximately $10.95 million in cash, less the assumption of certain debt, and
250,000 shares of Mac-Gray Common Stock. The acquisition will be accounted for
as a purchase transaction and is expected to close during the second quarter
of 1998.

F-18
<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-19
<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 ac-
counts 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-20
<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-21
<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
OF COIN-OP OF COIN-OP- ADDITIONAL
AMERICA, LAUNDRY, AMERICA, LAUNDRY, PAID-IN RETAINED
INC. INC. INC. 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-22
<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>
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-23
<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
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.

F-24
<PAGE>

SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)

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.

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.

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>

F-25
<PAGE>

SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)

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>

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>

F-26
<PAGE>

SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)

8. LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Note payable, 8% fixed interest, semi-annual principal pay-
ments, 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.

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:

F-27
<PAGE>

SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)

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%.

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-28
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Intirion Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Intirion Corporation and its subsidiary at June 30, 1997 and 1996, and the
results of their operations and their cash flows for the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits 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
August 22, 1997

F-29
<PAGE>

INTIRION CORPORATION

CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ -- $ -- $ --
Accounts receivables, net of allowance for
doubtful accounts of $42, $18 and $91 at June
30, 1996 and 1997 and December 31, 1997
(unaudited), respectively.................... 2,981 2,314 2,641
Inventories................................... 3,240 4,322 4,631
Prepaid expenses and other current assets..... 120 87 226
Income tax receivable......................... -- 20 20
Deferred income taxes......................... 23 23 23
------- ------- -------
Total current assets........................ 6,364 6,766 7,541
------- ------- -------
Fixed assets, net............................. 432 645 666
Rental equipment, net......................... 4,547 5,271 6,726
Other assets, net............................. 795 816 928
Deferred income taxes......................... 101 101 101
------- ------- -------
Total assets................................ $12,239 $13,599 $15,962
======= ======= =======
LIABILITIES, REDEEMABLE STOCK AND WARRANTS AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Demand line of credit......................... $ 3,374 $ 2,525 $ 4,742
Amounts due under inventory credit line....... -- 3,694 2,241
Current portion of subordinated notes
payable...................................... 134 153 160
Accounts payable and accrued expenses......... 5,143 3,448 2,325
Deferred rental revenue and customer
deposits..................................... 95 102 2,552
Income taxes payable.......................... 38 -- 5
------- ------- -------
Total current liabilities................... 8,784 9,922 12,025
------- ------- -------
Subordinated notes payable...................... 148 -- --
------- ------- -------
Commitments (Note 16)...........................
Redeemable stock and warrants (Note 10)......... 5,924 6,526 6,963
------- ------- -------
Stockholders' deficit:
Common stock, $.01 par value:
Authorized--2,500,000 shares
Issued--687,868 shares at June 30, 1996 and
1997 and
December 31, 1997
Outstanding--676,173 shares at June 30, 1996
and 1997 and 669,688 shares at December 31,
1997 (unaudited)........................... 7 7 7
Additional paid-in capital.................. 899 899 899
Accumulated deficit......................... (3,354) (3,586) (3,734)
Notes receivable from stock issuance........ (52) (52) --
------- ------- -------
(2,500) (2,732) (2,828)
Less--cost of 11,695 shares of common stock
held in treasury at June 30, 1996 and 1997
and 18,180 shares at December 31, 1997
(unaudited)................................ (117) (117) (198)
------- ------- -------
(2,617) (2,849) (3,026)
------- ------- -------
Total liabilities, redeemable stock and
warrants, and stockholders' deficit............ $12,239 $13,599 $15,962
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements

F-30
<PAGE>

INTIRION CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net product sales............... $13,573 $15,036 $20,034 $ 12,736 $ 11,789
Rental revenue.................. 2,069 2,797 3,443 1,286 1,566
------- ------- ------- -------- --------
15,642 17,833 23,477 14,022 13,355
------- ------- ------- -------- --------
Cost of product sales........... 9,296 10,247 13,870 8,824 7,908
Cost of rental revenue.......... 556 832 1,271 430 563
------- ------- ------- -------- --------
9,852 11,079 15,141 9,254 8,471
------- ------- ------- -------- --------
Gross profit.................... 5,790 6,754 8,336 4,768 4,884
Selling, general and
administrative expenses........ 5,735 6,168 7,490 3,938 4,272
Restructuring expenses.......... 276 -- -- -- --
------- ------- ------- -------- --------
Income (loss) from operations... (221) 586 846 830 612
Interest expense, net........... 153 398 454 200 314
------- ------- ------- -------- --------
Income (loss) before income
taxes.......................... (374) 188 392 630 298
Income tax expense.............. 26 49 22 19 9
------- ------- ------- -------- --------
Net income (loss)............. $ (400) $ 139 $ 370 $ 611 $ 289
------- ------- ------- -------- --------
Accretion and dividends
accrued on redeemable stock.. (456) (486) (602) (301) (437)
------- ------- ------- -------- --------
Income (loss) available to
common stockholders.......... $ (856) $ (347) $ (232) $ 310 $ (148)
======= ======= ======= ======== ========
Income Per Share Data:
Basic income (loss) per common
share (Note 14).............. $ (1.31) $ (.48) $ (.30) $ .40 $ (.19)
======= ======= ======= ======== ========
Dilutive income (loss) per
common share
(Note 14).................... $ (1.31) $ (.48) $ (.30) $ .34 $ (.19)
======= ======= ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>

INTIRION CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- NOTE
ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAR PAID-IN FROM STOCK ACCUMULATED TREASURY STOCKHOLDERS'
SHARES VALUE CAPITAL ISSUANCE DEFICIT STOCK DEFICIT
--------- ----- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1994................... 644,068 $ 6 $752 $ -- (2,151) $ -- $(1,393)
Accretion and dividends
accrued on redeemable
stock.................. (456) (456)
Issuance of common stock
pursuant to the
exercise of options.... 21,400 1 61 (62)
Net loss................ (400) (400)
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1995................... 665,468 7 813 (62) (3,007) (2,249)
Accretion and dividends
accrued on redeemable
stock.................. (486) (486)
Issuance of common stock
pursuant to the
exercise of options.... 13,400 52 (52)
Issuance of common stock
pursuant to the
exercise of warrants... 9,000 34 34
Purchase of treasury
stock.................. 62 (117) (55)
Net income.............. 139 139
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1996................... 687,868 7 899 (52) (3,354) (117) (2,617)
Accretion and dividends
accrued on redeemable
stock.................. (602) (602)
Net income.............. 370 370
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1997................... 687,868 7 899 (52) (3,586) (117) (2,849)
Accretion and dividends
accrued on redeemable
stock (unaudited)...... (437) (437)
Purchase of treasury
stock (unaudited)...... 52 (81) (29)
Net income (unaudited).. 289 289
------- --- ---- ----- ------- ----- -------
Balance at December 31,
1997 (unaudited)....... 687,868 $ 7 $899 $ -- $(3,734) $(198) $(3,026)
======= === ==== ===== ======= ===== =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-32
<PAGE>

INTIRION CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA )

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIV-
ITIES:
Net income (loss)............... $ (400) $ 139 $ 370 $ 611 $ 289
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization.. 740 1,079 1,343 784 777
Net (gain) loss on sale of
rental equipment.............. (61) (32) 68 (171) (133)
Proceeds from sales of rental
equipment..................... 210 107 656 516 371
Noncash interest income........ -- (5) -- -- --
Noncash interest expense....... -- -- -- 17 7
Changes in operating assets and
liabilities, net of the ef-
fects of acquisitions:
(Increase) decrease in accounts
receivable.................... 1,043 (1,630) 667 (78) (327)
(Increase) decrease in invento-
ries.......................... (2,600) 603 (1,082) 940 (309)
(Increase) decrease in prepaid
expenses and other current as-
sets.......................... (89) 74 33 (95) (168)
Increase in income tax receiv-
able.......................... -- -- (20) (78) --
Increase in other assets....... (5) (51) (122) (44) (170)
Increase (decrease) in accounts
payable and accrued expenses.. 1,260 1,954 (1,695) (4,072) (1,123)
Increase (decrease) in income
taxes payable................. 22 (4) (38) (33) 5
Increase in deferred rental
revenue and customer depos-
its........................... 37 41 7 2,212 2,450
------- ------- ------- -------- --------
Net cash provided by operating
activities................... 157 2,275 187 509 1,669
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIV-
ITIES:
Purchase of fixed assets........ (226) (284) (404) (269) (136)
Purchases of rental equipment... (3,474) (2,091) (2,499) (2,375) (2,297)
Acquisition of business......... (357) -- -- -- --
------- ------- ------- -------- --------
Net cash used for investing
activities................... (4,057) (2,375) (2,903) (2,644) (2,433)
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIV-
ITIES:
Advances (payments) under demand
line of credit, net............ 3,080 294 (849) 89 2,217
Borrowings (payments) under in-
ventory credit line............ -- -- 3,694 2,046 (1,453)
Amounts advanced under employee
notes.......................... -- (50) -- -- --
Repayments of capital lease ob-
ligations...................... (9) -- -- -- --
Repayments of subordinated notes
payable........................ (111) (122) (129) -- --
Proceeds from issuance of common
stock.......................... -- 34 -- -- --
Payment of dividends on Series A
redeemable convertible
preferred stock................ -- (72) -- -- --
------- ------- ------- -------- --------
Net cash provided by financing
activities................... 2,960 84 2,716 2,135 764
------- ------- ------- -------- --------
Net decrease in cash............ (940) (16) -- -- --
Cash, beginning of period....... 956 16 -- -- --
------- ------- ------- -------- --------
Cash, end of period............. $ 16 $ -- $ -- $ -- $ --
======= ======= ======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest......... $ 160 $ 387 $ 388 $ 152 $ 363
======= ======= ======= ======== ========
Cash paid for income taxes..... $ -- $ 53 $ 80 $ 230 $ 4
======= ======= ======= ======== ========
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

During the year ended June 30, 1995, the Company issued 21,400 shares of
common stock pursuant to the exercise of stock options in exchange for a
promissory note in the amount of $62 (Note 11).

During the year ended June 30, 1996, the Company issued 13,400 shares of
common stock pursuant to the exercise of stock options in exchange for
promissory notes in the amount of $52. The Company accepted 11,695 shares of
common stock as payment for certain promissory notes and accrued interest in
the amount of $117. (Note 11). The Company issued 90,000 shares of common
stock subject to redemption pursuant to the exercise of warrants using a
cashless exercise feature.

During the six months ended December 31, 1997 (unaudited), the Company
accepted 6,485 shares of common stock as payment for certain promissory notes
and accrued interest in the amount of $81 (Note 11).

The accompanying notes are an integral part of these financial statements.

F-33
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

1. NATURE OF BUSINESS

Originally incorporated as MicroFridge, Inc., Intirion Corporation (the
"Company") is engaged in the development, distribution, rental and sale of
multi-purpose appliances to commercial and residential markets.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant accounting policies followed in the preparation of these
financial statements are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of Intirion
Corporation and its wholly owned subsidiary, MFI Leasing, Inc. All significant
intercompany accounts and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Revenue Recognition, Accounts Receivable and Concentration of Credit Risk

Revenue from product sales is recognized upon shipment of the product.
Rental revenue is recognized ratably over the related contractual period,
which is less than one year. The Company offers limited duration warranties
for its products and, at time of sale, provides reserves for all estimated
warranty costs.

The Company sells its products primarily to academic institutions and the
U.S. government. The Company rents its products primarily to academic
institutions and students at academic institutions. Ongoing credit evaluations
of customers' financial condition are performed, and collateral is not
required. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.

Inventories

Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market and consist primarily of finished goods.

Fixed Assets and Rental Equipment

Fixed assets and rental equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives. Tooling costs are
depreciated using the units-of-production method. Repair and maintenance costs
are expensed as incurred.

Intangible Assets

Included in other assets are intangible assets (primarily customer lists) of
$901 and $1,008 at June 30, 1996 and 1997, respectively, that were acquired by
the Company. These intangible assets are being amortized on a straight-line
basis ranging from 5 to 10 years. Accumulated amortization totaled $185 and
$286 at June 30, 1996 and 1997, respectively.

Marketing Costs

The Company's marketing costs relating to rental revenue include direct
response advertising campaigns conducted by the Company's marketing group
which include payments for printing, postage and other costs

F-34
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

incurred to originate accounts. Based on the criteria established in SOP 93-7
"Reporting on Advertising Costs," the Company has expensed these costs as
incurred. Amounts charged to advertising expense and included in selling,
general and administrative expenses totaled $136, $444 and $698 for the fiscal
years 1995, 1996 and 1997, respectively.

Stock-based Compensation

The Company accounts for stock-based compensation awards to employees in
accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees", and related interpretations. Since
it is the Company's policy to grant options with an exercise price equal to
the fair value of the underlying stock on the grant date, no compensation cost
has been recognized for employee options under the Company's stock option
plan. In June 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-based Compensation" (Note 12).

Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred taxes for the difference between the financial statement and tax
bases of assets and liabilities utilizing current tax rates. Deferred tax
assets are recognized, net of any valuation allowance, for deductible
temporary differences and operating loss carryforwards. Deferred tax expense
represents the change in the deferred tax asset or liability balances.

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.

Income (Loss) Per Common Share

The Company accounts for income (loss) per share in accordance with
Statement of Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 requires the presentation of basic income per share and diluted
income per share ("EPS"). Basic EPS includes no dilution and is computed by
dividing net income or loss available to common shareholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity. Diluted EPS has been calculated using the treasury stock method.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation. These reclassifications had no impact
on net income for prior years.

Unaudited Interim Financial Statements

In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the financial position of the Company at December 31, 1997 and
the results of operations and cash flows of the Company for the six months
ended December 31, 1996 and 1997 as presented in the accompanying financial
statements. Results of operations for interim periods are not necessarily
indicative of results of operations for the full fiscal year.

F-35
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of accounts receivable, demand line of credit, amounts
due under inventory credit line, accounts payable and accrued expenses, and
subordinated debt approximate fair value, because of their short maturity or
holding period.

4. RESTRUCTURING EXPENSE

During the year ended June 30, 1995, the Company recorded a restructuring
charge of approximately $276. The restructuring charge consisted primarily of
termination payments paid to thirteen employees and other costs incurred as a
part of the Company's plan to restructure its sales force. All amounts
recorded in conjunction with this restructuring were paid prior to June 30,
1995.

5. FIXED ASSETS AND RENTAL EQUIPMENT

Fixed assets, net consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
DEPRECIABLE ------------
LIVES 1996 1997
------------- ----- -----
<S> <C> <C> <C>
Furniture and fixtures........................... 2-7 years $ 192 $ 336
Computer software and equipment.................. 3-5 years 458 539
Tooling costs.................................... 250,000 units 212 271
Vehicles......................................... 5 years 10 10
----- -----
872 1,156
Less--Accumulated depreciation................... (440) (511)
----- -----
$ 432 $ 645
===== =====
</TABLE>

The Company has entered into agreements to provide rental appliances to
various customers. Rental equipment of $4,547 and $5,271 at June 30, 1996 and
1997, respectively, net of accumulated amortization of $1,437 and $2,168,
respectively, represents equipment rented to various academic institutions and
individuals under renewable contracts of various lengths. Rental equipment is
being depreciated over the estimated useful life of the equipment of 7 years.

Depreciation expense totaled $693, $988 and $1,242 for fiscal years 1995,
1996 and 1997, respectively. During 1997, the Company changed its estimate on
the useful lives on furniture and fixtures to properly reflect the lives of
newer assets purchased in 1996 and 1997. The effect of this change resulted in
a reduction of 1997 depreciation expense of $81.

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Accounts payable............................................... $4,485 $2,823
Bonus.......................................................... 156 254
Commission..................................................... 98 109
Warranty....................................................... 131 128
Other.......................................................... 273 134
------ ------
$5,143 $3,448
====== ======
</TABLE>

F-36
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

7. DEMAND LINE OF CREDIT

At June 30, 1996 and 1997 and December 31, 1997 (unaudited), the Company had
outstanding borrowings of $3,374, $2,525 and $4,742, respectively, pursuant to
a secured demand line of credit agreement with a bank that allows for maximum
borrowings of $6,300 at June 30, 1997 and $7,500 at December 31, 1997
(unaudited). At June 30, 1996 and 1997, under the working capital component of
the agreement, borrowings are restricted to the lesser of (i) $4,800 or (ii)
the sum of (a) 80% of the eligible accounts receivable, as defined, and 50% of
eligible inventory, as defined, and (b) 50% of issued and undrawn documentary
purchase letters of credit advanced by the bank. The working capital component
bears interest at 1% plus the greater of (i) the bank's base rate or (ii) the
sum of (a) .5% and (b) the average rate on overnight Federal funds
transactions (9.25%, 9.5% and 9.5% at June 30, 1996 and 1997 and December 31,
1997 (unaudited), respectively). At June 30, 1996 and 1997, under the rental
asset component of the agreement, borrowings are restricted to the lesser of
(i) $1,500 or (ii) 70% of the eligible rental equipment, as defined, plus 50%
of outstanding rental letters of credit advanced by the bank. The rental asset
component bears interest at 1.5% plus the greater of (i) the bank's base rate
or (ii) the sum of (a) .5% and (b) the average rate on overnight Federal funds
transactions (9.75%, 10.0% and 10.0% at June 30, 1996 and 1997 and December
31, 1997 (unaudited), respectively). Interest expense in 1995, 1996 and 1997
totaled $124, $393 and $330, respectively. Borrowings under the line of credit
agreement are secured by substantially all assets of the Company. On November
28, 1997, the Company amended the secured demand line of credit agreement to
increase the borrowing bases to $5,500 and $2,000 relating to the working
capital and rental asset components, respectively.

8. INVENTORY CREDIT LINE

At June 30, 1997 and December 31, 1997 (unaudited), the Company had
outstanding borrowings of $3,694 and $2,241, pursuant to a secured demand line
with the Company's primary supplier relating to the purchase of finished
goods. The line bears interest on balances greater than 30 days at prime rate
plus 1% (9.5%) at June 30, 1997 and December 31, 1997 (unaudited). Interest
expense totaled $93 for fiscal year 1997.

9. SUBORDINATED NOTES PAYABLE

In connection with the acquisition of certain assets in 1994, the Company
issued three non-interest bearing notes with an aggregate amount payable of
$650. The notes are payable in four annual installments of $163, commencing in
March 1995. As the notes are non-interest bearing, they were recorded by the
Company at their present value on the date of acquisition using an interest
rate of 10%. These notes are subordinate to the demand line of credit (see
Note 7).

F-37
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

10. REDEEMABLE STOCK AND WARRANTS

Redeemable stock and warrants consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------- DECEMBER 31
1996 1997 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Preferred stock, $.01 par value;
Authorized--200,000 shares
Issued and outstanding--100,000 senior redeemable
preferred shares,
at issuance cost plus accumulated accretion and
accrued dividends of $480, $800 and $1,088 at June
30, 1996 and 1997 and December 31, 1997
(unaudited), respectively......................... $4,187 $4,507 $4,795
Issued and outstanding--40,000 Series A redeemable
convertible preferred shares, at issuance cost
plus accumulated accretion and accrued dividends
of $912, $1,194 and $1,343 at June 30, 1996 and
1997 and December 31, 1997 (unaudited),
respectively...................................... 1,467 1,749 1,898
Common stock put warrants.......................... 75 75 75
Common stock subject to redemption, $.01 par value,
90,000 shares issued and outstanding at June 30,
1996 and 1997 and December 31, 1997, respectively,
at issuance cost plus accumulated accretion....... 195 195 195
------ ------ ------
$5,924 $6,526 $6,963
====== ====== ======
</TABLE>

Senior Redeemable Preferred Stock

In April 1994, the Company issued 100,000 shares of Senior Redeemable
Preferred Stock ("Senior Stock") with detachable common stock warrants to
purchase 267,284 shares of common stock at $12.50 per share.

The Company is required to redeem one third of the outstanding Senior Stock
annually, over a three-year period beginning in April 1999 at a redemption
price equal to $40.00 per share, plus accrued but unpaid dividends (the
"Liquidation Value"). This redemption obligation is being accreted through
April 2001 by charges to accumulated deficit. In the event of an initial
public offering of the common stock of the Company subsequent to January 1,
1997 which yields gross underwriting proceeds of $10,000 (a "Qualified IPO"),
the Company is required to redeem the Senior Stock at a redemption price per
share equal to $40 per share plus all accrued and unpaid dividends. The
Company may also be required to redeem the Senior Stock prior to April 1999 at
the Liquidation Value upon the occurrence of certain defined events.

Holders of the Senior Stock are initially entitled to one vote for each
share of common stock which may be purchased by the common stock warrants held
by the holders of the Senior Stock, subject to certain adjustments in the
event the Senior Stock is redeemed. An affirmative vote of not less than two-
thirds of the outstanding Senior Stock is required to approve certain actions,
as defined in the Senior Stock agreement, by the Company.

In the event of dissolution, liquidation or winding up of the Company, the
holders of Senior Stock have liquidation preference over all other preferred
and common stockholders and are entitled to $40.00 per share, plus accrued but
unpaid dividends.

Cumulative dividends of 6.0% per annum are payable when and if declared by
the Board of Directors, upon mandatory redemption or upon liquidation. The
Senior Stock Purchase Agreement requires the maintenance of certain financial
and non-financial covenants, the more restrictive of which require the
maintenance of specific levels of tangible net worth and limit the annual
amount of common stock the Company may repurchase. Since

F-38

<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

June 30, 1996, the Company has not been in compliance with certain covenants.
Under the terms of the Senior Stock Purchase Agreement, the dividend rate
increased by 2%. The Senior Stock has dividend preference over all other
classes of stock. Cash dividends not to exceed $36 per year may be paid to the
holders of the Series A Redeemable Convertible Preferred Stock under certain
conditions, so long as a like dividend is paid to the holders of the Senior
Stock. During 1996, cash dividends of $72 were paid to the holders of the
Series A Redeemable Convertible Preferred Stock. The holders of the Senior
Stock waived their rights to payment of a like dividend. No dividends were
paid in 1997.

Series A Redeemable Convertible Preferred Stock

In connection with the issuance of the Senior Stock, the holders of the
Series A Redeemable Convertible Preferred Stock ("Preferred Stock") agreed to
extend the redemption period of the Preferred Stock. As a result, the holders
of the Preferred Stock may require the Company to repurchase up to one third
of the preferred shares per year during the period from April 22, 2002 through
April 22, 2004. The repurchase price of such shares shall be: (i) the greater
of (a) ten times the earnings per share (on a fully diluted basis) for the
four quarters preceding the quarter such repurchase occurs or (b) if the
Company has cumulative net income for the period January 1, 1992 through the
redemption date of at least $1,000, $15.00 per share, plus interest compounded
at 17% per annum plus (ii) any accrued but unpaid dividends. This redemption
obligation has been calculated using an interest rate of 17%, compounded
annually, plus accrued, but unpaid dividends and is being accreted through the
redemption dates by charges to accumulated deficit.

Each share of Preferred Stock may be converted at any time at the option of
the stockholder into six shares of common stock of the Company. At June 30,
1997, the Company has reserved 240,000 shares of common stock for the
conversion of all shares of the Preferred Stock.

The holders of the Preferred Stock are entitled to the number of votes equal
to the number of whole shares of common stock into which the shares of
Preferred Stock could be converted. In addition, certain decisions and
transactions, as described in the Preferred Stock agreement, require the
approval of at least two-thirds of the preferred stockholders.

In the event of the liquidation of the Company, the holders of the Preferred
Stock will be entitled to receive, in preference to any distribution to the
holders of common stock, an amount equal to the greater of (i) $15.00 per
share, plus any accrued but unpaid dividends or (ii) an amount per share which
would have been payable had each share been converted to common stock
immediately prior to the dissolution of the Company.

The holders of the Preferred Stock are entitled to receive cumulative
dividends at an annual rate of $.90 per share.

COMMON STOCK PUT WARRANTS AND COMMON STOCK SUBJECT TO REDEMPTION

In connection with the issuance of the Preferred Stock, the Company issued
warrants for the purchase of 120,000 shares of common stock with an exercise
price of $2.50 per share. These warrants were exercised in 1996 using a
cashless exercise feature. The holders of this stock can require the Company
to repurchase up to one third of the shares per year during the period from
April 22, 2002 through April 22, 2004. The repurchase price of such shares is
the greater of (a) ten times earnings per share (on a fully diluted basis) for
the four quarters preceding the quarter such repurchase occurs or (b) the
amount that would be paid as a liquidation distribution on the Preferred
Stock, plus any accrued but unpaid dividends on the Preferred Stock. The
Company's maximum future redemption obligation at June 30, 1997 is $370, which
is being accreted through the redemption dates by charges to accumulated
deficit.

F-39
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

In connection with the issuance of the Senior Stock, the Company issued
warrants for the purchase of 267,284 shares of common stock (the "Warrant
Shares"). The warrants are exercisable at an initial price of $12.50 per
share, subject to reduction upon the occurrence of certain events. For
financial accounting purposes, a value of $75 was ascribed to the warrants.
The holders of the warrants may require the Company to repurchase up to one
third of the Warrant Shares per year during the period from April 22, 1999
through April 22, 2001. The repurchase price of such shares shall be the
greater of (a) the book value of the Warrant Shares, as defined, (b) the
average daily closing price for twenty days prior to the repurchase, if the
common stock is publicly traded or (c) a third party sale value, less the
exercise price of the warrant. In certain circumstances, the Company may also
call the warrants prior to the repurchase period. At June 30, 1997, the
Company had no future redemption obligation as management believed that the
repurchase price of the Warrant Shares was approximately zero. In the event a
redemption obligation arises, this redemption obligation will be accreted
through the repurchase dates by charges to accumulated deficit.

11. STOCKHOLDERS' DEFICIT

Common Stock Warrants

In connection with the issuance of common stock during 1990, the Company
issued warrants for the purchase of 9,000 shares of common stock at an
exercise price of $3.75. These warrants were exercised during 1996.

In connection with the issuance of subordinated debt in 1993, the Company
issued warrants for the purchase of 37,500 shares of common stock. The
warrants are exercisable at $5.00 per share and expire in March 1998. The
value ascribed to the warrants was not significant.

On April 26, 1994, the Company issued a warrant in conjunction with the
acquisition of a business to purchase a total of 800 shares of its common
stock. The warrant is exercisable at $8.00 per share and expires in April
2004. The value ascribed to the warrant was not significant.

On April 30, 1997, the Company issued a warrant in conjunction with a sales
agreement to purchase a total of 5,000 shares of its common stock at a price
of $12.50 per share. The warrant is exercisable at the option of the holder
over a vesting period of five years. The value ascribed to the warrant was not
significant.

Nonqualified Stock Options

During 1989, the Company granted options to consultants of the Company to
purchase 20,000 shares of common stock. The options are exercisable at $2.50
per share and expire on March 31, 1999. At June 30, 1997, all such options are
exercisable. The value ascribed to the nonqualified stock options was not
significant.

At June 30, 1997, the Company has reserved 330,584 shares of common stock
for issuance upon the exercise of the nonqualified options and the common
stock warrants for common stock.

Notes Receivable for Stock Issuance

During 1995, the Company accepted a note receivable as consideration for the
purchase of 21,400 shares of common stock, pursuant to the exercise of
previously granted stock options. The note bears interest at 8% per annum and
is secured on a full-recourse basis by all of the holder's personal assets.
The Company accepted 6,295 shares with a value of $10.00 as payment of the
note, plus accrued interest. These shares are included in treasury stock.

During 1996, the Company accepted notes receivable as consideration for the
purchase of 13,400 shares of common stock, pursuant to the exercise of
previously granted stock options. The notes bear interest at 10% per

F-40
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

annum and are secured on a full-recourse basis by all of the holders' personal
assets. During the six months ended December 31, 1997, the Company accepted
4,716 shares (unaudited) with a value of $12.50 per share as payment of these
notes, plus accrued interest. These shares are included in treasury stock.

Treasury Stock

In addition to the item noted previously, treasury stock includes 5,400
shares of common stock with a value of $10.00 which were accepted as payment
for an outstanding loan, plus accrued interest, to a former employee. During
the six months ended December 31, 1997, the Company accepted 1,769 shares
(unaudited) with a value of $12.50 per share as payment for an outstanding
loan, plus accrued interest, to a former employee.

12. STOCK PLAN

During 1989, the Board of Directors adopted the 1989 Stock Plan (the
"Plan"). Under the Plan, directors, officers, employees and certain other
individuals may be awarded shares of common stock or granted options and
rights to purchase up to 200,000 shares of common stock of the Company.
Options granted may be either incentive stock options or non-qualified
options. In 1997, the Company amended the Plan to increase the number of
shares of common stock available for grant to 225,000.

Incentive stock options may be granted to any officer or employee at an
exercise price per share of not less than the fair market value per common
share on the date of such grant as determined by the Board of Directors (not
less than 110% of such value in the case of holders of 10% or more of the
total combined voting power of all classes of the Company's stock).

Non-qualified options may be granted to any employee, officer, director or
consultant at an exercise price per share of not less than the lesser of book
value per common share or fifty percent of the fair market value per common
share on the date of grant.

Options under the Plan are exercisable over periods determined by the Board
of Directors, not to exceed ten years from the date of grant. In the event of
termination of the optionee's relationship with the Company, vested options
not yet exercised terminate 90 days from the optionee's termination date.

Option activity under the Plan during the years ended June 30, 1996 and 1997
are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1996 1997
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period..................... 136,900 $ 6.07 148,950 $ 7.04
Granted................... 37,200 10.00 51,750 11.14
Exercised................. (13,400) 3.91 -- --
Cancelled................. (11,750) 8.54 (26,700) 9.68
-------- --------
Outstanding at period end... 148,950 7.04 174,000 7.82
======== ========
Options exercisable at pe-
riod end................... 66,600 4.45 81,390 5.21
-------- --------
Weighted average fair value
of options granted during
the period................. $ 2.42 $ 2.90
======== ========
Options available for future
grants..................... 15,650 15,600
======== ========
</TABLE>

F-41
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

The following table summarizes information about employee options
outstanding and exercisable at June 30, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
--------------- ----------- ------------ -----------
<S> <C> <C> <C>
$ 0.25.................................. 6,000 3 6,000
$ 2.50.................................. 22,000 3 16,760
$ 3.75.................................. 24,000 5 27,440
$ 8.00.................................. 29,700 7 17,220
$10.00.................................. 68,800 9 13,970
$12.50.................................. 23,500 10 --
------- ------
174,000 81,390
======= ======
</TABLE>

FAIR VALUE DISCLOSURES

Had compensation cost for the Company's option plan been determined based on
the fair value at the grant dates, as prescribed in SFAS 123, the Company's
net income on a pro forma basis would have been as follows:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-----------
1996 1997
----- -----
<S> <C> <C>
Net income
As reported.................................................... $ 139 $ 370
Pro forma...................................................... 125 326
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1996 and
1997: dividend yield of 0.0% for both years; risk-free interest rates of 5.7%
and 6.2% for 1996 and 1997, respectively; and a weighted-average expected
option term of 5 years for both years. Because additional option grants are
expected to be made each year and options vest over several years, the above
pro forma results are not representative of pro forma effects of reported net
income for future years.

13. INCOME TAXES

Income tax expense is summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current
Federal..................................................... $16 $38 $16
State....................................................... 10 11 6
Deferred
Federal..................................................... -- -- --
State....................................................... -- -- --
--- --- ---
$26 $49 $22
=== === ===
</TABLE>

F-42
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

Deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $1,037 $1,080
Alternative minimum tax credit carryforwards............... 106 50
Bad debt reserve........................................... 17 7
Inventory reserve.......................................... -- 37
Rental asset reserve....................................... 17 --
Amortization............................................... 53 53
------ ------
1,230 1,227
Deferred tax liabilities
Depreciation and amortization.............................. (597) (722)
Deferred revenue........................................... (6) (11)
------ ------
(603) (733)
Gross deferred tax assets.................................... 627 494
Deferred tax asset valuation allowance....................... (503) (370)
------ ------
Net deferred tax asset....................................... $ 124 $ 124
====== ======
</TABLE>

The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. Statutory federal rate to pretax
income as a result of the following differences:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------
1995 1996 1997
----- ---- -----
<S> <C> <C> <C>
Income tax provision (benefit) at the Statutory U.S.
tax rates............................................ $(127) $ 64 $ 134
Increase (decrease) in rates resulting from:
Change in valuation allowance....................... 133 (16) (133)
Nondeductible items................................. 13 (8) 15
State taxes, net.................................... 7 9 6
----- ---- -----
Income tax provision at the effective tax rates..... $ 26 $ 49 $ 22
===== ==== =====
</TABLE>

At June 30, 1997, the Company has the following net operating loss
carryforwards available to reduce future federal taxable income:

<TABLE>
<S> <C>
Net operating loss carryforwards relating to losses incurred prior to
November 30, 1990, utilization limited to $170 per year............. $ 386
Net operating loss carryforwards relating to losses incurred in the
year ending December 31, 1994 and June 30, 1997, utilization not re-
stricted............................................................ 330
Net operating loss carryforwards relating to losses incurred in the
six months ended June 30, 1995, utilization limited to $304 through
2001................................................................ 1,826
------
$2,542
======
</TABLE>

Subsequent ownership changes could further affect the limitations in future
years.

F-43
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

14. INCOME (LOSS) PER SHARE DISCLOSURES

<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
1995 1996 1997
-------------------------------- -------------------------------- --------------------------------
PER PER PER
LOSS SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income
(loss)........... $(400) $ 139 $ 370
Less accretion and
dividends accrued
on redeemable
stock............ (456) (486) (602)
----- ----- -----
Loss available to
common
stockholders..... $(856) 653,629 $(1.31) $(347) 725,647 $(0.48) $(232) 777,872 $(.30)
===== ======= ====== ===== ======= ====== ===== ======= =====
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income ............. $ 611 $ 289
Less accretion and divi-
dends accrued on
redeemable stock....... (301) (437)
----- -----
Income (loss) available
to common
stockholders........... $ 310 777,872 $.40 $(148) 777,872 $(.19)
===== ======= ==== ===== ======= =====
EFFECT OF DILUTIVE SECU-
RITIES
Put warrants............ 66,821
Nonqualified options.... 27,408
Warrants................ 18,910
Incentive stock op-
tions.................. 16,592
-------
Income available to
common stockholders
plus assumed
conversions............ $ 310 907,603 $.34
===== ======= ====
</TABLE>

Preferred Stock (Note 10) was not included in the computation of dilutive
income (loss) per share for all periods presented because the effect of such
inclusion would be anti-dilutive.

Incentive and nonqualified stock options, put warrants and warrants to
purchase an aggregate of 590,284, 494,334, 512,384, and 522,084 shares of
common stock at June 30, 1995, 1996 and 1997 and December 31, 1997 (unaudited)
at various exercises prices ranging from $.25 to $12.50 were outstanding at
those dates but were not included in the computation of dilutive income (loss)
per common shares because the effect of such inclusion would be anti-dilutive.

15. SIGNIFICANT CUSTOMER

Net sales to a single customer totaled approximately $3,860 and $6,143 for
years ended June 30, 1996 and June 30, 1997, respectively, or approximately
26% and 31%, respectively, of the Company's net product revenues. There was no
one single customer which accounted for more than 10% of the Company's net
product revenues during the year ended June 30, 1995.

16. LEASE COMMITMENTS

The Company conducts a major part of its operations from leased facilities.
These facility leases are classified as operating leases for financial
accounting purposes. Rent expense under all of its operating leases

F-44
<PAGE>

INTIRION CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)

approximated $157, $113 and $155 for the years ended June 30, 1995, 1996 and
1997, respectively. Future minimum lease payments under all noncancellable
leases are as follows:

<TABLE>
<CAPTION>
YEAR ENDED AGGREGATE
JUNE 30, ANNUAL RENTAL
---------- -------------
<S> <C>
1998.................................................... $229
1999.................................................... 233
2000.................................................... 238
2001.................................................... 177
Thereafter.............................................. 89
</TABLE>

17. RETIREMENT SAVINGS PLAN

In 1993, the Company adopted a defined contribution savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially
all employees who meet minimum age and service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax
basis. Company contributions to the plan may be made at the discretion of the
Board of Directors. There were no contributions made to the plan by the
Company through June 30, 1997.

18. SUBSEQUENT EVENT (UNAUDITED)

On December 22, 1997, the Company signed an Agreement and Plan of Merger
with Mac-Gray Corporation. The acquisition was consummated on March 12, 1998
and was accounted for as a pooling of interests.

F-45
<PAGE>

SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

The following supplemental consolidated financial statements give effect to
the business combination between the Company and Intirion Corporation
("Intirion") consummated on March 12, 1998 and accounted for as a pooling of
interests. These supplemental financial statements will become the restated
historical financial statements of the Company upon publication of the
combined results of the companies covering a period subsequent to the
combination. The supplemental financial statements assume that the business
combination occurred at the earliest period presented. Due to the differing
year ends of the Company and Intirion, financial information for dissimilar
fiscal years has been combined in the supplemental consolidated financial
statements. Intirion's results of operations for its three fiscal years ended
June 30, 1997 were combined with the Company's results of operations for the
three fiscal years ended December 31, 1997, respectively. Accordingly,
Intirion's results of operations for the six months ended December 31, 1997
(including revenue and net income of $13,355,000 and $289,000, respectively)
were not included in the consolidated statement of operations for the year
ended December 31, 1997. Therefore, Intirion's net income for the six month
period ended December 31, 1997 will be recorded as an adjustment to
stockholders' equity in the first quarter of 1998.

F-46
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Mac-Gray Corporation

In our opinion, the accompanying supplementary consolidated balance sheet
and the related supplementary consolidated statements of income, of changes in
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of Mac-Gray Corporation at December 31, 1997
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits 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
January 30, 1998,
except as to the pooling of
interests with Intirion described in Note 1,
which is as of March 12, 1998

F-47
<PAGE>

MAC-GRAY CORPORATION

SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,844 $ 3,774
Trade receivables, net of allowance for doubtful accounts.. 4,621 6,570
Available-for-sale security................................ 343 --
Inventory.................................................. 4,749 7,208
Deferred income taxes...................................... 23 571
Prepaid commissions and other current assets............... 1,819 2,377
------- -------
Total current assets..................................... 14,399 20,500
Property, plant and equipment, net......................... 36,891 43,615
Intangible assets, net..................................... 12,207 28,648
Prepaid commissions and other assets....................... 2,720 5,080
------- -------
Total assets............................................. $66,217 $97,843
======= =======
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt.......................... $ 7,550 $ 7,922
Current portion of capital lease obligations............... 251 476
Accounts payable........................................... 8,399 7,825
Accrued commissions........................................ 4,940 5,585
Accrued expenses........................................... 1,653 2,631
Deferred revenues and deposits............................. 95 102
------- -------
Total current liabilities................................ 22,888 24,541
Long-term debt............................................... 23,473 5,395
Long-term capital lease obligations.......................... 193 491
Deferred income taxes........................................ 546 5,329
Deferred retirement obligation............................... 1,156 1,052
Other liabilities............................................ -- 429
Commitments and contingencies (Note 12)...................... -- --
Redeemable common stock, 612,026 shares...................... -- 7,797
Senior reedemable preferred stock............................ 4,187 4,507
Stockholder's equity:
Preferred stock of Mac-Gray Corporation ($.01 par value,
5,000,000 shares authorized, no shares issued and
outstanding).............................................. -- --
Common stock of Mac-Gray Co., Inc. ($1 par value; 200,000
shares authorized, 154,275 shares issued and outstanding
at December 31, 1996)..................................... 154 --
Common stock of Mac-Gray Corporation ($.01 par value;
30,000,000 shares authorized, 1,317,768 and 12,285,568
shares issued and outstanding at December 31, 1996 and
December 31, 1997, respectively).......................... 13 123
Additional capital......................................... 3,902 52,524
Retained earnings (deficit)................................ 18,377 (4,345)
Net unrealized gain on available-for-sale security, net of
tax....................................................... 258 --
Less: 54,275 shares held in treasury at cost............... (8,930) --
------- -------
Total stockholders' equity................................. 13,774 48,302
------- -------
Total liabilities, redeemable common stock and stockhold-
ers' equity............................................. $66,217 $97,843
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements

F-48
<PAGE>

MAC-GRAY CORPORATION

SUPPLEMENTAL CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenue............................................ $66,352 $82,260 $104,847
Cost of revenue.................................... 46,411 59,199 75,912
------- ------- --------
Gross profit....................................... 19,941 23,061 28,935
Operating expenses................................. 12,898 14,440 17,857
------- ------- --------
Income from operations............................. 7,043 8,621 11,078
Interest expense, net.............................. (1,328) (2,354) (2,975)
Other income (expense), net........................ 55 (87) 181
------- ------- --------
Income before provision for income taxes........... 5,770 6,180 8,284
Provision for income taxes......................... (400) (514) (5,228)
------- ------- --------
Net income......................................... $ 5,370 $ 5,666 $ 3,056
------- ------- --------
Accretion and dividends on redeemable preferred
stock............................................. 240 240 320
------- ------- --------
Income available to common stockholders............ $ 5,130 $ 5,426 $ 2,736
======= ======= ========
Net income per common share........................ $ 0.68 $ 0.72 $ 0.32
======= ======= ========
Weighted average common shares outstanding......... 7,554 7,554 8,449
======= ======= ========
Net income per common share--assuming dilution..... $ 0.67 $ 0.71 $ 0.31
======= ======= ========
Weighted average common shares outstanding--
assuming dilution................................. 7,686 7,686 8,709
======= ======= ========
UNAUDITED PRO FORMA TAX ADJUSTED DATA (NOTE 15):
Income before provision for income taxes......... $ 5,770 $ 6,180 $ 8,284
Provision for income taxes....................... 2,484 2,446 3,179
------- ------- --------
Pro forma tax adjusted net income................ $ 3,286 $ 3,734 $ 5,105
======= ======= ========
Pro forma tax adjusted net income available to
common stockholders............................. $ 3,046 $ 3,494 $ 4,785
======= ======= ========
Pro forma tax adjusted net income available to
common stockholders per common share............ $ 0.40 $ 0.46 $ 0.57
======= ======= ========
Pro forma tax adjusted net income available to
common stockholders per common share-assuming
dilution........................................ $ 0.40 $ 0.45 $ 0.55
======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-49
<PAGE>

MAC-GRAY CORPORATION

SUPPLEMENTAL CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
----------------- NET UNREALIZED ------------------
RETAINED GAINS (LOSSES)
NUMBER OF ADDITIONAL EARNINGS ON SECURITY, NUMBER OF
SHARES VALUE CAPITAL (DEFICIT) NET OF TAX SHARES VALUE TOTAL
---------- ----- ---------- --------- -------------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 1,472,043 $ 167 $ 1,489 $ 15,736 $ 262 52,000 $(8,384) $ 9,270
Net income............. -- -- -- 5,130 -- -- -- 5,130
Net change in
unrealized gains
(losses) on available-
for-sale security, net
of tax................ -- -- -- -- 28 -- -- 28
Dividends.............. -- -- -- (3,395) -- -- -- (3,395)
Contribution of capi-
tal................... -- -- 1,009 -- -- -- -- 1,009
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1995................... 1,472,043 167 2,498 17,471 290 52,000 (8,384) 12,042
Net income............. -- -- -- 5,426 -- -- -- 5,426
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (32) -- -- (32)
Dividends.............. -- -- -- (4,520) -- -- -- (4,520)
Common stock redemp-
tion.................. -- -- -- -- -- 2,275 (546) (546)
Contribution of capi-
tal................... -- -- 1,404 -- -- -- -- 1,404
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1996................... 1,472,043 167 3,902 18,377 258 54,275 (8,930) 13,774
Net income............. -- -- -- 2,736 -- -- -- 2,736
Elimination of capital
structure (Note 1).... (154,275) (154) (2,413) (6,363) -- (54,275) 8,930 --
Reorganization of the
Company (Note 1)...... 6,367,800 64 -- (64) -- -- -- --
Sale of common stock... 4,600,000 46 45,128 -- -- -- -- 45,174
Contribution of capital
(Note 3).............. -- -- 5,907 (5,907) -- -- -- --
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (258) -- -- (258)
Dividends.............. -- -- -- (13,124) -- -- -- (13,124)
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1997................... 12,285,568 $ 123 $52,524 $ (4,345) $ -- -- $ -- $ 48,302
========== ===== ======= ======== ===== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-50
<PAGE>

MAC-GRAY CORPORATION

SUPPLEMENTAL CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 5,370 $ 5,666 $ 3,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 6,094 7,812 10,481
(Gain) loss on sale of assets................... (72) 11 (178)
Deferred income taxes........................... 71 60 4,235
Decrease (increase) in accounts receivable........ 1,112 (2,207) (1,905)
(Increase) decrease in inventory.................. (2,737) 827 (2,149)
(Increase) in prepaid expenses and other assets... (1,480) (1,331) (3,009)
Increase (decrease) in accounts payable, accrued
commissions and accrued expenses................. 1,969 4,889 (65)
Increase in deferred rental revenue and customer
deposits......................................... 37 41 7
------- ------- -------
Net cash flows provided by operating activi-
ties........................................... 10,364 15,768 10,473
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (8,121) (10,010) (11,584)
Acquisition of businesses (Note 2)................ (1,178) (14,487) (12,196)
Proceeds from sale of property and equipment...... 347 159 656
Proceeds from sale of securities.................. -- -- 333
------- ------- -------
Net cash flows used in investing activities..... (8,952) (24,338) (22,791)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease
obligations...................................... (2,610) (2,293) (3,658)
Retirement of line of credit and term loan........ -- (5,378) (19,512)
Advances on line-of-credit, net................... 4,407 18,541 4,668
Contribution of capital and proceeds from sale of
common stock..................................... 1,009 1,366 45,174
Cash dividends paid............................... (3,395) (4,520) (13,124)
Cash paid to repurchase shares of common stock.... -- (125) --
Cash paid for refinancing of long term debt....... -- (75) (300)
------- ------- -------
Net cash flows (used in) provided by financing
activities..................................... (589) 7,516 13,248
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 823 (1,054) 930
Cash and cash equivalents, beginning of year........ 3,075 3,898 2,844
------- ------- -------
Cash and cash equivalents, end of year.............. $ 3,898 $ 2,844 $ 3,774
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................... $ 1,321 $ 2,331 $ 3,272
Income taxes paid................................. 242 437 1,116
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:

The accompanying notes are an integral part of these financial statements.

F-51
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS

Supplemental Financial Information--The accompanying supplemental
consolidated financial statements have been prepared to give retroactive
effect to the acquisition of Intirion Corporation by Mac-Gray Corporation.
This acquisition has been accounted for as a pooling of interests. On March
12, 1998, Intirion equity securities were exchanged for approximately 1.6
million shares of Mac-Gray common stock and approximately $1 million in cash.
Generally accepted accounting principles prohibit giving effect to a
consummated business combination accounted for as a pooling of interests in
financial statements that do not include the date of consummation;
accordingly, these financial statements are supplemental information. The
accompanying supplemental consolidated financial statements will become the
historical consolidated financial statements of Mac-Gray Corporation after
financial statements covering the date of consummation of the business
combination are issued.

Due to the differing year ends of Mac-Gray and Intirion, financial
information for dissimilar fiscal years has been combined in the supplemental
consolidated financial statements. Intirion's results of operations for its
three fiscal years ended June 30, 1997 were combined with Mac-Gray's results
of operations for the three fiscal years ended December 31, 1997, respectively
and Intirion's balance sheet at June 30, 1997 and 1996 was combined with Mac-
Gray's balance sheet at December 31, 1997 and 1996, respectively. Intirion's
results of operations for the six months ended December 31, 1997 (including
revenue and net income of $13,355,000 and $289,000, respectively) were not
included in the consolidated statement of operations for the year ended
December 31, 1997.

Supplemental consolidated earnings per share is based on the combined
weighted average number of shares of common stock of the Company, and common
stock issued by the Company to the former shareholders of Intirion. The
supplemental consolidated balance sheets reflect the issuance of shares of
common stock of the Company in exchange for all of the outstanding common and
common equivalent shares of Intirion.

Revenues and net income (loss) for each of the two previously separate
companies for the period prior to the Intirion Acquisition were as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
NET REVENUES:
Mac-Gray......................................... $50,710 $64,427 $ 81,370
Intirion......................................... 15,642 17,833 23,477
------- ------- --------
$66,532 $82,260 $104,847
NET INCOME (LOSS):
Mac-Gray......................................... $ 5,770 $ 5,527 $ 2,686
Intirion......................................... (400) 139 370
------- ------- --------
$ 5,370 $ 5,666 $ 3,056
</TABLE>

Basis of Presentation--The supplemental financial statements include the
combined accounts of Mac-Gray Co., Inc. and Mac-Gray, L.P. 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. Concurrently, Mac-Gray, L.P. was merged with and into Mac-Gray
Co., Inc. which continued to operate as a wholly owned subsidiary of the
Parent (collectively, the "Company"). The supplemental consolidated financial
statements include the accounts of Mac-Gray Corporation, Intirion Corporation
and their respective wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in the consolidation. No
material adjustments to net assets or results of operations were necessary to
conform the accounting practices of Intirion to that of Mac-Gray. Certain
reclassifications have been made to the financial statements of Intirion to
conform with Mac-Gray's classifications.
F-52
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 sells, services and leases
commercial laundry equipment to commercial laundromats and institutions.
Through Intirion, the Company is now also engaged in the development,
distribution, rental and sale of multi-purpose appliances to commercial and
residential markets. The Company sells its multi-purpose products primarily to
academic institutions and the U.S. government, and also rents its products to
academic institutions and the students at academic institutions. The majority
of the Company's purchases of coin route laundry equipment and multi-purpose
appliances are from two suppliers.

2. ACQUISITIONS

The following supplemental pro forma financial information reflects the Sun
Services Acquisition as if it occurred on January 1, 1996. For the year ended
December 31, 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.

<TABLE>
<CAPTION>
UNAUDITED SUPPLEMENTAL
PRO FORMA RESULTS FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
------------ -------------
<S> <C> <C>
Revenue......................................... $ 88,924 $ 106,879
Net Income...................................... 5,819 3,209
Pro Forma tax adjusted net income (Note 15)..... 3,826 5,197
Pro Forma tax adjusted net income available to
common stockholders............................ 3,586 4,877
Pro Forma tax adjusted net income Per Share..... $ 0.47 $ 0.58
Pro Forma tax adjusted net income Per Share--as-
suming dilution................................ $ 0.47 $ 0.56
</TABLE>

In October and November, 1997, the Company acquired certain assets of two
additional coin-operated laundry businesses for approximately $7,150. These
acquisitions were also accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired was the fair
market value on the respective acquisition dates. Purchase price in excess of
the fair value of assets acquired was allocated to goodwill and amounted to
approximately $6,228. Pro forma financial information for the October and
November 1997 acquisitions has not been presented due to their insignificance
in relation to the Company as a whole. The Company's supplemental consolidated
financial statements include the results of the 1995, 1996, and 1997
acquisitions from their respective acquisition dates.

F-53
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

3. INITIAL PUBLIC OFFERING OF COMMON STOCK

4. 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.

Revenue Recognition--The Company recognizes coin route laundry revenue on
the accrual basis. Rental revenue is recognized ratably over the related
contractual period, which is less than one year. The Company recognizes
revenue from product sales upon shipment of the products. The Company offers
limited duration warranties on multi-purpose appliance products and, at the
time of sale, provides reserves for all estimated warranty costs.

Allowance for Doubtful Accounts--The Company maintains an allowance for
doubtful accounts of $372 at December 31, 1996 and $508 at December 31, 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 its selling and leasing activities. To
minimize this risk, ongoing credit evaluations of customers' financial
condition are performed and reserves are maintained. The Company typically
does not require collateral.

Inventories--Inventories are stated at the lower of cost (as determined
using the first-in, first-out method) or market and consist primarily of
finished goods.

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. Tooling costs are depreciated using the units-
of-production method. Expenditures for maintenance and repairs are charged to
operations as incurred; acquisitions, major renewals, and betterments are
capitalized.

F-54
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 determined 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, net of any valuation
allowance, are provided for temporary differences and operating loss
carryforwards.

Earnings Per Share--The Company accounts for earnings per share in
accordance with Statement of Financial Accounting Standard No. 128, "Earnings
Per Share" (SFAS 128). SFAS 128 replaces APB Opinion No. 15 "Earnings Per
Share" and requires the presentation of basic earnings per share and diluted
earnings per share (EPS). Basic EPS includes no dilution and is computed by
dividing net income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted EPS under APB 15. Diluted earnings per share
has been calculated using the treasury stock method and prior period earnings
per share have been restated in accordance with SFAS 128. Net income per share
gives effect to the exchange of shares between the Parent and the Company
(Note 1).

New Accounting Pronouncements--The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) and No. 131, "Disclosures About Segments of
an Enterprise and Related Information" (SFAS 131). In accordance with these
statements, the Company plans to implement SFAS 130 which requires
presentation of certain information related to comprehensive income and SFAS
131 which requires that certain additional information related to operating
segments be reported during fiscal year 1998. The Company is currently
reviewing the impact of these statements on its financial statements.

F-55
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ---------------
USEFUL LIFE 1996 1997
------------- ------- -------
<S> <C> <C> <C>
Coin route equipment......................... 10 years $58,610 $68,179
Rental equipment............................. 7 years 5,984 7,439
Buildings and improvements................... 15-32 years 6,531 7,388
Furniture, fixtures and computer equipment... 2-7 years 4,712 5,967
Trucks and autos............................. 3-5 years 1,786 2,610
Tooling costs................................ 250,000 units 212 271
Land and improvements........................ -- 309 309
------- -------
78,144 92,163
Less: accumulated depreciation............... 42,305 49,548
------- -------
35,839 42,615
Coin route equipment, not yet placed in serv-
ice......................................... 1,052 1,000
------- -------
Property, plant and equipment, net........... $36,891 $43,615
======= =======
</TABLE>

Depreciation and amortization of property, plant and equipment totaled
$5,170, $6,164 and $7,683 for the years ended December 31, 1995, 1996 and
1997, respectively.

At December 31, 1996 and 1997, trucks and autos includes $1,449 and $2,284,
respectively, of capital leased equipment with an accumulated amortization
balance of $1,052 and $1,307, respectively.

6. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Goodwill.................................................... $10,348 $28,208
Covenants-not-to-compete.................................... 2,549 2,869
Customer lists.............................................. 901 1,008
Other....................................................... 153 451
------- -------
13,951 32,536
Less: accumulated amortization.............................. 1,744 3,888
------- -------
Intangible assets, net...................................... $12,207 $28,648
======= =======
</TABLE>

Amortization expense associated with the above intangible assets amounted to
$697, $932 and $1,912 for the years ended December 31, 1995, 1996 and 1997,
respectively.

F-56
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

7. ACCRUED EXPENSES

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Accrued interest.............................................. $ 134 $ 101
Accrued salaries.............................................. 332 596
Warranty...................................................... 131 128
Current portion of deferred retirement obligation............. 104 104
Current portion of deferred payment obligation................ -- 392
Other......................................................... 952 1,310
------ ------
$1,653 $2,631
====== ======
</TABLE>

8. DEFERRED RETIREMENT OBLIGATION

9. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------- ------
<S> <C> <C>
Credit agreement and revolving credit facility.............. $21,042 $2,525
Unsecured notes payable to former shareholders:
Variable rate note, lesser of prime rate plus 2% or 9%,
quarterly principal payments beginning January 1, 1996
(9% at December 31, 1997)................................ 3,360 2,560
Fixed rate notes, 8.4% interest rate, due September 1, 1997
and June 1, 2000........................................... 2,046 746
Discount note, 6% imputed interest rate (estimated fair
market rate), quarterly installments, due December 31,
2003....................................................... 2,613 2,239
Fixed note, 8.75% interest rate, due January 1, 2001........ 421 317
Note payable, 11.5% fixed interest rate, monthly principal
payments,
due September 1, 1999...................................... 249 172
Acquisition note payable, 8% imputed interest rate
(estimated fair
market rate), monthly payments, due May 31, 2006........... 1,010 911
Acquisition note payable, 10% imputed interest rate, annual
installments, due March, 1999.............................. 282 153
Demand line of credit with primary supplier, 9.5% variable
interest rate, at December 31, 1997........................ -- 3,694
------- ------
Total long-term debt.................................... 31,023 13,317
Less: current portion....................................... 7,550 7,922
------- ------
$23,473 $5,395
======= ======
</TABLE>

F-57
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Credit Agreement and Revolving Credit Facility

On April 17, 1997, the outstanding debt under the 1996 Credit Agreement and
Revolving Credit Facility was refinanced under terms of an amended and
restated agreement (the Senior Secured Credit Facility). The Senior Secured
Credit Facility 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 Senior Secured Credit Facility bears interest at the Company'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 October 22, 1997 due to
the initial public offering of the Company's common stock (Note 3) to the
prime rate less .5% or LIBOR plus 2.0%. The Senior Secured Credit Facility
restricts payments of dividends and other distributions, restricts the Company
from making certain acquisitions and incurring indebtedness, and requires it
to maintain certain financial ratios. The Senior Secured Credit Facility is
secured by pledges of assets of the Parent and its subsidiaries. The Senior
Secured Credit Facility provides for the issuance of standby letters of credit
of up to $15,000 in the aggregate. At December 31, 1997, outstanding letters
of credit amounted to $1,302. There is no outstanding balance on the Senior
Secured Credit Facility at December 31, 1997. The interest rate for the Senior
Secured Credit Facility at December 31, 1997 was 8.0%.

Through Intirion the Company also had outstanding borrowings pursuant to a
secured demand line of credit agreement with a bank that allows for maximum
borrowings of $7,500 at December 31, 1997. Under the working capital component
of the agreement, borrowings are restricted to the lesser of (i) $4,800 or
(ii) the sum of (a) 80% of Intirion's eligible accounts receivable, as
defined, and 50% of Intirion's eligible inventory, as defined, and (b) 50% of
issued and undrawn documentary purchase letters of credit advanced by the
bank. The working capital component bears interest at 1% plus the greater of
(i) the bank's base rate or (ii) the sum of (a) .5% and (b) the average rate
on overnight Federal funds transactions (9.25%, and 9.5% for fiscal 1996 and
1997, respectively). Under the rental asset component of the agreement,
borrowings are restricted to the lesser of (i) $1,500 or (ii) 70% of
Intirion's eligible rental equipment, as defined, plus 50% of outstanding
rental letters of credit advanced by the bank. The rental asset component
bears interest at 1.5% plus the greater of (i) the bank's base rate or (ii)
the sum of (a) .5% and (b) the average rate on overnight Federal funds
transactions (9.75%, and 10.0% for fiscal 1996 and 1997, respectively).
Borrowings under the line of credit agreement are secured by substantially all
assets of Intirion Corporation. On November 28, 1997, the Company amended the
secured demand line of credit agreement to increase the borrowing bases to
$5,500 and $2,000 relating to the working capital and rental asset components,
respectively.

F-58
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Future Payments

As of December 31, 1997, the scheduled future principal payments of long-
term debt are as follows:

<TABLE>
<S> <C>
1998................................................................. $ 7,922
1999................................................................. 1,401
2000................................................................. 2,088
2001................................................................. 887
2002................................................................. 602
Thereafter........................................................... 417
-------
$13,317
=======
</TABLE>

10. INCOME TAXES

On October 16, 1997, the Mac-Gray Corporation's S corporation status was
automatically terminated due to the initial public offering (Note 3). As a
result, the current year provision includes a charge of $4,037 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
following information relates to temporary differences at October 16, 1997,
for which a deferred tax provision was not provided for until the Company's
termination of its S corporation status.

Prior to October 16, 1997, the historical income tax provision for Mac-Gray
Corporation was established only to provide for income taxes in states that do
not recognize Subchapter S corporations, using a statutory income tax rate of
6%. The effective rate differed from the statutory rate in 1996 and 1997
(prior to October 16, 1997) due to meals and entertainment expenses and
goodwill amortization recorded for book purposes 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 provision for state and federal income taxes of the Company consists of
the following:

<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Current state income tax................................... $315 $416 $ 460
Deferred state income tax.................................. 69 60 505
Current federal income tax................................. 16 38 533
Deferred federal income tax................................ -- -- 3,730
---- ---- ------
Total income taxes....................................... $400 $514 $5,228
==== ==== ======
</TABLE>

F-59
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The net deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and liabilities at December 31:

<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $1,037 $1,080
Alternative minimum tax credit carryforwards................ 106 50
Accounts receivable......................................... 57 376
Deferred compensation....................................... 202 1,366
Amortization................................................ 53 53
Other....................................................... 50 86
------ ------
1,505 3,011
------ ------
Deferred tax liabilities:
Fixed assets................................................ 1,512 7,341
Other....................................................... 13 58
------ ------
1,525 7,399
------ ------
Excess of deferred tax liabilities over deferred tax assets... 20 4,388
Deferred tax asset valuation allowance........................ 503 370
------ ------
Net deferred tax liability.................................... $ 523 $4,758
====== ======
</TABLE>

A valuation allowance has been applied against deferred tax assets at
December 31, 1996 and 1997, respectively, as it is considered more likely than
not that such assets will not be realized.

As Mac-Gray Corporation maintained its S corporation election through
October 16, 1997, the provision for income taxes recorded for the year ended
December 31, 1997 differs significantly from the amount of income taxes
determined by applying the applicable U.S. statutory federal income tax rate
to consolidated pretax income. For the period subsequent to the termination of
the S corporation, the statutory income tax rate differed from the effective
rate primarily as a result of the following differences:

The current provision for income taxes recorded for fiscal 1997 includes
$314 in tax while Mac-Gray Corporation was an S corporation and $657 in tax
for the period subsequent to the termination of the S corporation election.
The current provision for income taxes recorded for fiscal 1997 also includes
$22 in tax related to Intirion Corporation (Note 1), a C Corporation.

At December 31, 1997, the Company had the following net operating loss
carryforwards available to reduce certain future federal taxable income:

<TABLE>
<S> <C>
Net operating loss carryforwards relating to certain losses incurred
prior to November 30, 1990.......................................... $ 386
Net operating loss carryforwards relating to certain losses incurred
in the year ending December 31, 1994 and June 30, 1997.............. 330
Net operating loss carryforwards relating to certain losses incurred
in the year ended December 31, 1995................................. 1,826
------
$2,542
======
</TABLE>

F-60
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Subsequent ownership changes could further affect the limitations in future
years.

11. STOCKHOLDERS EQUITY

In April 1994, Intirion Corporation issued 100,000 shares of Senior
Redeemable Preferred Stock. Such securities are recorded at issuance cost plus
accumulated accretion and accrued dividends of $480 and $800 at December 31,
1996 and 1997, respectively. The Company was required to redeem one third of
the outstanding Senior Stock annually, over a three-year period beginning in
April 1999 at a redemption price equal to $40.00 per share, plus accrued but
unpaid dividends. This redemption obligation was being accreted through April
2001 by charges to retained earnings (deficit). Cumulative dividends of 6.0%
to 8.0% per annum were payable when and if declared by the Board of Directors,
upon mandatory redemption or upon liquidation. No dividends were paid in 1996
or 1997. Subsequent to year-end and in conjunction with the merger between the
Company and Intirion Corporation, on March 12, 1998, the Senior Redeemable
Preferred Stock was exchanged for approximately $1 million in cash and 275,224
shares of Mac-Gray common stock (Note 1).

12. 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>
1998................................................... $ 538 $ 608
1999................................................... 389 535
2000................................................... 133 456
2001................................................... -- 243
Thereafter............................................. -- 89
------ ------
Future lease payments.................................. 1,060 $1,931
======
Less: amount representing interest (8.5% at December
31, 1997)............................................. 93
------
967
Present value future minimum lease payments less
amounts due within one year........................... 476
------
Amounts due after one year............................. $ 491
======
</TABLE>

Rent expense incurred by the Company under non-cancelable operating leases
totaled $280, $369 and $675 for the years ended December 31, 1995, 1996 and
1997, 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

F-61
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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, 1997:

13. EMPLOYEE BENEFIT AND STOCK PLANS

F-62
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following is a summary of stock option plan activity.

F-63
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." The Company continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion 25. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and net income per share would have been reduced to $2,684 in 1997, or $0.28
per share compared to reported net income of $3,056, or $0.32 per share and
$0.31 per share-assuming dilution.

In accordance with the provisions of SFAS 123, a volatility assumption was
not used to calculate the fair value of options granted prior to the Company's
initial public offering.

14. EARNINGS PER SHARE

<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1997
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net Income................................... $3,056
Less: Accretion and dividends on redeemable
preferred stock............................. (320)
------
Net income per common share:
Income available to common stockholders.... $2,736 8,449 $0.32
====== ===== =====
Effect of dilutive securities:
Stock options.............................. 128
Contingent shares.......................... 132
-----
Net income per common share-assuming dilu-
tion:
Income available to common stockholders.... $2,736 8,709 $0.31
====== ===== =====
</TABLE>

F-64
<PAGE>

MAC-GRAY CORPORATION

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net Income................................... $5,666
Less: Accretion and dividends on redeemable
preferred stock............................. (240)
------
Net income per common share:
Income available to common stockholders.... $5,426 7,554 $0.72
====== ===== =====
Effect of dilutive securities:
Stock options.............................. --
Contingent shares.......................... 132
-----
Net income per common share--assuming dilu-
tion:
Income available to common stockholders.... $5,426 7,686 $0.71
====== ===== =====
</TABLE>

15. UNAUDITED PRO FORMA TAX ADJUSTED DATA

Statement of Income--Unaudited pro forma tax adjusted data reflects
adjustments to the consolidated statement of income for year ended December
31, 1997. Such adjustments consider the effect of the Company's operations as
if the Company was subject to federal and state income taxes on a corporate
level. Accordingly, the pro forma income tax provision and pro forma net
income have been calculated as if the Company was subject to income taxation
as a C corporation during the entire year.

16. SUBSEQUENT EVENTS--UNAUDITED

F-65
<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 Shares, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Commission's
registration fee, the NASD filing fee and the NYSE listing fee:

<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ------
<S> <C>
Commission registration fees...................................... $1,176
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 DGCL, Article VII of the Mac-Gray
Charter provides that no director of Mac-Gray shall be personally liable to
Mac-Gray 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 Mac-Gray 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 Mac-Gray
Charter provides that if the DGCL is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of
a director of Mac-Gray shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.

Article V of the Mac-Gray By-laws provides for indemnification by Mac-Gray
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 Mac-Gray 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
Mac-Gray, and, with respect to criminal actions or proceedings, such person
had no reasonable cause to believe his or her conduct was unlawful.

Mac-Gray has entered into indemnification agreements with each of its
directors reflecting the foregoing provisions of the Mac-Gray 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
Mac-Gray in certain circumstances.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, Mac-Gray 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

II-1
<PAGE>

offering in any such transaction, and Mac-Gray believes that each transaction
was exempt from registration requirements of the Securities Act, by reason of
Section 4(2) thereof or Rule 701 thereunder.

(1) In April 1997, pursuant to a Limited Partner Assignment and Exchange
Agreement, Mac-Gray issued an aggregate 1,367,800 shares of Mac-Gray Common
Stock to Stewart Gray MacDonald, Jr., Chairman and Chief Executive Officer of
Mac-Gray, 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, Mac-Gray issued
an aggregate 5,000,000 shares of Mac-Gray 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, Mac-Gray
issued an aggregate 612,026 shares of Mac-Gray Common Stock to Jeffrey C.
Huenink, a Director of Mac-Gray, in partial consideration of the sale of his
laundry businesses.

(4) In April 1997, pursuant to Addendums to certain Stock Option Agreements,
Mac-Gray assumed Mac-Gray Co.'s obligations with respect to options to
purchase an aggregate 556,350 shares of Mac-Gray Common Stock to certain
officers and employees of Mac-Gray, including Stewart Gray MacDonald, Jr.,
Chairman and Chief Executive Officer of Mac-Gray, Patrick A. Flanagan,
Executive Vice President, Mergers and Acquisitions and a Director of Mac-Gray,
Neil F. MacLellan, III, Executive Vice President, Sales and Marketing of Mac-
Gray, and John S. Olbrych, Chief Financial Officer and Treasurer of Mac-Gray.

(5) In August 1997, pursuant to certain Stock Option Agreements, Mac-Gray
granted options to purchase an aggregate of 89,490 shares of Mac-Gray Common
Stock to certain officers and employees of Mac-Gray.

(6) In March 1998, pursuant to a certain Stock Option Agreement, Mac-Gray
granted an option to purchase 90,000 shares of Mac-Gray Common Stock to Robert
P. Bennett, Senior Vice President, Sales of Mac-Gray.

(7) On March 31, 1998, Mac-Gray entered into a Stock Purchase Agreement with
Copico, Inc., a Massachusetts corporation ("Copico"), and certain persons who
hold, or will hold, all of the shares of the capital stock of Copico, which
agreement provides for the acquisition by Mac-Gray Services, Inc., a wholly-
owned subsidiary of Mac-Gray, of all of the issued and outstanding shares of
capital stock of Copico. In addition to cash consideration (less the repayment
of debt), Mac-Gray agreed to issue, at the closing of the acquisition of
Copico, to such holders of Copico capital stock, an aggregate of 250,000
shares of Mac-Gray Common Stock. The holders of such Copico capital stock,
together with the number of shares of Mac-Gray Common Stock to be received by
such holder (in parentheses), are: Peter B. Finn (2,500), Edward J. Goulart
(67,900), Ronald R. Jalbert (58,200), Robert W. LaRoche (67,900), David Luongo
(2,500), Joseph J. Tischler (2,500), and Massachusetts Capital Resource
Company (48,500).

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Certain exhibits indicated below are incorporated by reference to documents
of Mac-Gray on file with the Commission. Each exhibit marked by a cross (+)
was previously filed as an exhibit to Mac-Gray's Registration Statement on
Form S-1 (No. 333-33669) and the number in parentheses following the
description of the exhibit refers to the exhibit number in the Form S-1. Each
exhibit marked by an asterisk (*) was previously filed as an exhibit to Mac-
Gray's Registration Statement on Form S-4, as amended (No. 333-45899).

II-2
<PAGE>

(a) Exhibits. The following is a complete list of exhibits filed or
incorporated by reference as part of this Registration Statement.

<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 22, 1997, by and
among Mac-Gray Corporation, MI Acquisition Corp., Intirion Corporation
and Robert P. Bennett. Pursuant to Item 601(b)(2) of Regulation S-K,
the Schedules referred to in the Merger Agreement are omitted. The
Registrant hereby undertakes to furnish supplementally a copy of any
omitted Schedule to the Commission upon request. The Exhibits to the
Merger Agreement were included in Appendix A to the Prospectus/Proxy
Statement, which is a part of the Registrant's previously filed
Registration Statement on Form S-4, as amended (No. 333-45899).*
3.1 Amended and Restated Certificate of Incorporation (3.1).+
3.2 By-laws (3.2).+
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the
Registrant (4.1).+
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 certain stockholders of the Registrant (10.1).+
10.2 Stockholders' Agreement dated as of June 26, 1997 by and among the
Registrant and certain stockholders of the Registrant (10.2).+
10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and among the
Registrant and the other parties named therein (10.3).+
10.4 Credit Agreement dated April 17, 1997, by and among the Registrant, the
other Borrowers (as defined therein), the lenders named therein and
State Street Bank and Trust Company, as agent (10.4).+
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks (as
defined therein) (10.5).+
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by the
Registrant in favor of the Banks (as defined therein) (10.6).+
10.7 Pledge Agreement dated as of April 17, 1997 by and among the Registrant
and the Banks (as defined therein) (10.7).+
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. (10.8).+
10.9 Consulting Agreement dated as of April 17, 1997 by and among the
Registrant and Jeffrey C. Huenink (10.9).+
10.10 Noncompetition Agreement dated as of April 17, 1997 by and among
Registrant and Jeffrey C. Huenink (10.10).+
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers (10.11).+
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service" (10.12).+
10.13 Form of Maytag Distributorship Agreements (10.13).+
10.14 Promissory Note dated December 31, 1992 issued by the Registrant in
favor of Donald M. Shaw (10.14).+
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by and
between Donald M. Shaw and the Registrant (10.15).+
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with form of
option agreements attached as exhibits) (10.16).+
10.17 Form of Director Indemnification Agreement between the Registrant and
each of its Directors (10.17).+
10.18 Form of Registration Rights Agreement by and among the Registrant,
Robert P. Bennett, Gelco Corporation, Eastech II Limited Partnership
and Eastech III Limited Partnership.*
10.19 Form of Escrow Agreement by and among the Registrant, Gelco Corporation,
Michael Shanahan, the former securityholders of Intirion Corporation
and State Street Bank and Trust Company, as escrow agent.*
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
10.20 Stock Purchase Agreement by and among Mac-Gray Services, Inc., Copico,
Inc. and Certain Stockholders, dated as of March 31, 1998. Pursuant to
Item 601(b)(2) of Regulation S-K, the Schedules referred to in the
Stock Purchase Agreement are omitted. The Registrant hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request. The Exhibits to the Stock Purchase Agreement
will be filed by an Amendment to this Registration Statement on Form S-
1.
10.21 Form of Noncompetition Agreement by and between the Registrant and
Robert P. Bennett.*
10.22 Distribution Agreement by and between Schlumberger Technologies, Inc.
and Mac-Gray Services, Inc., dated as of October 27, 1997 (certain
portions of this exhibit are being omitted pursuant to a request for
confidential treatment).*
10.23 Stock and Asset Purchase Agreement, dated as of March 4, 1998, by and
among Mac-Gray Services, Inc., Amerivend Corporation, Amerivend
Southeast Corporation and Certain Stockholders.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP (Mac-Gray Corporation).
23.3 Consent of Price Waterhouse LLP (Intirion Corporation).
23.4 Consent of Price Waterhouse LLP (Supplemental Mac-Gray Corporation).
24.1 Powers of Attorney (contained in the Signature Page to this Registration
Statement).
27.1 Financial Data Schedule.*
</TABLE>

(b)Financial Statement Schedules

The following Financial Statement Schedule is filed herewith:

Intirion Corporation: Schedule II--Valuation and Qualifying Accounts.

ITEM 17. UNDERTAKINGS

(a) Mac-Gray hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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>

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Mac-Gray, Mac-Gray has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Mac-Gray 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, Mac-Gray will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Mac-Gray
Corporation has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, The Commonwealth of Massachusetts, on April 9, 1998.

MAC-GRAY CORPORATION

/s/ Stewart Gray MacDonald, Jr.
By: _________________________________
Stewart Gray MacDonald, Jr.
Chairman and Chief Executive Officer

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<C> <S> <C>
/s/ Stewart Gray MacDonald, Jr. Chairman, Chief April 9, 1998
____________________________________ Executive Officer and
Stewart Gray MacDonald, Jr. Director (Principal
Executive Officer)

/s/ Patrick A. Flanagan Executive Vice President April 9, 1998
____________________________________ Mergers and
Patrick A. Flanagan Acquisitions, Secretary
and Director

/s/ John S. Olbrych Chief Financial Officer April 9, 1998
____________________________________ and Treasurer
John S. Olbrych (Principal Financial
and Accounting Officer)

/s/ Jeffrey C. Huenink Director April 9, 1998
____________________________________
Jeffrey C. Huenink

/s/ Jerry A. Schiller Director April 9, 1998
____________________________________
Jerry A. Schiller

/s/ John P. Leydon Director April 9, 1998
____________________________________
John P. Leydon

/s/ Eugene B. Dogget Director April 9, 1998
____________________________________
Eugene B. Doggett
</TABLE>

II-6
<PAGE>

SCHEDULE II

INTIRION CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED
BALANCE TO COSTS BALANCE
BEGINNING AND AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended June 30, 1997:
Allowance for doubtful accounts........ $ 42 $ 34 $(58) $ 18
Valuation allowance for deferred tax
assets................................ $503 $(133) $-- $370
Year Ended June 30, 1996:
Allowance for doubtful accounts........ $ 35 $ 19 $(12) $ 42
Valuation allowance for deferred tax
assets................................ $519 $ (16) $-- $503
Year Ended June 30, 1995:
Allowance for doubtful accounts........ $ 52 $ (15) $ (2) $ 35
Valuation allowance for deferred tax
assets................................ $386 $ 133 $-- $519
</TABLE>

S-1
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 22, 1997, by and
among Mac-Gray Corporation, MI Acquisition Corp., Intirion
Corporation and Robert P. Bennett. Pursuant to Item 601(b)(2) of
Regulation S-K, the Schedules referred to in the Merger Agreement are
omitted. The Registrant hereby undertakes to furnish supplementally a
copy of any omitted Schedule to the Commission upon request. The
Exhibits to the Merger Agreement were included in Appendix A to the
Prospectus/Proxy Statement, which is a part of the Registrant's
previously filed Registration Statement on Form S-4, as amended (No.
333-45899).*
3.1 Amended and Restated Certificate of Incorporation (3.1).+
3.2 By-laws (3.2).+
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of
the Registrant (4.1).+
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 certain stockholders of the Registrant (10.1).+
10.2 Stockholders' Agreement dated as of June 26, 1997 by and among the
Registrant and certain stockholders of the Registrant (10.2).+
10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and among
the Registrant and the other parties named therein (10.3).+
10.4 Credit Agreement dated April 17, 1997, by and among the Registrant,
the other Borrowers (as defined therein), the lenders named therein
and State Street Bank and Trust Company, as agent (10.4).+
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks
(as defined therein) (10.5).+
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by the
Registrant in favor of the Banks (as defined therein) (10.6).+
10.7 Pledge Agreement dated as of April 17, 1997 by and among the
Registrant and the Banks (as defined therein) (10.7).+
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. (10.8).+
10.9 Consulting Agreement dated as of April 17, 1997 by and among the
Registrant and Jeffrey C. Huenink (10.9).+
10.10 Noncompetition Agreement dated as of April 17, 1997 by and among
Registrant and Jeffrey C. Huenink (10.10).+
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers (10.11).+
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service" (10.12).+
10.13 Form of Maytag Distributorship Agreements (10.13).+
10.14 Promissory Note dated December 31, 1992 issued by the Registrant in
favor of Donald M. Shaw (10.14).+
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by and
between Donald M. Shaw and the Registrant (10.15).+
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with form of
option agreements attached as exhibits) (10.16).+
10.17 Form of Director Indemnification Agreement between the Registrant and
each of its Directors (10.17).+
</TABLE>
<PAGE>

<TABLE>
<C> <S>
10.18 Form of Registration Rights Agreement by and among the Registrant,
Robert P. Bennett, Gelco Corporation, Eastech II Limited Partnership
and Eastech III Limited Partnership.*
10.19 Form of Escrow Agreement by and among the Registrant, Gelco Corporation,
Michael Shanahan, the former securityholders of Intirion Corporation
and State Street Bank and Trust Company, as escrow agent.*
10.20 Stock Purchase Agreement by and among Mac-Gray Services, Inc., Copico,
Inc. and Certain Stockholders, dated as of March 31, 1998. Pursuant to
Item 601(b)(2) of Regulation S-K, the Schedules referred to in the
Stock Purchase Agreement are omitted. The Registrant hereby undertakes
to furnish supplementally a copy of any omitted Schedule to the
Commission upon request. The Exhibits to the Stock Purchase Agreement
will be filed by an Amendment to this Registration Statement on Form S-
1.
10.21 Form of Noncompetition Agreement by and between the Registrant and
Robert P. Bennett.*
10.22 Distribution Agreement by and between Schlumberger Technologies, Inc.
and Mac-Gray Services, Inc., dated as of October 27, 1997 (certain
portions of this exhibit are being omitted pursuant to a request for
confidential treatment).*
10.23 Stock and Asset Purchase Agreement, dated as of March 4, 1998, by and
among Mac-Gray Services, Inc., Amerivend Corporation, Amerivend
Southeast Corporation and Certain Stockholders.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP (Mac-Gray Corporation).
23.3 Consent of Price Waterhouse LLP (Intirion Corporation).
23.4 Consent of Price Waterhouse LLP (Supplemental Mac-Gray Corporation).
24.1 Powers of Attorney (contained in the Signature Page to this Registration
Statement).
27.1 Financial Data Schedule.*
</TABLE>

- --------
+ Previously filed as an exhibit to Mac-Gray's Registration Statement on Form
S-1 (No. 333-33669) and incorporated by reference herein. The number in
parentheses following the description of the exhibit refers to the exhibit
number in the Form S-1.
* Previously filed as an exhibit to Mac-Gray's Registration Statement on Form
S-4, as amended (No. 333-45899) and incorporated by reference herein.

<PAGE>

Exhibit 5.1

GOODWIN, PROCTER & HOAR LLP
Counsellors at Law
Exchange Place
Boston, Massachusetts 02109-2881

April 9, 1998

Mac-Gray Corporation
22 Water Street
Cambridge, Massachusetts 02141

Re: Registration Statement on Form S-1
----------------------------------

Ladies and Gentlemen:

This opinion is delivered in our capacity as counsel to Mac-Gray
Corporation (the "Company") in connection with the preparation and filing with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, of a Registration Statement on Form S-1 (the "Registration Statement")
relating to the sale to the public of up to 250,000 shares of Common Stock, par
value $.01 per share, being sold by certain individuals and an entity who will
become holders (the "Holders") of shares of the Company's Common Stock (the
"Shares").

As counsel for the Company, we have examined that certain Stock Purchase
Agreement, dated as of March 31, 1998 (the "Agreement"), by and among the
Company, Copico, Inc. and the Holders, the Company's Amended and Restated
Certificate of Incorporation and the Company's By-laws, each as presently in
effect, and such records, certificates, agreements and other documents of the
Company as we have deemed necessary or appropriate for the purposes of this
opinion.

Based on the foregoing, we are of the opinion that the Shares have been
duly authorized by the Company and, when the transaction contemplated by the
Agreement is consummated pursuant to the terms thereof, and the Shares are
issued to the Holders pursuant to the terms of the Agreement, the Shares will be
legally issued, fully paid and non-assessable by the Company under the General
Corporation Law of the State of Delaware.

We hereby consent to being named as counsel to the Company in the
Registration Statement, to the references therein to our firm under the caption
"Legal Matters," and to the inclusion of this opinion as an exhibit to the
Registration Statement.

Sincerely yours,

/s/ GOODWIN, PROCTER & HOAR LLP

GOODWIN, PROCTER & HOAR LLP

<PAGE>

EXHIBIT 10.20
================================================================================

STOCK PURCHASE AGREEMENT

By and Among

Mac-Gray Services, Inc.,
("Buyer")

Copico, Inc.
("Company")

and

Stockholders Named Herein
("Stockholders")

March 31, 1998

================================================================================
<PAGE>

STOCK PURCHASE AGREEMENT

INDEX

<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. SALE OF SHARES AND PURCHASE PRICE............................... 2
1.01 Transfer of Company Shares..................................... 2
1.02 Purchase Price................................................. 2
1.02A Purchase Price Adjustment...................................... 3
1.03 Calculation of Purchase Price.................................. 3
1.04 Payment of Purchase Price...................................... 3
1.05 Closing. ..................................................... 4
1.06 Stockholder Action............................................. 4
1.07 Further Assurances............................................. 4
1.08 Transfer Taxes................................................. 4
1.09 Deposit........................................................ 5

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPAL STOCKHOLDERS..................................................
2.01 Making of Representations and Warranties....................... 5
2.02 Organization and Qualifications of the Company................. 5
2.03 Capital Stock of the Company; Beneficial Ownership............. 6
2.04 Subsidiaries; Investments...................................... 6
2.05 Authority...................................................... 6
2.06 Real and Personal Property..................................... 7
2.07 Vending Service Agreements..................................... 9
2.08 Equipment...................................................... 9
2.09 Title.......................................................... 9
2.10 Financial Statements........................................... 10
2.11 Taxes.......................................................... 11
2.12 Collectibility of Accounts Receivable.......................... 12
2.13 Inventories.................................................... 12
2.14 Absence of Certain Changes..................................... 13
2.15 Ordinary Course................................................ 14
2.16 Banking Relations.............................................. 14
2.17 Intellectual Property.......................................... 14
2.18 Contracts...................................................... 16
2.19 Litigation..................................................... 17
2.20 Compliance with Laws........................................... 18
2.21 Insurance...................................................... 18
2.22 Warranty or Other Claims....................................... 18
2.23 Powers of Attorney............................................. 18
2.24 Finder's Fee................................................... 18
2.25 Permits; Burdensome Agreements................................. 18
</TABLE>

Execution Copy

(i)
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
2.26 Corporate Records; Copies of Documents......................... 19
2.27 Transactions with Interested Persons........................... 19
2.28 Employee Benefit Programs...................................... 19
2.29 Environmental Matters.......................................... 21
2.30 List of Directors and Officers................................. 22
2.31 Employees; Labor Matters....................................... 22
2.32 Non-Foreign Status............................................. 23
2.33 [Intentionally Omitted]........................................ 23
2.34 Customers, Distributors and Suppliers.......................... 23
2.35 [Intentionally Omitted.]....................................... 24
2.36 Stock Repurchase............................................... 24
2.37 Disclosure..................................................... 24

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.............. 24
3.01 Company Shares................................................. 24
3.02 Authority...................................................... 24
3.03 Finder's Fee................................................... 25
3.04 Agreements..................................................... 25
3.05 Investment Representations..................................... 25

SECTION 4. COVENANTS OF THE COMPANY AND THE PRINCIPAL
STOCKHOLDERS............................................ 26
4.01 Making of Covenants and Agreements............................. 26
4.02 Conduct of Business............................................ 26
4.03 Consents....................................................... 27
4.04 Notice of Default.............................................. 28
4.05 Consummation of Agreement...................................... 28
4.06 Cooperation of the Company and the Principal Stockholders...... 28
4.07 No Solicitation of Other Offers................................ 28
4.08 Confidentiality................................................ 29
4.09 Tax Returns.................................................... 29
4.10 Filing Cooperation............................................. 29
4.11 No Transfer of Securities...................................... 30

SECTION 4A. COVENANTS OF THE STOCKHOLDERS OTHER THAN THE
PRINCIPAL STOCKHOLDERS................................ 30
4A.01 Making of Covenants and Agreements............................. 30
4A.02 No Solicitation of Other Offers................................ 30
4A.03 Confidentiality................................................ 30
4A.04 Filing Cooperation............................................. 30
4A.05 No Transfer of Securities...................................... 31
</TABLE>

Execution Copy

(ii)
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER......................... 31
5.01 Making of Representations and Warranties....................... 31
5.02 Organization of Buyer.......................................... 31
5.03 Capitalization................................................. 31
5.04 Authority of Buyer............................................. 31
5.05 Litigation..................................................... 32
5.06 Finder's Fee................................................... 32

SECTION 6. COVENANTS OF BUYER.............................................. 32
6.01 Making of Covenants and Agreements............................. 32
6.02 Confidentiality................................................ 32
6.03 Consents....................................................... 33
6.04 Consummation of Agreement...................................... 33

SECTION 7. CONDITIONS...................................................... 33
7.01 Conditions to the Obligations of Buyer......................... 33
7.02 Conditions to Obligations of the Company and the Stockholders.. 36

SECTION 8. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED..................... 37
8.01 Termination.................................................... 37
8.02 Effect of Termination.......................................... 38
8.03 Right to Proceed............................................... 38

SECTION 9. SURVIVAL........................................................ 38
9.01 Survival of Warranties......................................... 38

SECTION 10. INDEMNIFICATION................................................ 39
10.01 Indemnification by the Stockholders............................ 39
10.02 Limitations on Indemnification by the Stockholders............. 39
10.03 Indemnification by Buyer....................................... 40
10.04 Limitation on Indemnification by Buyer......................... 40
10.05 Notice; Defense of Claims...................................... 40

SECTION 11. MISCELLANEOUS.................................................. 41
11.01 Fees and Expenses.............................................. 41
11.02 Governing Law.................................................. 41
11.03 Notices........................................................ 41
11.04 Entire Agreement............................................... 42
11.05 Assignability; Binding Effect.................................. 42
11.06 Captions and Gender............................................ 43
11.07 Execution in Counterparts...................................... 43
11.08 Amendments..................................................... 43
</TABLE>

Execution Copy

(iii)
<PAGE>

<TABLE>
<CAPTION>
Page
----
<S> <C>
11.09 Publicity and Disclosures...................................... 43
11.10 Dispute Resolution............................................. 43
11.11 Specific Performance........................................... 44
</TABLE>

Execution Copy

(iv)
<PAGE>

STOCK PURCHASE AGREEMENT
------------------------

AGREEMENT entered into as of March 31, 1998 by and among Mac-Gray Services,
Inc., a Delaware corporation ("Buyer"), Copico, Inc., a Massachusetts
corporation (the "Company"), Edward J. Goulart and Robert W. LaRoche (the
"Principal Stockholders") and the other holders of shares of capital stock or
options, warrants or other securities exercisable for or convertible into
capital stock of the Company, each of whom is listed on Exhibit A attached
---------
hereto (together with the Principal Stockholders, the "Stockholders" and,
individually, each a "Stockholder").

W I T N E S S E T H
-------------------

WHEREAS, as of the date hereof, the Principal Stockholders and Ronald R.
Jalbert are the record and beneficial owners of all of the issued and
outstanding common stock, no par value per share (the "Common Stock"), of the
Company;

WHEREAS, immediately prior to the Closing (as hereinafter defined), the
Company shall issue to each of Peter B. Finn, David Luongo and Joseph J.
Tischler, 1% of the then outstanding Common Stock of the Company on a fully-
diluted basis;

WHEREAS, immediately prior to the Closing, the 250 shares of Class A
preferred stock, par value $.01 per share ("Class A Preferred Stock"), of the
Company held by the Massachusetts Capital Resource Company ("MCRC"), which
represents all of the issued and outstanding shares of the Company's Class A
Preferred Stock, shall be converted solely into 250 shares of the Company's
Common Stock;

WHEREAS, immediately prior to the Closing, the Company shall redeem,
through an increase in the Company's bank line of credit or through a direction
of portions of the Cash Payment (as described in Section 1.02), all of the
issued and outstanding shares of its Class B preferred stock, par value $.01 per
share ("Class B Preferred Stock"), from the holders thereof for the entire
outstanding principal balance plus accrued but unpaid dividends thereon through
the date of such redemption;

WHEREAS, at the Closing, the Stockholders shall be the record and
beneficial owners of all of the issued and outstanding capital stock of the
Company, which shall consist entirely of 1,289 shares of Common Stock (the
"Company Shares");

WHEREAS, Buyer is a wholly-owned subsidiary of Mac-Gray Corporation, a
Delaware corporation ("Parent"); and
<PAGE>

WHEREAS, subject to the terms and conditions set forth herein, the
Stockholders desire to sell all of the Company Shares to Buyer, and Buyer
desires to acquire all of the Company Shares from the Stockholders.

NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:

SECTION 1. SALE OF SHARES AND PURCHASE PRICE.
- --------------------------------------------

1.01 Transfer of Company Shares. At the Closing, each Stockholder shall
--------------------------
deliver or cause to be delivered to Buyer certificates representing all of the
Company Shares owned by such Stockholder as set forth on Exhibit A, which
---------
collectively shall represent all of the issued and outstanding capital stock of
the Company. Such stock certificates shall be duly endorsed in blank for
transfer or shall be presented with stock powers duly executed in blank, with
such signature guarantees and such other documents as may be reasonably required
by Buyer to effect a valid transfer of such Company Shares by such Stockholder,
free and clear of any and all liens, encumbrances, charges or claims. Each
Stockholder by execution of this Agreement hereby appoints Buyer as his
attorney-in-fact to effectuate transfer of the Company Shares at the Closing.

1.02 Purchase Price. In consideration of the sale by the Stockholders to
--------------
Buyer of the Company Shares and in reliance upon the representations and
warranties of the Company and the Stockholders contained herein and made at the
Closing and subject to satisfaction of all of the conditions contained herein,
Buyer agrees that at the Closing it will deliver to the Stockholders in the
proportions set forth on Exhibit A:
---------

(i) Two hundred fifty thousand (250,000) shares of common
stock, par value $.01 per share, of Parent (the "Parent Shares"); and

(ii) A cash payment (subject to adjustment as set forth in
Section 1.02A, and including the Deposit distributed by the Escrow Agent (each
as defined in Section 1.09 hereof) pursuant to Section 1.09 hereof) equal to:

(A) ten million nine hundred fifty thousand dollars
($10,950,000); less
----

(B) the sum of (x) the aggregate principal indebtedness of
the Company (as hereinafter defined) outstanding on the Closing Date (as
hereinafter defined), including, without limitation, all such indebtedness to
State Street Bank and Trust Company and MCRC (which indebtedness shall include
the indebtedness (if any) to redeem all of the Class B Preferred Stock), plus
----
(y) all accrued interest thereon and all fees, premiums, penalties and other
costs related to the transfer, assumption or prepayment of such indebtedness by
Buyer on the Closing Date (the "Closing Indebtedness")

2
<PAGE>

(the "Cash Payment," and together with the Parent Shares, the "Purchase Price");
provided that the amount described in clause (C) above shall not include up to
- --------
two hundred thousand dollars ($200,000) of debt (inclusive of any accrued
interest thereon) which remains outstanding on the Closing Date if the proceeds
therefrom were used by the Company to directly fund the purchase price of
capital equipment for deals signed and installed by the Company between January
26, 1998 and the Closing Date (the "Approved Capital Expenditures").

1.02A Purchase Price Adjustment. The Company shall obtain a report as of
-------------------------
the close of business on the business day immediately preceding the Closing from
each bank that the Company maintains a checking or deposit account setting forth
the amount of cash available in each such account ("Available Cash"). Subject to
compliance with Section 4 hereof, including specifically and without limitation
Section 4.02(i) hereof, in the event the Closing does not occur on a date on
which the Company makes payments on its loans from State Street Bank and Trust
Company and MCRC, the Company shall be permitted to pay the aggregate amount of
Available Cash in such bank accounts to reduce the amount of outstanding debt
(including interest thereon) immediately prior to the Closing. Alternatively,
the Buyer shall pay to the Stockholders the aggregate amount of any such
Available Cash by increasing the Cash Payment by the aggregate amount of such
Available Cash.

1.03 Calculation of Purchase Price. At the Closing, the Stockholders
-----------------------------
shall deliver to Buyer a certificate signed by each of the Stockholders which
sets forth the calculation of the Cash Payment (including any prepayment made,
or change in the Cash Payment requested, pursuant to Section 1.02A), including,
without limitation, the true and correct amounts of the Closing Indebtedness and
the Approved Capital Expenditures, which certificate shall constitute a
representation by each Stockholder to Buyer as to the truth and correctness of
the calculation and the amounts set forth therein.

1.04 Payment of Purchase Price. At the Closing and subject to the terms
-------------------------
and conditions of this Agreement, Buyer shall deliver to each Stockholder (i) a
certificate representing the number of Parent Shares set forth opposite such
Stockholder's name in Exhibit A attached hereto and (ii) the cash amount
---------
representing such Stockholder's proportional share of the Cash Payment, set
forth opposite such Stockholder's name in Exhibit A attached hereto, by
---------
certified or cashier's check or wire transfer made payable to such Stockholder,
or other method acceptable to the Stockholders.

1.05 Closing. Subject to the terms and conditions of this Agreement, the
-------
closing of the purchase and sale provided for in this Agreement (the "Closing")
shall be held at the offices of Goodwin, Procter & Hoar LLP at Exchange Place,
53 State Street, Boston, Massachusetts 02109 at 10:00 A.M. Eastern Standard Time
on the date that is five (5) business days after the conditions set forth in
Section 7 hereof are satisfied or, if applicable, waived or at such other place
or date or time as may be mutually agreed upon by the parties (the "Closing
Date").

3
<PAGE>

1.06 Stockholder Action.
------------------

(a) By executing and delivering this Agreement, each Stockholder
hereby agrees that as to any action required or permitted to be taken by the
Stockholders hereunder, from the date hereof and through and including the
Closing Date, such action may be taken by Stockholders holding in the aggregate
51% or more of the Company Shares. Such actions shall include, without
limitation, the power:

(i) to waive any condition to the obligations of the Company
and the Stockholders to consummate the transactions contemplated by this
Agreement;

(ii) to execute and deliver all ancillary agreements,
certificates and documents, and to make representations and warranties therein,
on behalf of each Stockholder in connection with the consummation of the
transactions contemplated by this Agreement; and

(iii) to do or refrain from doing any further act or deed on
behalf of each Stockholder relating to the subject matter of this Agreement, as
fully and completely as each such Stockholder could do if personally present.

(b) Buyer shall be entitled to rely conclusively on the instructions
and decisions of Stockholders holding in the aggregate 51% or more of the
Company Shares as to any actions required or permitted to be taken by the
Stockholders hereunder, and no party hereunder shall have any cause of action
against Buyer for any action taken in good faith by Buyer in reliance upon the
instructions or decisions of such Stockholders.

1.07 Further Assurances. The Stockholders from time to time after the
------------------
Closing at the request of Buyer and without further consideration shall execute
and deliver instruments of transfer and assignment and take such other action as
Buyer may reasonably require to more effectively transfer and assign to, and
vest in, Buyer the Company Shares and all rights thereto, and to fully implement
the provisions of this Agreement.

1.08 Transfer Taxes. All transfer taxes, fees and duties, if any, under
--------------
applicable law incurred in connection with the sale and transfer of the Company
Shares under this Agreement will be borne and paid by the Stockholders, and the
Stockholders shall promptly reimburse the Company and Buyer for any such tax,
fee or duty which any of them is required to pay under applicable law.

1.09 Deposit. Concurrently with the execution of this Agreement, Buyer
-------
and the Company shall direct State Street Bank and Trust Company, as escrow
agent (the "Escrow Agent") to continue holding $400,000 (including any interest
or other income earned thereon, the "Deposit") pursuant to that certain Deposit
Escrow Agreement, which direction shall include further instructions as follows:

4
<PAGE>

(i) In the event this Agreement is terminated pursuant to Section
8.01(iii) or, as a result solely of Buyer's material failure to perform its
obligations hereunder, pursuant to Section 8.01(iv) hereof, such Deposit shall
be paid to the Company or its designee(s) as liquidated damages in full
compensation for and paid as an exclusive remedy for, any damages the Company or
the Stockholders may sustain thereby;

(ii) In the event this agreement is terminated pursuant to Section
8.01(i), Section 8.01(ii) or Section 8.01(iv) (other than as described in
Section 1.09(i) above), such Deposit shall be paid to Buyer or its designee; or

(iii) In the event this Agreement is not terminated, on the Closing
Date, the parties hereto shall direct the Escrow Agent to disburse the Deposit
in a manner so that it constitutes a portion of the Cash Payment.

SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
- ----------------------------------------------------------------
PRINCIPAL STOCKHOLDERS.
----------------------

2.01 Making of Representations and Warranties. As a material inducement
----------------------------------------
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, the Company and each of the Principal Stockholders jointly
and severally hereby make to Buyer the representations and warranties contained
in this Section 2. No Stockholder shall have any right of indemnity or
contribution from the Company with respect to the breach of any representation
or warranty hereunder.

2.02 Organization and Qualifications of the Company. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts 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 the Company's Articles of
Organization, as amended to date, certified by the Secretary of State of The
Commonwealth of Massachusetts, and of the Company's by-laws, as amended to date,
certified by the Company's Clerk, and heretofore delivered to Buyer's counsel,
are complete and correct, and no amendments thereto are pending. The Company is
duly qualified to do business as a foreign corporation in each jurisdiction
where the nature of its properties or the conduct of its business makes its
qualification so necessary, except where the failure to be so qualified would
not have a material adverse effect on the business, assets, properties, results
of operations, financial condition or prospects (a "Material Adverse Effect") of
the Company.

2.03 Capital Stock of the Company; Beneficial Ownership. The authorized
--------------------------------------------------
capital stock of the Company consists of (i) 200,000 shares of Common Stock,
(ii) 250 shares of Class A Preferred Stock, and (iii) 1,750 shares of Class B
Preferred Stock, of which 1,000, 250 and 1,200 shares, respectively, are duly
and validly issued, outstanding, fully paid and

5
<PAGE>

nonassessable and of which 199,000, 0 and 550 shares, respectively, are
authorized but unissued. 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 the Company. All of the Company's equity and debt
securities have been offered, sold and issued in compliance with, or under an
exemption from registration under, applicable Federal and state securities laws.
Except as set forth in Schedule 2.03 attached hereto, there are no voting
-------------
trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Company Shares to which the
Company or any of the Stockholders is a party.

2.04 Subsidiaries; Investments. The Company neither has, nor has it ever
-------------------------
had, any subsidiaries, interests in joint ventures or partnerships or holds
equity or debt securities in any other entity.

2.05 Authority. The Company has full right, authority and power to enter
---------
into this Agreement and each agreement, document and instrument to be executed
and delivered by the Company pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by the Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and no other action on the part of the Company is required in connection
therewith.

This Agreement and each agreement, document and instrument constitute, or
when executed and delivered will constitute, valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and (ii) general principles of equity that restrict the
availability of equitable remedies. The execution, delivery and performance by
the Company of this Agreement and each such agreement, document and instrument:

(A) does not and will not violate any provision of the
Articles of Organization or by-laws or any similar organizational documents of
the Company;

(B) does not and will not violate any federal, state or
local laws applicable to the Company or require the Company to obtain any
approval, consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made; and

(C) 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 indenture or loan or credit agreement or any other 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 mortgage, pledge, lien,

6
<PAGE>

security interest or other charge or encumbrance on the Company's assets or on
the capital stock of the Company, except as specifically identified in Schedule
--------
2.05 attached hereto.
- ----

2.06 Real and Personal Property.
--------------------------

(a) Real Property. All of the real property owned or leased by the
-------------
Company is identified in Schedule 2.06(a) attached hereto (herein referred to as
----------------
the "Owned Real Property" or the "Leased Real Property," as the case may be, or
collectively as the "Real Property.")

(i) Title. Except as set forth in Schedule 2.06(a) attached
----- ----------------
hereto, the Company has good, clear, record and marketable title to (A) all
Owned Real Property and (B) enforceable leasehold interests in the Leased Real
Property, in each case free and clear of all easements, covenants, restrictions,
leases, mortgages, liens, assessments, claims, rights, judgments, encroachments
or other matters affecting title (collectively, "Encumbrances"), other than:

(x) easements, covenants, restrictions and similar
encumbrances that do not and could not materially interfere with the use of the
Owned Real Property as currently used and improved; and

(y) minor encroachments that do not and could not
materially adversely affect the value or use of the Owned Real Property as
currently used and improved and that could be removed without material cost.

((x) and (y) are collectively referred to as "Permitted Encumbrances"), except
as set forth in Schedule 2.06(a) attached hereto. The Company has good, clear,
----------------
record and marketable title to enforceable leasehold interests in the Leased
Real Property, in each case free and clear of all Encumbrances other than
Permitted Encumbrances, subject only to the right of reversion of the lessor,
except as set forth in Schedule 2.06(a).
----------------

(ii) Status of Leases. All leases of Leased Real Property or
----------------
of Owned Real Property are identified in Schedule 2.06(a) attached hereto, and
----------------
true and complete copies thereof have been delivered to Buyer. Each of said
leases has been duly authorized and executed by the parties thereto and is in
full force and effect. To the knowledge of the Company and the Principal
Stockholder, the Company is not in default under any of said lease nor has it
received any written notice thereof, nor has any event occurred which, with
notice or the passage of time, or both, would give rise to such a default. To
the knowledge of the Company and the Principal Stockholders, none of the other
parties to said leases is in default thereunder and there is no event which,
with notice or the passage of time, or both, would give rise to such a default.
After giving effect to the transactions contemplated by this Agreement, each of
said leases will be fully enforceable by the Company against the other party
thereto.

7
<PAGE>

(iii) Consents. Except as set forth in Schedule 2.06(a)
-------- ----------------
attached hereto, no approval is required with respect to the transactions
contemplated by this Agreement from the other parties to any lease of the Leased
Real Property, from the holder of any Encumbrance on any Owned Real Property, or
from any regulatory authority, no filing with any regulatory authority is
required in connection therewith, and to the extent that any such consents,
approvals or filings are required, the Company or the Principal Stockholders
will obtain or complete them before the Closing.

(iv) Condition of Real Property. There are no material defects
--------------------------
in the physical condition of any land, buildings or improvements constituting
part of the Real Property, including, without limitation, structural elements,
mechanical systems, parking and loading areas, and all such buildings and
improvements are in good operating condition and repair and have been well
maintained.

(v) Compliance with the Law. The Company has not received any
-----------------------
notice from any governmental authority of any violation of any law, ordinance,
regulation, license, permit or authorization issued with respect to any Real
Property that has not been heretofore corrected, and no such violation exists
which should have a material adverse effect on the operation or value of any
Real Property. All improvements located on or constituting part of the Real
Property and their use and operation by the Company were and are now in
compliance in all material respects with all applicable laws, ordinances,
regulations, licenses, permits and authorizations, except as set forth in
Schedule 2.06(a) attached hereto. No approval or consent to the transactions
- ----------------
contemplated by this Agreement is required of any governmental authority with
jurisdiction over any aspect of the Real Property or its use or operations,
except where the failure to obtain such approval or consent would not have a
material adverse effect on the operation or value of the Real Property. The
Company has not received any notice of any real estate tax deficiency or
assessment which has not been satisfied nor is it aware of any proposed material
deficiency, claim or assessment with respect to any of the Real Property, or any
pending or threatened condemnation thereof.

(b) Personal Property. A complete description of the machinery and
-----------------
equipment of the Company is contained in Schedule 2.06(b) attached hereto.
----------------
Except as specifically disclosed in said Schedule or the Base Balance Sheet (as
hereinafter defined), the Company has good and marketable title to all of its
personal property. None of such personal property or assets is subject to any
mortgage, pledge, lien, conditional sale agreement, security interest,
encumbrance or other charge, except as specifically disclosed in said Schedule
or in the Base Balance Sheet. The Base Balance Sheet reflects all personal
property of the Company. Except as otherwise specified in Schedule 2.06(b)
----------------
attached hereto, all leasehold improvements, furnishings, machinery and
equipment of the Company are in good repair, have been well maintained and
substantially comply with all applicable laws, ordinances and regulations, and
such machinery and equipment is in good operating condition, ordinary wear and
tear expected; and neither the Company nor any of the Principal Stockholders of
any pending or threatened change of any such law, ordinance or regulation which
could materially adversely affect the Company or its businesses.

8
<PAGE>

2.07 Vending Service Agreements. Schedule 2.07 attached hereto lists all
-------------------------- -------------
of the contracts, understandings and arrangements, whether written or oral,
including any tenancy at will, under which the Company is bound, or to which the
Company is a party, which relate to the placement of photocopier machines (the
"Vending Service Agreements"). Schedule 2.07 attached hereto contains a true,
-------------
correct and complete list of all Vending Service Agreement locations, Vending
Service Agreement expirations, the number of photocopiers at each Vending
Service Agreement location, vend prices, net revenues after commission for each
Vending Service Agreement location and whether the terms of such Vending Service
Agreement require the consent or approval of or prior notice to any third party
as a result of the consummation of the transactions contemplated by this
Agreement. True and correct copies of all the Vending Service Agreements have
been delivered or made available to Buyer prior to the date hereof. Each of the
Vending Service Agreements is valid, in full force and effect and binding upon
the Company and the other parties thereto in accordance with its respective
terms. Neither the Company, nor, to the knowledge of the Company and the
Principal Stockholders, 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 Vending Service Agreement, nor, to the
knowledge of the Company and the Principal Stockholders, 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 lessee under any Vending
Service Agreement. The Company has not received notice of, nor does the Company
or any Principal Stockholder have knowledge of any fact which would result in,
the termination, repudiation or breach of any Vending Service Agreement. After
giving effect to the transactions contemplated by this Agreement, each of the
Vending Service Agreements will be valid and effective in accordance with its
terms, and fully enforceable by the Company against the other party thereto.

2.08 Equipment. The photocopier machines that are the subject of the
---------
Vending Service Agreements listed in Schedule 2.07 constitute all of the
-------------
photocopier machines which are owned and/or operated by the Company, except for
photocopier machines held in inventory as set forth in Schedule 2.08 attached
-------------
hereto. Schedule 2.08 attached hereto includes a true, correct and complete
-------------
list of: (i) all of the photocopier machines and change machines installed at
the Vending Service Agreement locations listed in Schedule 2.07 and (ii) all of
-------------
the inventory of new photocopier machines of the Company (collectively, the
"Equipment"). All of the Equipment is in good operating condition, ordinary
wear and tear excepted.

2.09 Title. Except as set forth in Schedule 2.09 attached hereto, the
----- -------------
Company has good and valid title to, or a valid leasehold interest in, all of
their Equipment, Vending Service Agreements and the other properties and assets
which are used in their business or otherwise material to their financial
condition, free and clear of any mortgage, pledge, lien, conditional sale
agreement, security interest, encumbrance or other charge.

9
<PAGE>

2.10 Financial Statements.
--------------------

(a) The Company has delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.10:
-------------

(b) Balance sheets of the Company as of January 31, 1996, 1997 and
1998 (the January 31, 1998 balance sheet being referred to herein as the "Base
Balance Sheet") and statements of income and retained earnings and statements of
cash flows for the three (3) years then ended, of which the consolidated
statements have been, or, in the case of the January 31, 1998 financial
statement, are being audited by Kenneth A. Najarian, P.C., independent public
accountant.

(c) A balance sheet of the Company as of February 28, 1998 and
statements of income and retained earnings and statements of cash flows for the
one-month period then ended, certified by the Company's Treasurer or Chief
Financial Officer.

Said financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied consistently during the periods
covered thereby, are complete and correct in all material respects and present
fairly in all material respects the financial condition of the Company at the
dates of said statements and the results of operations for the periods covered
thereby.

(d) As of the date of the Base Balance Sheet, the Company does not
have, nor will it have, 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
the Company or the conduct of its business prior to the date of the Base Balance
Sheet, regardless of whether claims in respect thereof had been asserted as of
such date), except liabilities stated or adequately reserved against on the Base
Balance Sheet or reflected in Schedules furnished to Buyer hereunder as of the
date hereof, or immaterial liabilities incurred in the ordinary course of
business of the Company in existence as of the date of such Base Balance Sheet
which are not required to be reflected in such Base Balance Sheet or the notes
thereto under GAAP.

(e) As of the date hereof and as of the Closing, the Company has not
had, nor will it have, 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 the
Company or the conduct of its business prior to the date hereof or the Closing,
regardless of whether claims in respect thereof had been asserted as of such
date), except liabilities (i) stated or adequately reserved against on the Base
Balance Sheet or the notes thereto, (ii) reflected in Schedules furnished to
Buyer hereunder on the date hereof, or (iii) incurred after the date of

10
<PAGE>

the Base Balance Sheet in the ordinary course of business of the Company except
as prohibited by this Agreement.

2.11 Taxes.
-----

(a) The Company has paid or caused to be paid all federal, state,
local, foreign and other taxes, including, without limitation, income taxes,
estimated taxes, capital gains taxes, alternative minimum taxes, excise taxes,
sales taxes, goods and services 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. All Taxes and other
assessments and levies which the Company is required to withhold or collect have
been withheld and collected and have been paid over to the proper governmental
authorities within the time required by applicable law.

(b) The Company has in accordance with applicable law filed all
federal, state, local and foreign tax returns and all other materials required
to be filed by it through the date hereof and will continue to do so in respect
of any fiscal period ending on or prior to the Closing Date, and all such
returns correctly and accurately set forth the amount of any Taxes relating to
the applicable period. A list of federal, state, local and foreign income tax
returns filed with respect to the Company for taxable periods on or after
January 31, 1993 is set forth in Schedule 2.11 attached hereto, and said
-------------
Schedule indicates those returns that have been audited or currently are subject
of an audit. For each taxable period of the Company ended on or after January
31, 1993, the Company has delivered to Buyer correct and complete copies of all
federal, state, local and foreign tax returns, examination reports and
statements of deficiencies assessed against or agreed to by the Company.

(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting or, to the knowledge of the Company and
the Principal Stockholders, threatening to assert against the Company, any
deficiency or claim for additional Taxes. No claim has ever been made by an
authority in a jurisdiction where the Company does not file reports and returns
that the Company is or may be subject to taxation by that jurisdiction. There
are no security interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Taxes. The Company
has never entered into a closing agreement pursuant to Section 7121 of the
Internal Revenue Code of 1986, as amended (the "Code").

(d) Except as set forth in Schedule 2.11 attached hereto, there has
-------------
not been any audit of any tax return filed by the Company, no such audit is in
progress, and the Company has not been notified by any tax authority that any
such audit is contemplated or pending. Except as set forth in Schedule 2.11, no
-------------
extension of time with respect to any date on which a tax return was or is to be
filed by the Company is in force, and no waiver or

11
<PAGE>

agreement by the Company is in force for the extension of time for the
assessment or payment of any Taxes.

(e) The Company has never 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 2.11 attached
-------------
hereto, the Company has never 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 2.11, the Company does not own, nor has it ever owned, a
-------------
direct or indirect interest in any trust, partnership, corporation or other
entity. Except as set forth in Schedule 2.11 attached hereto, the Company is not
-------------
a party to any tax sharing agreement. The Company is not, nor could it be
liable for any Taxes of any other person or entity.

(f) 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.

2.12 Collectibility of Accounts Receivable. All of the accounts
-------------------------------------
receivable of the Company shown or reflected on the Base Balance Sheet or
existing at the date hereof (less the reserve for bad debts set forth on the
Base Balance Sheet) are or will be at the Closing valid and enforceable claims,
fully collectible and subject to no setoff or counterclaim. The Company does not
have any accounts or loans receivable from any person, firm or corporation which
is affiliated with the Company or from any director, officer or employee of the
Company, except as disclosed in Schedule 2.12 attached hereto, and all accounts
-------------
and loans receivable from any such person, firm or corporation shall be paid in
cash prior to the Closing.

2.13 Inventories. Except as disclosed in Schedule 2.13, all items in the
----------- -------------
inventories of the Company shown on the Base Balance Sheet or existing at the
date hereof are of a quality and quantity useable, saleable or leasable in the
ordinary course of business of the Company. Except as disclosed in Schedule
--------
2.13, said inventories reflect write-downs to realizable values in the case of
- ----
items which are below standard quality or have become obsolete or unsaleable or
unleasable (except at prices less than cost) in the ordinary course of the
business of the Company. No such write-downs since February 1, 1998 have had a
material adverse effect on the financial condition or results of operations of
the Company. The values of the inventories stated in the Base Balance Sheet and
any subsequent financial statements of the Company reflect the normal inventory
valuation policies of the Company and were determined at the lower of cost or
market in accordance with generally accepted accounting principles, practices
and methods consistently applied. Purchase commitments for parts are not in
excess of normal requirements and none are at prices materially in excess of
current market prices. Except as disclosed in Schedule 2.13, all inventory
-------------
items are located on the Owned Real Property or the Leased Real Property. Since
the date of the Base Balance Sheet, no inventory items have been used, sold,
leased or disposed of except through installations in the ordinary course of
business at locations covered by a Vending Services Agreement, or through sales
or leases in the ordinary course of business, and all such installations, sales
and leasing commitments for the

12
<PAGE>

producers of the Company are at prices not less than inventory values plus
installation, selling or leasing expenses.

2.14 Absence of Certain Changes. Except as disclosed in Schedule 2.14
-------------------------- -------------
attached hereto, since the date of the Base Balance Sheet there has not been:

(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of the Company, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had a Material Adverse Effect on the Company;

(b) Any contingent liability incurred by the Company as guarantor or
otherwise with respect to the obligations of others or any cancellation of any
material debt or claim owing to, or waiver of any material right of, the
Company;

(c) Any mortgage, encumbrance or lien placed on any of the
properties of the Company which remains in existence on the date hereof or will
remain on the Closing Date;

(d) Any material 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 the Company or the conduct of the business of the Company since the
date of the Base Balance Sheet regardless of whether claims in respect thereof
have been asserted), incurred by the Company other than obligations and
liabilities incurred in the ordinary course of business consistent with the
terms of this Agreement (it being understood that product or service liability
claims shall not be deemed to be incurred in the ordinary course of business);

(e) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company other than in the ordinary course of
business;

(f) Any damage, destruction or loss, whether or not covered by
insurance, which has had a Material Adverse Effect on the Company;

(g) Any declaration, setting aside or payment of any dividend by the
Company, or the making of any other distribution in respect of the capital
stock, or other ownership interests, of the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company of its own capital
stock, or other ownership interests;

(h) Any labor trouble or claim of unfair labor practices involving
the Company, any change in the compensation payable or to become payable by the
Company to any of its officers, employees, agents or independent contractors
other than normal merit

13
<PAGE>

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;

(i) Any change with respect to the officers or management of the
Company;

(j) Any payment or discharge of a material lien or liability of the
Company which was not shown on the Base Balance Sheet or incurred in the
ordinary course of business thereafter;

(k) Any obligation or liability incurred by the Company to any of
its officers, directors, stockholders or employees, or any loans or advances
made by the Company to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to officers
or employees;

(l) Any change in accounting methods or practices, credit practices
or collection policies used by the Company;

(m) Any other transaction entered into by the Company other than
transactions in the ordinary course of business;

(n) Any waiver of any valuable right of, or cancellation of any debt
or claim held by, the Company; or

(o) Any agreement or understanding whether in writing or otherwise,
for the Company to take any of the actions specified in paragraphs (a) through
(n) above.

2.15 Ordinary Course. Since the date of the Base Balance Sheet, the
---------------
Company has conducted its business only in the ordinary course and consistently
with its prior practices.

2.16 Banking Relations. All of the arrangements which the Company has
-----------------
with any banking institution are completely and accurately described in Schedule
--------
2.16 attached hereto, indicating with respect to each of such arrangements the
- ----
type of arrangements maintained (such as checking account, borrowing
arrangements, safe deposit box, etc.) and the person or persons authorized in
respect thereof.

2.17 Intellectual Property.
---------------------

(a) Except as described in Schedule 2.17 attached hereto, the
-------------
Company has exclusive ownership of, or exclusive license to use, all patent,
copyright, trade secret, trademark, or other proprietary rights (collectively,
"Intellectual Property") used or to be used in the business of the Company as
presently conducted or contemplated. All of the rights of the Company in such
Intellectual Property are freely transferable. 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 the Company

14
<PAGE>

in respect thereof. Except as described in Schedule 2.17, the Company 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 the Company are listed in Schedule 2.17 attached hereto. All of
-------------
such patents, patent applications, trademark registrations, trademark
applications and registered copyrights have been duly registered in, filed in or
issued by the United States Patent and Trademark Office or such other applicable
governmental office or authority under the jurisdiction of which the Company
conduct business, as the case may be, and have been properly maintained and
renewed in accordance with all applicable provisions of applicable law and
administrative regulations.

(c) All licenses or other agreements under which the Company is
granted rights in Intellectual Property are listed in Schedule 2.17 attached
-------------
hereto. All said licenses or other agreements are in full force and effect,
there is no material default by any party thereto, and, except as set forth in
Schedule 2.17 attached hereto, all of the rights of the Company thereunder will
- -------------
continue in full force and effect upon consummation of the transactions
contemplated hereby. To the knowledge of the Company and the Principal
Stockholders, the licensors under said licenses and other agreements have and
had all requisite power and authority to grant the rights purported to be
conferred thereby. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to Buyer.

(d) All licenses or other agreements under which the Company has
granted rights to others in Intellectual Property owned or licensed by the
Company are listed in Schedule 2.17 attached hereto. All of said licenses or
-------------
other agreements are in full force and effect and, to the knowledge of the
Company and the Principal Stockholders, there is no material default by any
party thereto, and, except as set forth in Schedule 2.17 attached hereto, all of
-------------
the rights of the Company thereunder will continue in full force and effect upon
consummation of the transactions contemplated hereby. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to Buyer.

(e) The Company has taken all steps required in accordance with
sound business practice to establish and preserve its ownership of all material
Intellectual Property rights with respect to its products, services and
technology. The Company has required all professional and technical employees
and other employees having access to valuable non-public information of the
Company, to execute agreements under which such employees are required to convey
to the Company ownership of all inventions and developments conceived or created
by them in the course of their employment and to maintain the confidentiality of
all such information of the Company. The Company has not made any such
information available to any person other than employees of the Company, except
pursuant to written agreements requiring the recipients to maintain the
confidentiality of such information and appropriately

15
<PAGE>

restricting the use thereof. Neither the Company nor any Principal Stockholder
has any knowledge of any infringement by others of any material Intellectual
Property rights of the Company.

(f) To the knowledge of the Company and its Principal Stockholders,
the present and contemplated business, activities, products and services of the
Company do not infringe any Intellectual Property of any other person. No
proceeding charging the Company with infringement of any adversely held
Intellectual Property has been filed or is threatened to be filed. To the
knowledge of the Company, there exists no unexpired patent or patent application
which includes claims that would be infringed by or otherwise adversely affect
the products, activities or business of the Company. To the knowldge of the
Company and the Principal Stockholders, the Company is not making unauthorized
use of any confidential information or trade secrets of any person, including,
without limitation, to the knowledge of the Company, any former employer of any
past or present employee of the Company. Except as set forth in Schedule 2.17,
-------------
neither the Company nor, to the knowledge of the Company and the Principal
Stockholders, any of its employees have any agreements or arrangements with any
persons other than the Company 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 their employees on behalf
of the Company do not violate any such agreements or arrangements known to the
Company.

2.18 Contracts. Except for contracts, commitments, plans, agreements and
---------
licenses described in Schedule 2.18 attached hereto (true and complete copies of
-------------
which have been delivered to Buyer) and excluding Vending Service Agreements,
the Company is not a party to, nor is it 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, consulting contract or contract for
services which is not terminable within thirty (30) days by the Company without
liability for any penalty or severance payment;

(c) Any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than $10,000 each, such orders not exceeding $50,000 in the aggregate;

(d) Any other contracts or agreements creating any obligations of
the Company of $10,000 or more 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;

16
<PAGE>

(f) Any contract or agreement which by its terms does not terminate
or is not terminable without penalty by the Company 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 with any sales agent or distributor of products of
the Company;

(i) Any contract containing covenants limiting the freedom of the
Company 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 $10,000, whether or not such purchase is in the
ordinary course of business;

(k) Any license agreement (as licensor or licensee);

(l) Any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money;

(m) Any contract or agreement with any officer, employee, director
or stockholder of the Company or with any persons or organizations controlled by
or affiliated with any of them; or

(n) Any contract, agreement or understanding whether in writing or
otherwise for the Company to take any of the actions specified in paragraphs (a)
through (m) above.

To the Company's knowledge, the Company is not in default (beyond all
applicable grace periods) under any such contracts, commitments, plans,
agreements or licenses described in said Schedule or has any knowledge of
conditions or facts which, with notice or the passage of time, or both, would
constitute a default (beyond all applicable grace periods).

2.19 Litigation. Schedule 2.19 attached hereto lists all currently
---------- -------------
pending litigation and governmental or administrative proceedings or
investigations to which the Company is a party. Except for matters described in
Schedule 2.19 attached hereto, there is no litigation or governmental or
- -------------
administrative proceeding or investigation pending or, to the knowledge of the
Company and the Principal Stockholders, threatened against the Company or its
affiliates (including, without limitation, directors and officers) which may
have, either individually or in the aggregate, a Material Adverse Effect on the
Company, or which would prevent or hinder the consummation of the transactions
contemplated by this Agreement. With respect to each matter set forth therein,
Schedule 2.19 attached hereto sets forth a description of the matter,
- -------------

17
<PAGE>

the forum (if any) in which it is being conducted, the parties thereto and the
type and amount of relief sought.

2.20 Compliance with Laws. Except as set forth in Schedule 2.20 attached
-------------------- -------------
hereto and to the Company's and the Principal Stockholder's knowledge, the
Company is in compliance in all material respects with all applicable statutes,
ordinances, orders, judgments, decrees, rules and regulations promulgated by any
federal, state, municipal or foreign entity, agency, court or other governmental
authority applicable to it or to the conduct of its business, and the Company
has not received notice of a violation or alleged violation of any such statute,
ordinance, order, rule or regulation, except where the failure to be in such
compliance would not have, either individually or in the aggregate, a Material
Adverse Effect on the Company, and the Company has not received notice of a
material violation or alleged material violation of any such statute, ordinance,
order, rule or regulation.

2.21 Insurance. The physical properties, assets, business, operations,
---------
employees, officers and directors of the Company are insured to the extent
disclosed in Schedule 2.21 attached hereto, and all such insurance policies and
-------------
arrangements are disclosed in said Schedule. There is no claim by the Company
pending under any such policies as to which coverage has been questioned, denied
or disputed by the insurer. Said insurance policies and arrangements are in
full force and effect, all premiums due with respect thereto are currently paid,
and the Company is in compliance in all material respects with the terms
thereof. Said insurance is adequate and customary for the business engaged in
by the Company and is sufficient for compliance by the Company with all
requirements of law and all agreements and leases to which the Company is a
party.

2.22 Warranty or Other Claims. There are no existing or threatened
------------------------
product liability, warranty or other similar claims, or any facts upon which a
material claim of such nature could be based, against the Company for products
or services which are defective or fail to meet any product or service
warranties except as disclosed in Schedule 2.22 hereto. No claim has been
-------------
asserted against the Company for renegotiation or price redetermination of any
business transaction, and there are no facts upon which any such claim could be
based.

2.23 Powers of Attorney. Neither the Company nor any Stockholder has any
------------------
outstanding power of attorney.

2.24 Finder's Fee. The Company has not incurred or become liable for any
------------
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.

2.25 Permits; Burdensome Agreements. Schedule 2.25 lists all material
------------------------------ -------------
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business. The Company has
obtained all such Approvals, which are valid and in full force and effect, and
is operating in material compliance therewith. Except as disclosed in

18
<PAGE>

Schedule 2.25 or in any other Schedule hereto, the Company is not subject to or
- -------------
bound by any agreement, judgment, decree or order which may have, either
individually or in the aggregate, a Material Adverse Effect on the Company.
Schedule 2.25 lists all registrations, certifications and similar approvals
- -------------
necessary or customary in the Company's business for use in the licensing,
marketing, maintenance, leasing, sales and distribution of the Company's
products and services.

2.26 Corporate Records; Copies of Documents. The corporate record and
--------------------------------------
minute books of the Company accurately record all corporate action taken by
their respective stockholders and board of directors and committees. The copies
of the corporate records of the Company, as made available to Buyer for review,
are true and complete copies of the originals of such documents. The Company
has made available for inspection and copying by Buyer and its counsel true and
correct copies of all documents referred to in this Section or in the Schedules
delivered to Buyer pursuant to this Agreement.

2.27 Transactions with Interested Persons. Except as set forth in
------------------------------------
Schedule 2.27 attached hereto, neither the Company any Stockholder, officer,
- -------------
supervisory employee or director of the Company nor, to the knowledge of the
Company and the Principal Stockholders, 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 the Company or any organization which
has a material contract or arrangement with the Company. Except as set forth in
Schedule 2.27 attached hereto, there are no loans, leases or other continuing
- -------------
transactions between the Company and any present, or former, stockholder,
director, officer or employee or, to the knowledge of the Company and the
Principal Stockholders, any member of such stockholder's, director's, officer's
or employee's immediate family, or any business organization controlled by any
such stockholder, director, officer, employee or his or her immediate family.

2.28 Employee Benefit Programs. Schedule 2.28 lists every Employee
------------------------- -------------
Program (as defined below) that has been maintained (as defined below) by the
Company at any time during the three-year period ending on the Closing Date.

(a) Each Employee Program which has ever been maintained by the
Company 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.

(b) The Company and the Principal Stockholders do not know and have
no reason to know, of any failure of any party to comply with any laws
applicable to the

19
<PAGE>

Employee Programs that have been maintained by the Company. With respect to any
Employee Program ever maintained by the Company, 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 the Company or Buyer. No litigation, arbitration,
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. No Employee Program has
any material unfunded or underfunded obligation to provide benefits to any past,
current or future participant therein.

(c) Neither the Company 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.

(d) With respect to each Employee Program maintained by the Company
within the three (3) years preceding the Closing, complete and correct copies of
the following documents (if applicable to such Employee Program) have previously
been delivered to Buyer: (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 Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three (3)
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 Buyer to perform any of its responsibilities with respect to any
Employee Program subsequent to the Closing (including, without limitation,
health care continuation requirements).

(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

20
<PAGE>

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 the Company 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).

(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.

2.29 Environmental Matters.
---------------------

(a) Except as set forth in Schedule 2.29 attached hereto, to the
-------------
knowledge of the Company and the Principal Stockholders, (i) the Company has
never generated, transported, used, stored, treated, disposed of or managed any
Hazardous Waste (as defined below); (ii) no Hazardous Material (as defined
below) has ever been or is threatened to be spilled, released or disposed of at
any site presently or formerly owned, operated, leased or used by the Company,
or has ever been located in the soil or groundwater at any such site; (iii) no
Hazardous Material not properly containerized under applicable law has ever been
transported from any site presently or formerly owned, operated, leased or used
by the Company for treatment, storage or disposal at any other place; (iv) the
Company does not presently own, operate, lease or use, nor has it previously
owned, operated, leased or used, any site on which underground storage tanks are
or were located; and (v) no lien has ever been imposed by any governmental
agency on any property, facility, machinery or equipment owned, operated, leased
or used by the Company in connection with the presence of any Hazardous
Material.

(b) Except as set forth in Schedule 2.29 attached hereto, to the
-------------
knowledge of the Company and the Principal Stockholders, (i) the Company does
not have any material liability under, nor has it ever violated, any
Environmental Law (as defined below); (ii) the Company, any property owned,
operated, leased or used by it, and any facilities and operations thereon, are
presently in compliance with all applicable Environmental Laws; (iii) the
Company has never entered into, nor has it ever been subject to any judgment,
consent

21
<PAGE>

decree, compliance order or administrative order with respect to any
environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry or formal or informal
complaint or claim with respect to any environmental or health and safety matter
or the enforcement of any Environmental Law; and (iv) the Company does not have
any reason to believe that any of the items enumerated in clause (iii) of this
Subsection will be forthcoming.

(c) Except as set forth in Schedule 2.29 attached hereto, no site
-------------
owned, operated, leased or used by the Company contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.

(d) The Company has provided to Buyer copies of all documents,
records, and information available to the Company concerning any environmental
or health and safety matter relevant to the Company, whether generated by the
Company or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding off-
site disposal of Hazardous Materials, spill control plans and reports,
correspondence, permits, licenses, approvals, consents and other authorizations
related to environmental or health and safety matters issued by any governmental
agency.

(e) For purposes of this Section 2.29, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance or by-law at the
foreign, federal, state or local level, whether existing as of the date hereof,
previously enforced or subsequently enacted; and (iv) "Company" shall mean and
include the Company and all other entities for whose conduct the Company is or
may be held responsible under any Environmental Law.

2.30 List of Directors and Officers. Schedule 2.30 attached hereto
------------------------------ -------------
contains a true and complete list of all current directors and officers of the
Company. In addition, Schedule 2.30 attached hereto contains a list of all
-------------
managers, employees and consultants of the Company who, individually, have
received or are scheduled to receive compensation from the Company for the
fiscal year ending January 31, 1998, in excess of $50,000. In each case, such
Schedule includes the current job title and aggregate annual compensation of
each such individual.

2.31 Employees; Labor Matters. The Company employ a total of
------------------------
approximately 71 full-time employees and 45 part-time employees. The Company do
not employ a total of 100 or more employees (excluding employees who work less
than 20 hours per week or who have worked for the Company less than six (6) of
the last twelve (12) months) and will not have employed 100 or more employees at
any point during the 90 days prior to and including the

22
<PAGE>

Closing Date. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of the employment of any of said
employees, neither the Company nor Buyer will by reason of the transactions
contemplated under this Agreement or anything done prior to the Closing be
liable to any of said employees for so-called "severance pay" or any other
payments, except as set forth in Schedule 2.31. The Company does not have any
-------------
policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment, except
as set forth in said Schedule. To the Company's knowledge, the Company is in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, work place safety and health, terms and
conditions of employment and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work or any other concerted interference with normal operations
which are existing, pending or, to the Company's knowledge, threatened against
or involving the Company. No question concerning representation exists
respecting any employees of the Company. There are no grievances, complaints or
charges that have been filed against the Company under any dispute resolution
procedure (including, but not limited to, any proceedings under any dispute
resolution procedure under any collective bargaining agreement) that might have
a Material Adverse Effect on the Company taken as a whole, and there is no
arbitration or similar proceeding pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by the Company. The Company has not received any
information indicating that any of its employment policies or practices is
currently being audited or investigated by any federal, state or local
government agency. To the Company's knowledge, the Company is, and at all times
since its organization has been, in compliance with the requirements of the
Immigration Reform Control Act of 1986.

2.32 Non-Foreign Status. The Company is not a "foreign person" within the
------------------
meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2.

2.33 [Intentionally Omitted].
-----------------------

2.34 Customers, Distributors and Suppliers. Schedule 2.34 sets forth any
------------------------------------- -------------
customer, sales representative or distributor (whether pursuant to a commission,
royalty or other arrangement) which accounts for more than 1% of the sales of
the Company on a consolidated basis for the twelve (12) months ended January 31,
1998 (collectively, the "Customers and Distributors"). Schedule 2.34 lists all
-------------
of the suppliers of the Company to whom during the fiscal year ended January 31,
1998, the Company made payments aggregating $50,000 or more, showing, with
respect to each, the name, address and dollar volume involved (the "Suppliers").
During the last twelve (12) months, no Customer, Distributor or Supplier has
canceled, materially modified, or otherwise terminated its relationship with the
Company, or has decreased materially its services, supplies or materials to the
Company or its usage or purchase of the services or products of the Company, nor
to the knowledge of the Company,

23
<PAGE>

does any Customer, Distributor or Supplier have any plan or intention to do any
of the foregoing.

2.35 [Intentionally Omitted.]

2.36 Stock Repurchase. Except as set forth in Schedule 2.36, the Company
---------------- -------------
has not redeemed or repurchased any of its capital stock.

2.37 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the Certificates, Exhibits and Schedules delivered by
the Company pursuant to this Agreement to Buyer 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.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS.
- -------------------------------------------------------------

As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Stockholder hereby
severally and not jointly makes to Buyer each of the representations and
warranties set forth in this Section 3 with respect to such Stockholder. No
Stockholder shall have any right of indemnity or contribution from the Company
with respect to the breach of any representation or warranty hereunder.

3.01 Company Shares. Such Stockholder owns of record and beneficially the
--------------
number of Company Shares set forth opposite such Stockholder's name in Exhibit A
---------
attached hereto. Such Company Shares are, and when delivered by such Stockholder
to Buyer pursuant to this Agreement will be, duly authorized, validly issued,
fully paid, nonassessable and free and clear of any and all liens, encumbrances,
restrictions on transfer, charges or claims, under Article 8 of any applicable
state version of the Uniform Commercial Code, including but not limited to
Massachusetts and Delaware, or otherwise, except restrictions on transferability
under applicable securities laws.

3.02 Authority. Such Stockholder has full right, authority, power and
---------
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Stockholder
pursuant to this Agreement and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument
constitute, or when executed and delivered will constitute, a valid and binding
obligation of such Stockholder, enforceable in accordance with their respective
terms, and such Stockholder has full power and authority to transfer, sell and
deliver the Company Shares to Buyer pursuant to this Agreement. The execution,
delivery and performance of this Agreement and each such agreement, document and
instrument:

24
<PAGE>

(i) does not and will not violate any federal, state or local
laws applicable to such Stockholder or require such Stockholder to obtain any
approval, consent or waiver from, or make any filing with, any person or entity
(governmental or otherwise) 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 indenture or loan or credit agreement or any other
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 mortgage,
pledge, lien, security interest or other charge or encumbrance on any assets of
the Company or on the Company Shares owned by such Stockholder.

3.03 Finder's Fee. Such Stockholder has not incurred or become liable for
------------
any broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.

3.04 Agreements. Each such Stockholder who is employed by the Company is
----------
not a party to any non-competition, trade secret or confidentiality agreement
with any party other than the Company. 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 the Company or to such
Stockholder's rights and obligations as a stockholder, director or officer of
the Company. Such Stockholder does not own, directly or indirectly, on an
individual or joint basis, any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of the Company, or any
organization which has a contract or arrangement with the Company. Such
Stockholder has not at any time transferred any of the stock of the Company held
by or for such holder to any employee of the Company, which transfer constituted
or could be viewed as compensation for services rendered to the Company by said
employee. The execution, delivery and performance of this Agreement will not
violate or result in a default or acceleration of any obligation under any
contract, agreement, indenture or other instrument involving the Company to
which such Stockholder is a party.

3.05 Investment Representations. In connection with the purchase and sale
--------------------------
of the Parent Shares by and to the Stockholders as contemplated by Section 1.02
above, each Stockholder hereby represents and warrants to Buyer as follows:

(a) Such Stockholder is purchasing the Parent Shares for his own
account for investment only, and not for resale or with a view to the
distribution thereof.

(b) Such Stockholder has had such an opportunity as he has deemed
adequate to obtain from Buyer such information as is necessary to permit him to
evaluate the merits and risks of an investment in Buyer and has consulted with
his own advisers with respect to his investment in Buyer.

25
<PAGE>

(c) Except as set forth in Schedule 3.05, such Stockholder is an
-------------
"accredited" investor within the meaning of Regulation D under the Securities
Act of 1933, as amended (the "Securities Act").

(d) Such Stockholder has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Parent Shares and to make an informed investment decision with respect to
such purchase.

(e) Such Stockholder can afford a complete loss of the value of the
Parent Shares and is able to bear the economic risk of holding the Parent Shares
for an indefinite period.

(f) Such Stockholder understands that the Parent Shares are not
registered under the Act or any applicable state securities or "blue sky" laws
and may not be sold or otherwise transferred or disposed of in the absence of an
effective registration statement under the Act (e.g., an effective registration
statement on Form S-1 covering the resale of the Parent Shares by the
Stockholder, such as is referred to in Section 7.02(h) hereof) and under any
applicable state securities or "blue sky" laws (or exemptions from the
registration requirements thereof). Such Stockholder further acknowledges that
certificates representing the Parent Shares will bear restrictive legends
reflecting the foregoing.

SECTION 4. COVENANTS OF THE COMPANY AND THE PRINCIPAL
- -----------------------------------------------------
STOCKHOLDERS.
------------

4.01 Making of Covenants and Agreements. The Company and the Principal
----------------------------------
Stockholders jointly and severally hereby make the covenants and agreements set
forth in this Section 4 and the Principal Stockholders agree to cause the
Company to comply with such agreements and covenants.

4.02 Conduct of Business. Between the date of this Agreement and the
-------------------
Closing Date, the Company will:

(a) Conduct its business only in the ordinary course and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;

(b) Refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from purchasing
any capital asset costing more than $50,000 and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets
other than in the ordinary course of business;

26
<PAGE>

(c) Refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;

(d) Refrain from making any change or incurring any obligation to
make a change in its Articles of Organization, by-laws or similar organizational
documents or authorized or issued capital stock or ownership interests;

(e) Refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock or ownership
interests, or making any direct or indirect redemption, purchase or other
acquisition of its stock or ownership interests;

(f) Refrain from making any change in the compensation payable or to
become payable to any of its officers, employees, agents or independent
contractors;

(g) Refrain from prepaying any loans (if any) from its stockholders,
officers or directors or making any change in its borrowing arrangements;

(h) Refrain from changing accounting policies or procedures;

(i) Pay all accounts payable and other accrued expenses in the
ordinary course of business and in a manner consistent with past practice unless
they are being disputed in good faith;

(j) Use its best efforts to prevent any change with respect to its
management and supervisory personnel and banking arrangements;

(k) Use its best efforts to keep intact its business organization, to
keep available its present officers and employees and to preserve the goodwill
of all suppliers, customers, independent contractors and others having business
relations with it;

(l) Have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers set forth in Schedule 2.21 attached
-------------
hereto or equivalent insurance with any substitute insurers approved in writing
by Buyer; and

(m) Permit Buyer and its authorized representatives to have full
access to all its properties, assets, contracts, books, tax returns, records,
accounting, financial and other business files and information and furnish to
Buyer or its authorized representatives such financial and other information
with respect to its business or properties as Buyer may from time to time
reasonably request.

4.03 Consents. Prior to the Closing Date, the Company and the Principal
--------
Stockholders shall make all filings with and notifications of governmental
authorities, regulatory agencies and other entities required to be made by such
parties in connection with

27
<PAGE>

the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; and the Company and the Principal Stockholders
shall obtain all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to Buyer, from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and the consummation of the transactions
contemplated by this Agreement, and to avoid any breach, default, termination,
acceleration or modification of any material agreement, contract, lease or
permit as a result of, or in connection with, the execution and performance of
this Agreement.

4.04 Notice of Default. Promptly upon the occurrence of, or promptly upon
-----------------
the Company or any Principal Stockholder becoming aware of the impending or
threatened occurrence of, any event which would cause or constitute a breach or
default, or would have caused or constituted a breach or default had such event
occurred or been known to the Company or such Principal Stockholder prior to the
date hereof, of any of the representations, warranties or covenants of the
Company or the Principal Stockholders contained in or referred to in this
Agreement or in any Schedule or Exhibit referred to in this Agreement, the
Company or the Principal Stockholders shall give detailed written notice thereof
to Buyer and the Company and the Principal Stockholders shall use their best
efforts to prevent or promptly remedy the same.

4.05 Consummation of Agreement. The Company and each Principal Stockholder
-------------------------
shall use its or his best efforts to perform and fulfill all conditions and
obligations on their parts to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be fully
carried out. To this end, the Company will obtain prior to the Closing all
necessary authorizations or approvals of its stockholders and board of
directors.

4.06 Cooperation of the Company and the Principal Stockholders. The
---------------------------------------------------------
Company and each of the Principal Stockholders shall cooperate with all
reasonable requests of Buyer and Buyer's counsel in connection with the
consummation of the transactions contemplated hereby.

4.07 No Solicitation of Other Offers. Unless and until this Agreement
-------------------------------
shall have been terminated, neither the Company nor any of the Principal
Stockholders shall, nor shall the Company permit any of its directors, officers,
employees or agents to, directly or indirectly, (i) take any action to solicit,
initiate submission of or encourage, proposals or offers from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) a portion of the assets of, or any equity interest in, the
Company, any merger or business combination with the Company or any public or
private offering of interests in the Company (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Buyer and its representatives, (iii)
furnish any information or afford access to the properties, books or records of
the Company to any person or entity that may consider making or has made an
offer with respect to an Acquisition Proposal other than Buyer and its
representatives, or

28
<PAGE>

(iv) otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do any of
the foregoing. The Company will promptly notify Buyer upon receipt of any offer
or indication that any person is considering making an offer with respect to an
Acquisition Proposal or any request for information relative to the Company or
for access to the properties, books and records of the Company, and will
promptly reject any such offer or request.

4.08 Confidentiality. The Company and the Principal Stockholders agree
---------------
that, unless and until the Closing has been consummated, each of the Company,
its officers, directors, agents and representatives and the Principal
Stockholders will hold in strict confidence, and will not use, any confidential
or proprietary data or information obtained from Buyer with respect to its
business or financial condition except for the purpose of evaluating,
negotiating and completing the transactions contemplated hereby. Information
generally known in Buyer's industry or which has been disclosed to the Company
or the Principal Stockholders by third parties which have a right to do so shall
not be deemed confidential or proprietary information for purposes of this
Agreement. If the transactions contemplated by this Agreement are not
consummated, the Company and the Principal Stockholders will return to Buyer (or
certify that they have destroyed) all copies of such data and information,
including, but not limited to, financial information, customer lists, business
and corporate records, worksheets, test reports, tax returns, lists, memoranda
and other documents prepared by or made available to the Company or the
Principal Stockholders in connection with the transactions.

4.09 Tax Returns. The Company and the Principal Stockholders shall
-----------
cooperate with Buyer to permit the Company in accordance with applicable law to
promptly prepare and file on or before the due date or any extension thereof all
federal, state and local tax returns required to be filed by the Company with
respect to taxable periods ending on or before the Closing.

4.10 Filing Cooperation. The Company and the Principal Stockholders shall
------------------
cooperate with Buyer and it agents in connection with any filings to be made by
Buyer, including, without limitation, filings under (i) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino Act"),
(ii) the Securities Act, including, but not limited to, the filing of a
Registration Statement on Form S-1 or, if necessary, Form S-4, with the
Securities and Exchange Commission (the "SEC"), or (iii) the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and shall furnish all information
required in connection therewith. Such cooperation shall include, but not be
limited to, obtaining any consent to inclusion of the Company's financial
statements and the audit reports with respect thereto in any filing made
pursuant to any federal or state securities laws (and any public disclosure
related thereto), whether before or after the Closing. The Principal
Stockholders acknowledge and agree that they have provided this Section of this
Agreement to the Company's outside accountants and have obtained assurances that
such accountants will provide such consent.

29
<PAGE>

4.11 No Transfer of Securities. Unless and until this Agreement shall
-------------------------
have been terminated in accordance with its terms, no Principal Stockholder
shall directly or indirectly exchange, deliver, assign, pledge, encumber or
otherwise transfer or dispose of any of the capital stock of the Company
(including any options in respect thereof), nor shall any Principal Stockholder
directly or indirectly grant any right of any kind to acquire, dispose of, vote
or otherwise control in any manner any such securities.

SECTION 4A. COVENANTS OF THE STOCKHOLDERS OTHER THAN THE
- --------------------------------------------------------
PRINCIPAL STOCKHOLDERS.
----------------------

4A.01 Making of Covenants and Agreements. Each Stockholder, other than
----------------------------------
the Principal Stockholders, severally and not jointly hereby makes the covenants
and agreements set forth in this Section 4A with respect to such Stockholder.

4A.02 No Solicitation of Other Offers. Unless and until this Agreement
-------------------------------
shall have been terminated, such Stockholder shall not, directly or indirectly,
(i) take any action to solicit, initiate submission of or encourage an
Acquisition Proposal, (ii) participate in any discussions or negotiations
regarding an Acquisition Proposal with any person or entity other than Buyer and
its representatives, (iii) furnish any information or afford access to the
properties, books or records of the Company to any person or entity that may
consider making or has made an offer with respect to an Acquisition Proposal
other than Buyer and its representatives, or (iv) otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do any of the foregoing.

4A.03 Confidentiality. Such Stockholder agrees that, unless and until
---------------
the Closing has been consummated, such Stockholder will hold in strict
confidence, and will not use, any confidential or proprietary data or
information obtained from Buyer with respect to its business or financial
condition except for the purpose of evaluating, negotiating and completing the
transactions contemplated hereby. Information generally known in Buyer's
industry or which has been disclosed to such Stockholder by third parties which
have a right to do so shall not be deemed confidential or proprietary
information for purposes of this Agreement. If the transactions contemplated by
this Agreement are not consummated, such Stockholder will return to Buyer (or
certify that they have destroyed) all copies of such data and information,
including, but not limited to, financial information, customer lists, business
and corporate records, worksheets, test reports, tax returns, lists, memoranda
and other documents prepared by or made available to such Stockholder in
connection with the transactions.

4A.04 Filing Cooperation. Such Stockholder shall cooperate with Buyer
------------------
and it agents in connection with any filings to be made by Buyer, including,
without limitation, filings under (i) the Hart-Scott-Rodino Act, (ii) the
Securities Act, including, but not limited to, the filing of a Registration
Statement on Form S-1 or, if necessary, Form S-4, with the SEC, or (iii) the
Exchange Act, and shall furnish all information required in connection
therewith. No such

30
<PAGE>

Stockholder shall be responsible for any fee applicable to any such filing or
for any portion of the costs of the Buyer's and Parent's legal, accounting and
other professional fees.

4A.05 No Transfer of Securities. Unless and until this Agreement shall
-------------------------
have been terminated in accordance with its terms, such Stockholder shall not
directly or indirectly exchange, deliver, assign, pledge, encumber or otherwise
transfer or dispose of any of the capital stock of the Company (including any
options in respect thereof), nor shall such Stockholder directly or indirectly
grant any right of any kind to acquire, dispose of, vote or otherwise control in
any manner any such securities.

SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
- --------------------------------------------------

5.01 Making of Representations and Warranties. As a material inducement to
----------------------------------------
the Company and the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer hereby makes the representations and
warranties to the Company and the Stockholders contained in this Section 5.

5.02 Organization of Buyer. Buyer is a corporation duly organized, validly
---------------------
existing and in good standing under the laws of the State of Delaware with full
corporate power 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 conducted by it.

5.03 Capitalization. The authorized capital stock of Parent consists of
--------------
30,000,000 Parent Shares and 5,000,000 shares of undesignated preferred stock.
As of the date hereof, 13,174,118 Parent Shares are issued, outstanding, fully
paid and nonassessable, and 1,157,982 Parent Shares are reserved for issuance
(less options exercised subsequent to December 30, 1997) pursuant to Buyer's
1997 Stock Option and Incentive Plan. All issued and outstanding shares and
options to acquire shares (i) have been duly authorized and validly issued, (ii)
are fully paid and nonassessable, and (iii) were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. When
issued in compliance with the provisions of this Agreement, the Parent Shares
will be validly issued, fully paid and nonassessable, and will be free and clear
of any and all liens, encumbrances, restrictions on transfer, charges or claims,
under Article 8 of any applicable state version of the Uniform Commercial Code,
including but not limited to Massachusetts and Delaware, or otherwise, except
for restrictions on transferability under applicable securities laws.

5.04 Authority of Buyer. Buyer has full right, authority and power to
------------------
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by the Buyer pursuant to this Agreement and to carry out
the transactions contemplated hereby and thereby, including, without limitation,
the authorization, sale, issuance and delivery of the Parent Shares. The
execution, delivery and performance by Buyer of this Agreement and each such
other agreement, document and instrument have been duly authorized by all
necessary corporate action of Buyer and no other action on the part of Buyer is
required in connection

31
<PAGE>

therewith. This Agreement and each other agreement, document and instrument
constitute, or when executed and delivered will constitute, valid and binding
obligations of Buyer enforceable in accordance with their terms, except as
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights and
(ii) general principles of equity that restrict the availability of equitable
remedies. The execution, delivery and performance by Buyer of this Agreement and
each such agreement, document and instrument:

(A) does not and will not violate any provision of the
Certificate of Incorporation or by-laws of Buyer; and

(B) does not and will not violate any federal, state or
local laws applicable to Buyer or require Buyer to obtain any approval, consent
or waiver of, or make any filing with, any person or entity (governmental or
otherwise) which has not been obtained or made.

5.05 Litigation. There is no litigation pending or, to Buyer's knowledge,
----------
threatened against Buyer which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.

5.06 Finder's Fee. Buyer has not incurred or become liable for any
------------
broker's commission or finder's fee which would be payable by any Stockholder or
the Company relating to or in connection with the transactions contemplated by
this Agreement.

SECTION 6. COVENANTS OF BUYER.
- -----------------------------

6.01 Making of Covenants and Agreements. Buyer hereby makes the covenants
----------------------------------
and agreements set forth in this Section 6.

6.02 Confidentiality. Buyer agrees that, unless and until the Closing has
---------------
been consummated, Buyer and its officers, directors, agents and representatives
will hold in strict confidence, and will not use, any confidential or
proprietary data or information obtained from the Company or the Stockholders
with respect to the business or financial condition of the Company except for
the purpose of evaluating, negotiating and completing the transactions
contemplated hereby. Information generally known in the industries of the
Company or which has been disclosed to Buyer by third parties which have a right
to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transactions contemplated by this Agreement
are not consummated, Buyer will return to the Company (or certify that it has
destroyed) all copies of such data and information, including, but not limited
to, financial information, customer lists, business and corporate records,
worksheets, test reports, tax returns, lists, memoranda and other documents
prepared by or made available to Buyer in connection with the transactions.
Notwithstanding the foregoing, Buyer shall be permitted to disclose such
information about the Company, the Stockholders and the

32
<PAGE>

transactions contemplated hereby as may be legally required, and otherwise
reasonably necessary, in the preparation, completion, filing and distribution of
such reports, filings and other documents required by the Securities Act, the
Exchange Act or New York Stock Exchange rules.

6.03 Consents. Buyer shall make all filings with and notifications of
--------
governmental authorities, regulatory agencies and other entities required to be
made by Buyer in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby; and Buyer shall
obtain all authorizations, waivers, consents and permits, from all third
parties, including, without limitation, applicable governmental authorities,
regulatory agencies, lessors, lenders and contract parties, required to permit
the consummation of the transactions contemplated by this Agreement, and to
avoid any breach, default, termination, acceleration or modification of any
material agreement, contract, lease or permit as a result of, or in connection
with, the execution and performance of this Agreement.

6.04 Consummation of Agreement. Buyer shall use its best efforts to
-------------------------
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.

SECTION CONDITIONS.
- ------------------

7.01 Conditions to the Obligations of Buyer. The obligation of Buyer to
--------------------------------------
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:

(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of the Company and the Stockholders contained in
this Agreement shall be true and correct in all material respects (except for
such representations and warranties that are qualified by their terms as to
materiality, which representations and warranties as so qualified shall be true
in all respects) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing; and the Company and each of the
Stockholders shall, on or before the Closing, have performed in all material
respects all of their obligations hereunder which by the terms hereof are to be
performed on or before the Closing.

(b) No Material Change. There shall have been no change in the
------------------
financial condition, prospects, properties, assets, liabilities, business or
operations of the Company since the date hereof which has resulted in or is
reasonably likely to result in a Material Adverse Effect on the Company taken as
a whole, whether or not in the ordinary course of business.

(c) Retained Deficit. Prior to giving effect to the transactions
----------------
contemplated by this Agreement, excluding the effect of the payment of all fees
and expenses of the

33
<PAGE>

Company incurred or to be incurred in connection with the transactions
contemplated hereby, including, without limitation, legal and accounting
expenses, the Company's retained deficit shall not be more than $500,000, the
Company's current assets and current liabilities (each as measured according to
GAAP) shall be consistent with levels maintained in the Company's normal course
of business over the most recently completed fiscal year, and Buyer shall have
received a certificate to such effect from the Company's President and Chief
Financial Officer or Treasurer.

(d) Certificate from Officers. The Stockholders shall have delivered
-------------------------
to Buyer a certificate of the Company's President and Chief Financial Officer or
Treasurer dated as of the Closing Date to the effect that the statements set
forth in paragraphs (a) and (b) above are true and correct.

(e) Approval of Buyer's Counsel. All actions, proceedings,
---------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP, as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates, opinions and documents in form reasonably satisfactory to
such counsel, as Buyer may reasonably require from the Company and the
Stockholders to evidence compliance with the terms and conditions hereof as of
the Closing and the correctness as of the Closing of the representations and
warranties of the Company and the Stockholders and the fulfillment of their
respective covenants.

(f) Opinion of Counsel. On the Closing Date, Buyer shall have
------------------
received from Rubin and Rudman LLP, counsel for the Company and the
Stockholders, an opinion as of said date, in the form attached hereto as Exhibit
-------
B.
- -

(g) No Litigation. There shall have been no determination by Buyer,
-------------
acting in good faith, that the consummation of the transactions contemplated by
this Agreement has become inadvisable or impracticable by reason of the
institution or threat by any person or any federal, state, foreign or other
governmental authority of litigation, proceedings or other action against Buyer,
the Company or any Stockholder.

(h) Consents. The Company or the Stockholders shall have made all
--------
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by the Company or the Stockholders in
connection with the execution and delivery of this Agreement, the performance of
the transactions contemplated hereby and the continued operation of the business
of the Company by Buyer subsequent to the Closing. The Company, the Stockholders
and Buyer shall have received all authorizations, waivers, consents and permits,
in form and substance reasonably satisfactory to Buyer, from all third parties,
including, without limitation, applicable governmental authorities, regulatory
agencies, lessors, lenders and contract parties, required to permit the
continuation of the business of the Company and the consummation of the
transactions contemplated by this Agreement, and to avoid a breach, default,
termination, acceleration or modification of any indenture, loan or

34
<PAGE>

credit agreement or any other material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award as a result of, or in connection
with, the execution and performance of this Agreement.

(i) Hart-Scott-Rodino. All required filings under the Hart-Scott-
-----------------
Rodino Act (if any) shall have been completed and all applicable time
limitations under such Act shall have expired without a request for further
information by the relevant federal authorities under such Act, or in the event
of such a request for further information, the expiration of all applicable time
limitations under the Act shall have occurred without the objection of such
federal authorities.

(j) Employment and Non-Competition Agreements. Each of Edward J.
-----------------------------------------
Goulart and Robert W. LaRoche shall have executed and delivered to Buyer an
Employment Agreement in substantially the form of Exhibit C attached hereto.
---------
Mr. LaRoche shall have executed and delivered to Buyer a Non-Competition
Agreement in substantially the form of Exhibit D attached hereto.
---------

(k) FIRPTA Withholding. At or prior to the Closing, Buyer shall have
------------------
received from each Stockholder a "transferor's certificate of non-foreign
status" as provided in the Treasury Regulations under Section 1445 of the Code
in the form attached hereto as Exhibit E.
---------

(l) Acquisition Audit. Buyer shall have received a satisfactory audit
-----------------
report from Kenneth A. Najarian, P.C. with respect to the financial statements
and financial condition of the Company as of January 31, 1998.

(m) Massachusetts Tax Certificate. At or prior to the Closing, Buyer
-----------------------------
shall have received from the Company a certificate of payment/good standing from
the Commissioner of Revenue as provided in Massachusetts General Laws Chapter
62C, Section 44(a).

(n) Employee Programs. The Company shall have taken all steps
-----------------
necessary under the relevant documents and applicable law to maintain the
qualification of each Employee Program identified in Schedule 2.28
-------------
notwithstanding the purchase of the Company Shares by Buyer.

(o) Resignations. The Company shall have delivered to Buyer
------------
resignations of all of the directors of the Company, except for Mr. LaRoche who
shall remain as a director of the Company for so long as he is an employee of
the Company, and of such officers of the Company as may be requested by Buyer at
least five (5) days prior to the Closing, such resignations to be effective at
the Closing.

35
<PAGE>

(p) Releases. The Company shall have delivered to Buyer general
--------
releases signed by each Stockholder and by each officer and director of the
Company of all claims which any of them have against the Company in the form
attached hereto as Exhibit F.
---------

(q) Conversion of Class A Preferred Stock; Redemption of Class B
------------------------------------------------------------
Preferred Stock. All shares of Class A Preferred Stock shall have been
- ---------------
converted solely into shares of Common Stock, and all shares of Class B
Preferred Stock shall have been redeemed by the Company as described in this
Agreement.

(r) Registration Rights Agreement. The Stockholders shall have
-----------------------------
executed and delivered to Buyer a Registration Rights Agreement in substantially
the form of Exhibit G attached hereto.
---------

(s) Registration Statement. On the Closing Date, there shall be a
----------------------
valid, effective Registration Statement on Form S-1 on file with the SEC
applicable to the resale of the Parent Shares to be issued to the Stockholders
in connection with the transactions contemplated hereby.

7.02 Conditions to Obligations of the Company and the Stockholders. The
-------------------------------------------------------------
obligations of the Company and the Stockholders to consummate this Agreement and
the transactions contemplated hereby is subject to the fulfillment, prior to or
at the Closing, of the following conditions precedent:

(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as though made on and as of the
Closing Date. Buyer shall, on or before the Closing, have performed in all
material respects all of its obligations hereunder which by the terms hereof are
to be performed on or before the Closing. Buyer shall have delivered to the
Company and the Stockholders a certificate of the President or any Vice
President of Buyer dated the Closing Date to such effect.

(b) Approval of the Company's Counsel. All actions, proceedings,
---------------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Rubin and Rudman LLP, as counsel for
the Company and the Stockholders, and such counsel shall have received on behalf
of the Company and the Stockholders such other certificates, opinions and
documents in form reasonably satisfactory to such counsel, as the Company may
reasonably require from Buyer to evidence compliance with the terms and
conditions hereof as of the Closing and the correctness as of the Closing of the
representations and warranties of Buyer and the fulfillment of its covenants.

(c) Opinion of Counsel. On the Closing Date, the Stockholders shall
------------------
have received from Goodwin, Procter & Hoar LLP, counsel for Buyer, an opinion as
of said date, in the form attached hereto as Exhibit H.
---------

36
<PAGE>

(d) No Litigation. There shall have been no determination by the
-------------
Company, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, foreign or
other governmental authority of litigation, proceedings or other action against
Buyer, the Company or any Stockholder.

(e) Hart-Scott-Rodino. All required filings under the Hart-Scott-
-----------------
Rodino Act (if any) shall have been completed and all applicable time
limitations under such Act shall have expired without a request for further
information by the relevant federal authorities under such Act, or in the event
of such a request for further information, the expiration of all applicable time
limitations under the Act shall have occurred without the objection of such
federal authorities.

(f) Employment and Non-Competition Agreements. Buyer shall have
-----------------------------------------
executed and delivered to each of Edward J. Goulart and Robert W. LaRoche an
Employment Agreement in substantially the form of Exhibit C attached hereto.
---------
Buyer shall have executed and delivered to Mr. LaRoche a Non-Competition
Agreement in substantially the form of Exhibit D attached hereto.
---------

(g) Registration Rights Agreement. Buyer shall have executed and
-----------------------------
delivered to the Stockholders a Registration Rights Agreement in substantially
the form of Exhibit G attached hereto.
---------

(h) Registration Statement. On the Closing Date, there shall be a
----------------------
valid, effective Registration Statement on Form S-1 on file with the SEC
applicable to the resale of the Parent Shares to be issued to the Stockholders
in connection with the transactions contemplated hereby.

SECTION 8. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
- ------------------------------------------------------

8.01 Termination. At any time prior to the Closing, this Agreement may be
-----------
terminated as follows:

(i) by mutual written consent of all of the parties to this
Agreement;

(ii) by Buyer (A) if the Company or any Stockholder is in
material breach of this Agreement and such breach shall remain uncured for a
period of five (5) business days after Buyer shall have given written notice of
such breach to the Company and, if applicable, such Stockholder, or (B) if at or
prior to Closing, any of the conditions in Section 7.01 shall not have been
satisfied, complied with or performed in all material respects (unless such
failure of satisfaction, noncompliance or nonperformance is the result directly
or indirectly of any action or failure to act on the part of Buyer) and Buyer
shall not have waived such failure of satisfaction, noncompliance or
nonperformance;

37
<PAGE>

(iii) by the Company, and the Stockholders, (A) if Buyer is in
material breach of this Agreement and such breach shall remain uncured for a
period of five (5) business days after the Company shall have given written
notice of such breach to Buyer, or (B) if at or prior to Closing, any of the
conditions in Section 7.02 shall not have been satisfied, complied with or
performed in all material respects (unless such failure of satisfaction,
noncompliance or nonperformance is the result directly or indirectly of any
action or failure to act on the part of the Company or any Stockholder) and the
Company and the Stockholders shall not have waived such failure of satisfaction,
noncompliance or nonperformance; or

(iv) by Buyer or the Company and the Stockholders, if the
Closing has not occurred on or before July 31, 1998.

8.02 Effect of Termination. All obligations of the parties hereunder shall
---------------------
cease upon any termination pursuant to Section 8.01; provided, however, that (i)
-------- -------
the provisions of this Section 8, Section 4.08, Section 6.02, Section 11.01 and
Section 11.09 hereof shall survive any termination of this Agreement, (ii)
subject to Section 1.09, nothing herein shall relieve any party from any
liability for a material error or omission in any of its representations or
warranties contained herein or a material failure to comply with any of its
covenants, conditions or agreements contained herein, and (iii) any party may
proceed as further set forth in Section 8.03 below.

8.03 Right to Proceed. Anything in this Agreement to the contrary
----------------
notwithstanding, if any of the conditions specified in Section 7.01 hereof have
not been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder, and if any of
the conditions specified in Section 7.02 hereof have not been satisfied, the
Stockholders shall have the right to proceed with the transactions contemplated
hereby without waiving any of their rights hereunder.

SECTION 9. SURVIVAL
- -------------------

9.01 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, with the exception of the
representations, warranties and covenants with respect to Taxes or tax related
matters which shall survive until the termination of the applicable statute of
limitations, shall survive the Closing for eighteen months regardless of any
investigation and shall not merge in the performance of any obligation by either
party hereto.

38
<PAGE>

SECTION 10. INDEMNIFICATION
- ---------------------------

10.01 Indemnification by the Stockholders. The Stockholders severally and
-----------------------------------
not jointly agree subsequent to the Closing to indemnify and hold the Company,
Buyer and their respective subsidiaries and affiliates and persons serving as
officers, directors, partners or employees thereof (individually, a "Buyer
Indemnified Party" and, collectively, the "Buyer 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 or suffered by any of them arising out of
or based upon any of the following matters:

(a) Fraud, intentional misrepresentation or a deliberate or willful
breach by the Company or any Stockholder of any of their representations,
warranties or covenants under this Agreement or in any Certificate, Schedule or
Exhibit delivered pursuant hereto;

(b) Any other breach of any representation, warranty or covenant of
the Company or any Stockholder under this Agreement or in any Certificate,
Schedule or Exhibit delivered pursuant hereto, or by reason of any claim, action
or proceeding asserted or instituted growing out of any matter or thing
constituting a breach of such representations, warranties or covenants; and

(c) Any liability of the Company for Taxes arising from an event or
transaction prior to the Closing or as a result of the Closing which have not
been paid or provided for or reserved against by the Company including, without
limitation, any increase in Taxes due to the unavailability of any loss or
deduction claimed by the Company.

10.02 Limitations on Indemnification by the Stockholders. Notwithstanding
--------------------------------------------------
the foregoing, the right of Buyer Indemnified Parties to indemnification under
Section 10.01 shall be subject to the following provisions:

(a) No indemnification shall be payable pursuant to Subsection
10.01(b) above to any Buyer Indemnified Party, unless the total of all claims
for indemnification pursuant to Section 10.01 shall exceed $200,000 in the
aggregate, whereupon the full amount of such claims shall be recoverable in
accordance with the terms hereof;

(b) No indemnification shall be payable by any Stockholder pursuant
to Section 10.01 above to the Buyer Indemnified Parties in an aggregate amount
in excess of such Stockholder's net proceeds received pursuant to Section 1.02
hereof; and

(c) No indemnification shall be payable to a Buyer Indemnified Party
with respect to claims asserted pursuant to Subsection 10.01(b) (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) after the eighteen month anniversary

39
<PAGE>

of the Closing Date (the "Indemnification Cut-Off Date"), except for claims made
pursuant hereto within the time period set forth in Section 9.1, in which case
such claims shall survive, and indemnification (if any) shall be payable with
respect thereto, until finally resolved.

10.03 Indemnification by Buyer. Buyer agrees to indemnify and hold the
------------------------
Stockholders (individually, each a "Stockholder Indemnified Party" and,
collectively, the "Stockholder Indemnified Parties") 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 any of them arising out of or based upon any breach of any
representation, warranty or covenant made by Buyer in this Agreement or in any
Certificate delivered by Buyer hereunder, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing
constituting such a breach.

10.04 Limitation on Indemnification by Buyer. Notwithstanding the
--------------------------------------
foregoing, the right of Stockholder Indemnified Parties to indemnification under
Section 10.03 shall be subject to the following provisions:

(a) No indemnification pursuant to Section 10.03 shall be payable to
the Stockholders, unless the total of all claims for indemnification pursuant to
Section 10.03 shall exceed $200,000 in the aggregate, whereupon the full amount
of such claims shall be recoverable in accordance with the terms hereof; and

(b) No indemnification shall be payable to the Stockholders with
respect to claims asserted pursuant to Section 10.03 above after the
Indemnification Cut-Off Date.

10.05 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 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 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

40
<PAGE>

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 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.

SECTION 11. MISCELLANEOUS.
- -------------------------

11.01 Fees and Expenses. Each of the parties will bear its own expenses in
-----------------
connection with the negotiation and the consummation of the transactions
contemplated by this Agreement, and no expenses of the Company or the
Stockholders relating in any way to the transactions contemplated hereby,
including, without limitation, legal, accounting or other professional expenses
and any broker's commission or finder's fee, shall be charged to, paid by or
reflected in any account of the Company or Buyer; provided, however, that the
-------- -------
Company shall pay the customary fees and expenses related to the audit of the
Company's financial statements for the fiscal year ended January 31, 1998.

11.02 Governing Law. This Agreement shall be construed under and governed
-------------
by the internal laws of The Commonwealth of Massachusetts without regard to its
conflict of laws provisions.

11.03 Notices. Any notice, request, demand or other communication required
-------
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered or sent by facsimile transmission, upon receipt, or if sent
by registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three (3) days after deposit in United States
post office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:

41
<PAGE>

TO BUYER: Mac-Gray Services, Inc.
- --------
22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386
Attn: Chief Executive Officer

With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Fax: (617) 523-1231
Attn: Stuart M. Cable, Esq.

TO COMPANY: Copico, Inc.
- -----------
55 North Street
Canton, MA 02021
Fax: (781) 821-0513
Attn: President

With a copy to: Rubin and Rudman LLP
50 Rowes Wharf
Boston, MA 02110
Fax: (617) 439-9556
Attn: Peter B. Finn, Esq.

TO ANY STOCKHOLDER: At the address set forth under such Stockholder's
- ------------------
name on the Signature pages hereto.

With a copy to: Rubin and Rudman LLP
50 Rowes Wharf
Boston, MA 02110
Fax: (617) 439-9556
Attn: Peter B. Finn, Esq.

Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.

11.04 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.

11.05 Assignability; Binding Effect. This Agreement shall only be
-----------------------------
assignable by Buyer, whether in whole or in part, to an entity controlling,
controlled by or under common

42
<PAGE>

control with Buyer upon written notice to the Company and the Stockholders, and
such assignment shall not relieve Buyer of any liability hereunder. This
Agreement may not be assigned by the Company or the Stockholders without the
prior written consent of Buyer. This Agreement shall be binding upon and
enforceable by, and shall inure to the benefit of, the parties hereto and their
respective successors and permitted assigns.

11.06 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.

11.07 Execution in Counterparts. For the convenience of the parties and to
-------------------------
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.

11.08 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 Buyer, the Company and the Stockholders,
or in the case of a waiver, the party waiving compliance.

11.09 Publicity and Disclosures. No press releases or public disclosure,
-------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Buyer, the Company and the Stockholders; provided, however,
-------- -------
that Buyer shall be permitted to disclose such information about the Company,
the Stockholders and the transactions contemplated hereby as may be legally
required, and otherwise reasonably necessary, in the preparation, completion,
filing and distribution of such reports, filings and other documents required by
the Securities Act, the Exchange Act or New York Stock Exchange rules; provided,
--------
further, that Buyer shall be permitted to make such press releases related to
- -------
the execution of this Agreement as may be reasonably approved by the
Stockholders.

11.10 Dispute Resolution. Except as provided in Section 11.11 below, any
------------------
dispute arising out of or relating to this Agreement or the breach, termination
or validity hereof shall be finally settled by binding arbitration conducted
expeditiously in accordance with the Center for Public Resources Rules for
Nonadministered Arbitration of Business Disputes (the "CPR Rules"). The Center
for Public Resources 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 Boston, Massachusetts.

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:

43
<PAGE>

(i) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;

(ii) no other discovery;

(iii) hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three hours; such hearings
to take place in one or two days at a maximum; and

(iv) decision to be rendered not later than 10 days following
such hearings.

Each of Parent, Buyer, the Company and the Stockholders (a) hereby
unconditionally and 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 and (b) hereby waives, and agrees
not to assert in any civil action to enforce the award, any claim that it is not
subject personally to the jurisdiction of the above-named court, that its
property is exempt or immune from attachment or execution, that the civil action
is brought in an inconvenient forum, that the venue of the civil action 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 Parent, Buyer, the
Company and the Stockholders hereby consents to service of process by certified
mail or by a nationally recognized overnight courier at the address to which
notices are to be given. Each of Parent, Buyer, the Company and the Stockholders
agrees that its submission to jurisdiction and its consent to service of process
by certified mail or by courier is made for the express benefit of the other
parties hereto. Final judgment against Parent, Buyer, the Company or the
Stockholders 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.

11.11 Specific Performance. The parties agree that it would be difficult to
--------------------
measure damages which might result from a breach of this Agreement by the other
parties hereto and that money damages would be an inadequate remedy for such a
breach. Accordingly, if there is a breach or proposed breach of any provision of
this Agreement by the other party hereto and the non-breaching party does not
elect to terminate under Section 8, such non-breaching party shall be entitled,
in addition to any other remedies which it may have, to an injunction or other
appropriate equitable relief to restrain such breach without having to show or
prove actual damage to such non-breaching party.

[End of Text]

44
<PAGE>

IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above.

BUYER:
-----

MAC-GRAY SERVICES, INC.

By:_________________________________
Name:
Title:

COMPANY:
-------

COPICO, INC.

By:_________________________________
Name:
Title:

PRINCIPAL STOCKHOLDERS:
----------------------

____________________________________
Edward J. Goulart

Address:____________________________
____________________________
____________________________

____________________________________
Robert W. LaRoche

Address:____________________________
____________________________
____________________________
<PAGE>

OTHER STOCKHOLDERS:
------------------

____________________________________
Peter B. Finn

Address:____________________________
____________________________
____________________________

____________________________________
Ronald R. Jalbert

Address:____________________________
____________________________
____________________________

____________________________________
David Luongo

Address:____________________________
____________________________
____________________________

____________________________________
Joseph J. Tischler

Address:____________________________
____________________________
____________________________
<PAGE>

MASSACHUSETTS CAPITAL
RESOURCE COMPANY

By:_________________________________
Name:
Title:

Address:____________________________
____________________________
____________________________
<PAGE>

The undersighned hereby joins as an additional signatory to that certain
Stock Purchase Agreement dated as of March 31, 1998 with respect to any
provisions of such Agreement applicable to, or creating binding obligations with
respect to, Parent Shares.

MAC-GRAY CORPORATION

By: __________________________
Name: Patrick A. Flanagan
Title: Executive Vice President

48
<PAGE>

List of Exhibits and Schedules
------------------------------

Exhibit A List of Stockholders, Stockholdings and Consideration to be Paid
B Form of Opinion of Counsel for the Company and the Stockholders
C Form of Employment Agreement
D Form of Non-Competition Agreement
E FIRPTA Representation
F Form of General Release
G Form of Registration Rights Agreement
H Form of Opinion of Counsel for Buyer

Schedule 2.03 Voting Agreements, etc.
2.05 Liens, etc.
2.06(a) Real Property
2.06(b) Personal Property
2.07 Vending Service Agreements
2.08 Equipment
2.09 Title
2.10 Financial Statements
2.11 Tax Disclosures
2.12 Affiliated Accounts Receivable
2.13 Inventories
2.14 Absence of Changes
2.16 Banking Arrangements
2.17 Intellectual Property
2.18 Contracts, etc.
2.19 Litigation
2.20 Compliance with Laws
2.21 Insurance
2.22 Warranty Claims
2.25 Permit; Burdensome Agreements
2.27 Transactions with Interested Persons
2.28 Employee Benefit Programs
2.29 Environmental Matters
2.30 Officers and Directors
2.31 Labor Matters
2.34 Customers, Distributors and Suppliers
2.36 Stock Repurchases

49
<PAGE>

EXHIBIT A
---------

List of Stockholders, Stockholdings and Consideration to be Paid
----------------------------------------------------------------

<TABLE>
<CAPTION>
=========================
CONSIDERATION PAYABLE
BY BUYER
================================================================================
OWNERSHIP OF OWNERSHIP OF PARENT
COMPANY COMPANY CASH SHARES
NAME OF SECURITIES AT SHARES AT AT AT
STOCKHOLDER MARCH 31, 1998 CLOSING CLOSING CLOSING
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edward J. Goulart 350 350 Shares * 67,900
27.16%
- -------------------------------------------------------------------------------

Robert W. LaRoche 350 350 Shares * 67,900
27.16%
- -------------------------------------------------------------------------------

Peter B. Finn 0 13 Shares * 2,500
1.00 %
- -------------------------------------------------------------------------------

Ronald R. Jalbert 300 300 Shares * 58,200
23.28 %
- -------------------------------------------------------------------------------

David Luongo 0 13 Shares * 2,500
1.00%
- -------------------------------------------------------------------------------

Joseph J. Tischler 0 13 Shares * 2,500
1.00%
- -------------------------------------------------------------------------------

Massachusetts Capital 250 250 Shares * 48,500
Resource Company 19.40%
===============================================================================
</TABLE>

* To be determined at closing, based on percentage set forth above

<PAGE>

EXHIBIT 21.1

LIST OF SUBSIDIARIES OF REGISTRANT

Mac-Gray Investments, Inc., a Delaware corporation

Mac-Gray Services, Inc., a Delaware corporation

Intirion Corporation, a Delaware corporation

<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 Mac-Gray Corporation of our report dated
January 30, 1998 relating to the consolidated financial statements of Mac-Gray
Corporation 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
Financial Data" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Historical
Financial Data."

/s/ Price Waterhouse LLP

Boston, Massachusetts
April 9, 1998

<PAGE>

EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Mac-Gray Corporation of our report dated
August 22, 1997 relating to the financial statements of Intirion Corporation,
which appears in such Prospectus. We also consent to the application of such
report to the Financial Statement Schedule for the three years ended June 30,
1997 listed under Item 16(b) of this Registration Statement when such schedule
is read in conjunction with the financial statements referred to in our
report. The audits referred to in such report also included this schedule. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Price Waterhouse LLP

Boston, Massachusetts
April 9, 1998

<PAGE>

EXHIBIT 23.4

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 report dated January 30, 1998,
except as to the pooling of interests with Intirion which is as of March 12,
1998, relating to the supplementary consolidated financial statements of Mac-
Gray Corporation, which appear in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

/s/ Price Waterhouse LLP

Boston, Massachusetts
April 9, 1998