MAC-GRAY CORP, POS AM, 1998-06-10

MAC-GRAY CORP
POS AM, 1998-06-10
PERSONAL SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1998
REGISTRATION STATEMENT NO. 333-45899

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

POST-EFFECTIVE AMENDMENT NO. 4

FORM S-1*

TO THE

REGISTRATION STATEMENT

ORIGINALLY FILED ON FORM S-4
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.[_]

This Post-Effective Amendment to the Registration Statement shall become
effective upon order of the Commission pursuant to Section 8(c) of the
Securities Act of 1933, as amended.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

* Filed as a Post-Effective Amendment on Form S-1 to such Form S-4
Registration Statement pursuant to the provisions of Rule 401(e) and the
procedure described therein.
<PAGE>

PROSPECTUS

MAC-GRAY CORPORATION

967,914 SHARES OF COMMON STOCK

This Prospectus relates to the sale of 967,914 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"), by certain former
shareholders (the "Selling Securityholders") of Intirion Corporation, a
Delaware corporation ("Intirion"). The Selling Securityholders received the
Shares in connection with Mac-Gray's acquisition of Intirion, which was
consummated on March 12, 1998 by way of the merger (the "Merger") of MI
Acquisition Corp., a Delaware corporation ("MIAC") and a wholly-owned
subsidiary of Mac-Gray, with and into Intirion, pursuant to the Agreement and
Plan of Merger dated as of December 22, 1997 by and among Mac-Gray, MIAC,
Intirion and Robert P. Bennett ("Bennett") (the "Merger Agreement"). See
"Summary of Prospectus--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, including the reasonable fees of one
counsel reasonably satisfactory to Mac-Gray retained by the Selling
Securityholders in connection with such registration; 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 (other than the fees and expenses of
one legal counsel as provided above) 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 June 9, 1998, the last reported sales price
for the Mac-Gray Common Stock on the NYSE was $15 1/8 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 6 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 June 10, 1998.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<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............................................................. 6
Implementation of Acquisition Strategy; Integration of Acquired Busi-
nesses................................................................ 6
Competition............................................................ 7
Dependence Upon Senior Executives...................................... 7
Significant Capital Expenditures; Additional Financings................ 7
Uncertainty of Market Acceptance of New Products and Services.......... 7
Dependence Upon Lease Renewals......................................... 7
Dependence Upon Certain Suppliers...................................... 8
Restrictions Imposed by Mac-Gray's Indebtedness........................ 8
Intellectual Property Rights........................................... 8
Voting Control by Principal Stockholders, Directors and Executive Offi-
cers.................................................................. 9
Common Stock Contingent Repurchase Obligation.......................... 9
Anti-takeover Effect of the Mac-Gray Charter, the Mac-Gray By-laws and
Delaware Law.......................................................... 9
Potential Volatility of Stock Price.................................... 10
Absence of Dividends................................................... 10
Material Benefits to Certain Insiders.................................. 10
BUSINESS................................................................. 11
General................................................................ 11
Financial Characteristics of Mac-Gray's Business....................... 11
Industry Overview...................................................... 11
Company Strategy....................................................... 12
Internal Growth........................................................ 13
Strategic Acquisitions................................................. 14
Card and Coin-Operated Laundry Route Business.......................... 14
Technology............................................................. 16
Competition............................................................ 17
Laundry Equipment Sales, Leasing and Service........................... 17
Employees.............................................................. 18
Properties............................................................. 18
Legal Proceedings...................................................... 18
SELECTED HISTORICAL FINANCIAL DATA....................................... 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 21
Overview............................................................... 21
Recent Developments.................................................... 21
Results of Operations.................................................. 22
Seasonality............................................................ 26
Liquidity and Capital Resources........................................ 26
Inflation.............................................................. 28
Recently Issued Accounting Pronouncements.............................. 28
</TABLE>

(ii)
<PAGE>

<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT................................................................. 29
Directors and Executive Officers......................................... 29
Board of Directors....................................................... 30
Executive Compensation................................................... 31
1997 Stock Option and Incentive Plan..................................... 33
Stock Appreciation Rights................................................ 36
Employment Agreements with Executive Officers............................ 36
Compensation Committee Interlocks and Insider Participation.............. 36
Certain Relationships and Related Transactions........................... 36
PRINCIPAL STOCKHOLDERS..................................................... 38
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................... 41
MARKET PRICES AND DIVIDEND DATA............................................ 42
DESCRIPTION OF CAPITAL STOCK............................................... 42
Authorized and Outstanding Capital Stock................................. 42
Certain Provisions of Charter and By-laws................................ 43
Statutory Business Combination Provision................................. 44
Transfer Agent and Registrar............................................. 45
THE SELLING SECURITYHOLDERS AND THE OFFERED SHARES......................... 45
Background............................................................... 45
Registration Rights Agreement............................................ 45
PLAN OF DISTRIBUTION....................................................... 46
LEGAL MATTERS.............................................................. 47
EXPERTS.................................................................... 47
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.

<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 acquisition of Intirion, which was accounted for as a
pooling of interests, (ii) 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 (iii) 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 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 Intirion and 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 150,000 laundry machines,
operated in over 25,000 multiple housing laundry rooms located in 27 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

New Credit Facility. On April 23, 1998, the outstanding debt under Mac-Gray's
$50 million revolving credit facility with State Street Bank and Trust Company
and CoreStates Bank (the "Old Credit Facility") was refinanced under a new
senior secured revolving and term loan credit facility with State Street Bank
and Trust Company, CoreStates Bank and BankBoston, N.A. (the "Credit
Facility"). The Credit Facility provides for borrowings under a revolving line
of credit of up to $90 million and converts to a term loan after three years.
Outstanding indebtedness under the Credit Facility bears interest at Mac-Gray's
option, at a rate equal to the prime rate minus .5% or LIBOR plus the
applicable margin (either (i) 1.5% for loans outstanding which aggregate less
than $50 million, or (ii) 1.75% for loans outstanding which exceed $50
million), or cost of funds plus the applicable margin. The Credit Facility
restricts payments of dividends and other distributions, restricts Mac-Gray
from making certain acquisitions and incurring indebtedness, and requires it to
maintain certain financial ratios. The Credit Facility is secured by pledges of
the capital stock of Mac-Gray's subsidiaries and a lien on Mac-Gray's assets.

2
<PAGE>

acquisition was completed pursuant to a Stock and Asset Purchase Agreement,
dated as of March 4, 1998 (the "Amerivend Agreement"), by and among Mac-Gray
Services, Amerivend, Gerald E. Pulver and the Gerald E. Pulver Grantor Retained
Annuity Trust. Pursuant to the Amerivend Agreement, the purchase price was
approximately $33.3 million in cash, including the payment of approximately
$6.8 million of debt. A portion of the purchase price, $1.5 million, is being
held in escrow to satisfy any potential claims in accordance with the Amerivend
Agreement. The funds used to pay the purchase price were comprised primarily of
borrowings under the Credit Facility. Amerivend is a provider of card and coin-
operated laundry equipment in Florida and Georgia. Amerivend also is the
principal distributor of Maytag Corporation's ("Maytag") commercial laundry
products in Alabama, Florida and Georgia.

On April 23, 1998, Mac-Gray acquired Copico, Inc., a Massachusetts
corporation ("Copico"), through the purchase by Mac-Gray Services, Inc. of one
hundred percent of the outstanding capital stock of Copico. The acquisition was
completed pursuant to a Stock Purchase Agreement, dated as of March 31, 1998
(the "Copico Agreement"), by and among Mac-Gray Services, Copico and certain
stockholders of Copico. In consideration and pursuant to the Copico Agreement,
Mac-Gray issued 250,000 shares of Mac-Gray Common Stock valued at approximately
$4.2 million based upon the closing price of the Mac-Gray Common Stock on April
23, 1998. The cash portion of the purchase price was approximately $11.1
million, including the payment of approximately $6.1 million of debt. The funds
used to pay the cash portion of the consideration were comprised primarily of
borrowings under the Credit Facility. 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.

On March 12, 1998, Mac-Gray acquired Intirion. The consideration paid
consisted of 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. The transaction was accounted for as a pooling of
interests.

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. Results for interim periods have not been audited and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for the fair presentation of the results for such periods;
however, they are not necessarily indicative of results for the full year. The
selected 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. The selected historical financial
data presented below give effect to the business combination between Mac-Gray
and Intirion.

3
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- -----------------
1993 1994 1995 1996 1997(1) 1997(7) 1998
------- ------- ------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue..................... $54,364 $60,633 $66,352 $ 82,260 $104,847 $27,237 $ 27,989
Cost of revenue:
Commissions................ 17,762 19,168 20,471 25,760 31,717 7,256 9,154
Route expenditures......... 7,458 7,889 8,251 10,971 12,449 3,246 3,632
Depreciation and amortiza-
tion...................... 4,831 4,822 5,455 7,060 9,725 1,874 2,824
Cost of product sales...... 7,737 11,110 12,234 15,408 22,021 7,282 4,666
------- ------- ------- -------- -------- ------- --------
Total cost of revenue...... 37,788 42,989 46,411 59,199 75,912 19,658 20,276
------- ------- ------- -------- -------- ------- --------
Operating expenses:
General and administra-
tion...................... 4,130 4,070 5,804 5,939 6,923 1,701 1,798
Sales and marketing........ 4,443 5,134 6,455 7,718 10,181 2,522 2,409
Depreciation............... 466 501 639 783 753 178 181
Merger-related costs....... -- -- -- -- -- -- 884
------- ------- ------- -------- -------- ------- --------
Total operating expenses... 9,039 9,705 12,898 14,440 17,857 4,401 5,272
------- ------- ------- -------- -------- ------- --------
Income from operations...... 7,537 7,939 7,043 8,621 11,078 3,178 2,441
Interest expense net....... (1,526) (1,300) (1,328) (2,354) (2,975) (689) (315)
Other income (expense),
net....................... 71 70 55 (87) 181 (4) 20
------- ------- ------- -------- -------- ------- --------
Income before provision for
income taxes............... 6,082 6,709 5,770 6,180 8,284 2,485 2,146
Provision for income tax-
es(2)..................... (330) (271) (400) (514) (5,228) (178) (1,154)
------- ------- ------- -------- -------- ------- --------
Net income before accretion
and dividends on
redeemable preferred stock.. $ 5,752 $ 6,438 $ 5,370 $ 5,666 $ 3,056 $ 2,307 $ 992
------- ------- ------- -------- -------- ------- --------
Accretion and dividends on
redeemable preferred
stock...................... $ -- $ -- $ 240 $ 240 $ 320 $ 161 $ 62
------- ------- ------- -------- -------- ------- --------
Net income available to com-
mon stockholders........... $ 5,752 $ 6,438 $ 5,130 $ 5,426 $ 2,736 $ 2,146 $ 930
======= ======= ======= ======== ======== ======= ========
Net income per common
share...................... $ 0.76 $ 0.85 $ 0.68 $ 0.72 $ 0.32 $ 0.28 $ 0.08
======= ======= ======= ======== ======== ======= ========
Weighted average common
shares outstanding......... 7,554 7,554 7,554 7,554 8,449 7,554 12,188
======= ======= ======= ======== ======== ======= ========
Net income per common
share--assuming dilution... $ 0.75 $ 0.84 $ 0.67 $ 0.71 $ 0.31 $ 0.28 $ 0.07
======= ======= ======= ======== ======== ======= ========
Weighted average common
shares outstanding--
assuming dilution.......... 7,686 7,686 7,686 7,686 8,709 7,686 12,657
======= ======= ======= ======== ======== ======= ========
UNAUDITED PRO FORMA TAX AD-
JUSTED EARNINGS PER SHARE
DATA(3):
Pro forma tax adjusted net
income.................... $ 3,734 $ 5,105 $ 1,683
======== ======== =======
Pro forma tax adjusted net
income available to
common stockholders ...... $ 3,494 $ 4,785 $ 1,522
======== ======== =======
Pro forma tax adjusted net
income available to
common stockholders per
common share(4)........... $ 0.46 $ 0.57 $ 0.20
======== ======== =======
Pro forma tax adjusted net
income available to
common stockholders per
common share--
assuming dilution(4)...... $ 0.45 $ 0.55 $ 0.20
======== ======== =======
OTHER FINANCIAL DATA:
EBITDA(5).................. $12,451 $13,332 $13,192 $ 16,377 $ 21,737 $ 5,226 $ 5,466
Depreciation and amortiza-
tion...................... 4,843 5,323 6,094 7,843 10,478 2,052 3,005
Capital expenditures....... 5,855 6,090 8,121 10,010 11,584 4,231 2,253
Cash flows from operating
activities................ 9,565 11,106 10,364 15,768 10,473 2,501 (1,089)
Cash flows used in invest-
ing activities............ (6,137) (6,024) (8,952) (24,338) (22,791) (3,698) (3,048)
Cash flows provided by
(used in) financing
activities................ (3,453) (6,167) (589) 7,516 13,248 1,631 4,698
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital............ $(3,710) $(3,726) $(3,311) $ (8,489) $ (4,041) $(9,184) $ 3,708
Total assets............... 35,096 36,184 46,785 66,217 97,843 68,246 100,950
Long-term debt, net of cur-
rent portion.............. 15,718 13,919 12,125 23,473 5,395 22,512 13,829
Redeemable common and pre-
ferred stock(6)........... -- -- 3,947 4,187 12,304 4,348 7,797
Stockholders' equity....... 7,113 10,190 12,165 13,774 48,302 15,920 53,000
</TABLE>

4
<PAGE>

- --------

(1) The financial data for the year ended December 31, 1997 include 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.

(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.

(7) In March 1998 Mac-Gray consummated its acquisition of Intirion in a
transaction accounted for as a pooling of interests. As Mac-Gray and
Intirion had differing year ends, financial information for dissimilar
periods have been combined in the consolidated financial statements (see
Notes to Consolidated Financial Statements). Actual results presented for
the quarter ended March 31, 1997 were calculated by combining the
historical first quarters of each entity (March 31, 1997 for Mac-Gray and
September 30, 1996 for Intirion). Pro forma consolidated revenue, income
from operations, and net income calculated by combining the March 31, 1997
periods for both entities amounted to $22,658, $2,618, and $1,800,
respectively.

5
<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."

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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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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. In addition, Mac-
Gray currently procures a substantial amount of the products used by its
Intirion business unit from certain suppliers, including Sanyo E&E
Corporation. A termination of, or substantial revision of the terms of, the
contractual arrangements or business relationships with the suppliers
described above 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."

INTELLECTUAL PROPERTY RIGHTS

Mac-Gray relies upon certain trademark, servicemark, copyright, patent and
trade secret laws, employee and third-party non-disclosure and non-
solicitation agreements and other methods to protect the proprietary rights of
Mac-Gray. Mac-Gray periodically makes filings with the Patent and Trademark
Office to protect certain of its proprietary rights, although it has
traditionally relied upon the protections afforded by contractual arrangements
and through common law assertions of ownership. There can be no assurance that
these contractual arrangements and legal claims to ownership will adequately
protect Mac-Gray and its operations from adverse claims made by third parties.
In addition, any such adverse claims or litigation, with or without merit,
could be costly and could divert management's attention from the operation of
Mac-Gray's business.

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VOTING CONTROL BY PRINCIPAL STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS

As of June 10, 1998, 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 432,315 shares of
Mac-Gray Common Stock (options to acquire 84,330 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
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."

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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 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. 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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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 150,000
laundry machines, operated in over 25,000 multiple housing laundry rooms
located in 27 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 25,000 laundry rooms located in 27 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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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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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 smart card readers in
more than 9,000 laundry machines 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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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 150,000 machines in over
25,000 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 42 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

14
<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............................. 74%
Colleges, universities and schools..................................... 20%
Public housing......................................................... 3%
Other.................................................................. 3%
</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.

15
<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 smart card readers in more than 9,000 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.

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

16
<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.

17
<PAGE>

EMPLOYEES

Mac-Gray has approximately 525 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
Miami, Florida.............................................. 25,000
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.............................................. 12,000
Tucker (Atlanta), Georgia................................... 8,000
Walpole, Massachusetts...................................... 19,000
Canton, Massachusetts....................................... 10,000
</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.

18
<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. Results for interim periods have not been audited and include all
adjustments, consisting only of normal recurring adjustments, which management
considers necessary for the fair presentation of the results for such periods;
however, they are not necessarily indicative of results for the full year. The
selected 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. The selected historical
financial data presented below give effect to the business combination between
Mac-Gray and Intirion.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------- ----------------
1993 1994 1995 1996 1997(1) 1997(7) 1998
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue..................... $54,364 $60,633 $66,352 $82,260 $104,847 $27,237 $27,989
Cost of revenue:
Commissions................ 17,762 19,168 20,471 25,760 31,717 7,256 9,154
Route expenditures......... 7,458 7,889 8,251 10,971 12,449 3,246 3,632
Depreciation and amortiza-
tion...................... 4,831 4,822 5,455 7,060 9,725 1,874 2,824
Cost of product sales...... 7,737 11,110 12,234 15,408 22,021 7,282 4,666
------- ------- ------- ------- -------- ------- -------
Total cost of revenue...... 37,788 42,989 46,411 59,199 75,912 19,658 20,276
------- ------- ------- ------- -------- ------- -------
Operating expenses:
General and administra-
tion...................... 4,130 4,070 5,804 5,939 6,923 1,701 1,798
Sales and marketing........ 4,443 5,134 6,455 7,718 10,181 2,522 2,409
Depreciation............... 466 501 639 783 753 178 181
Merger-related costs....... -- -- -- -- -- -- 884
------- ------- ------- ------- -------- ------- -------
Total operating expenses... 9,039 9,705 12,898 14,440 17,857 4,401 5,272
------- ------- ------- ------- -------- ------- -------
Income from operations...... 7,537 7,939 7,043 8,621 11,078 3,178 2,441
Interest expense net....... (1,526) (1,300) (1,328) (2,354) (2,975) (689) (315)
Other income (expense),
net....................... 71 70 55 (87) 181 (4) 20
------- ------- ------- ------- -------- ------- -------
Income before provision for
income taxes............... 6,082 6,709 5,770 6,180 8,284 2,485 2,146
Provision for income tax-
es(2)..................... (330) (271) (400) (514) (5,228) (178) (1,154)
------- ------- ------- ------- -------- ------- -------
Net income before accretion
and dividends on
redeemable preferred stock.. $ 5,752 $ 6,438 $ 5,370 $ 5,666 $ 3,056 $ 2,307 $ 992
------- ------- ------- ------- -------- ------- -------
Accretion and dividends on
redeemable preferred
stock...................... $ -- $ -- $ 240 $ 240 $ 320 $ 161 $ 62
------- ------- ------- ------- -------- ------- -------
Net income available to com-
mon stockholders........... $ 5,752 $ 6,438 $ 5,130 $ 5,426 $ 2,736 $ 2,146 $ 930
======= ======= ======= ======= ======== ======= =======
Net income per common
share...................... $ 0.76 $ 0.85 $ 0.68 $ 0.72 $ 0.32 $ 0.28 $ 0.08
======= ======= ======= ======= ======== ======= =======
Weighted average common
shares outstanding......... 7,554 7,554 7,554 7,554 8,449 7,554 12,188
======= ======= ======= ======= ======== ======= =======
Net income per common
share--assuming dilution... $ 0.75 $ 0.84 $ 0.67 $ 0.71 $ 0.31 $ 0.28 $ 0.07
======= ======= ======= ======= ======== ======= =======
Weighted average common
shares outstanding--
assuming dilution.......... 7,686 7,686 7,686 7,686 8,709 7,686 12,657
======= ======= ======= ======= ======== ======= =======
UNAUDITED PRO FORMA TAX AD-
JUSTED EARNINGS PER SHARE
DATA(3):
Pro forma tax adjusted net
income.................... $ 3,734 $ 5,105 $ 1,683
======= ======== =======
Pro forma tax adjusted net
income available to
common stockholders ...... $ 3,494 $ 4,785 $ 1,522
======= ======== =======
Pro forma tax adjusted net
income available to
common stockholders per
common share(4)........... $ 0.46 $ 0.57 $ 0.20
======= ======== =======
Pro forma tax adjusted net
income available to
common stockholders per
common share--
assuming dilution(4)...... $ 0.45 $ 0.55 $ 0.20
======= ======== =======
</TABLE>

19
<PAGE>

<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(5).............. $12,451 $13,332 $13,192 $ 16,377 $ 21,737 $ 5,226 $ 5,466
Depreciation and amor-
tization.............. 4,843 5,323 6,094 7,843 10,478 2,052 3,005
Capital expenditures... 5,855 6,090 8,121 10,010 11,584 4,231 2,253
Cash flows from operat-
ing activities........ 9,565 11,106 10,364 15,768 10,473 2,501 (1,089)
Cash flows used in in-
vesting activities.... (6,137) (6,024) (8,952) (24,338) (22,791) (3,698) (3,048)
Cash flows provided by
(used in) financing
activities............ (3,453) (6,167) (589) 7,516 13,248 1,631 4,698
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(3,710) $(3,726) $(3,311) $ (8,489) $ (4,041) $(9,184) $ 3,708
Total assets........... 35,096 36,184 46,785 66,217 97,843 68,246 100,950
Long-term debt, net of
current portion....... 15,718 13,919 12,125 23,473 5,395 22,512 13,829
Redeemable common and
preferred stock(6).... -- -- 3,947 4,187 12,304 4,348 7,797
Stockholders' equity... 7,113 10,190 12,165 13,774 48,302 15,920 53,000
</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.

(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.

(7) In March 1998 Mac-Gray consummated its acquisition of Intirion in a
transaction accounted for as a pooling of interests. As Mac-Gray and
Intirion had differing year ends, financial information for dissimilar
periods have been combined in the consolidated financial statements (see
Notes to Consolidated Financial Statements). Actual results presented for
the quarter ended March 31, 1997 were calculated by combining the
historical first quarters of each entity (March 31, 1997 for Mac-Gray and
September 30, 1996). Pro forma consolidated revenue, income from
operations, and net income calculated by combining the March 31, 1997
periods for both entities amounted to $22,658, $2,618, and $1,800,
respectively.

20
<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, including
the consolidated results of Intirion, (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

New Credit Facility. On April 23, 1998, the outstanding debt under Mac-
Gray's $50 million revolving credit facility with State Street Bank and Trust
Company and CoreStates Bank was refinanced under a new senior secured
revolving and term loan credit facility with State Street Bank and Trust
Company, CoreStates Bank and BankBoston, N.A. The Credit Facility provides for
borrowings under a revolving line of credit of up to $90 million and converts
to a term loan after three years. Outstanding indebtedness under the Credit
Facility bears interest at Mac-Gray's option, at a rate equal to the prime
rate minus .5% or LIBOR plus the applicable margin (either (i) 1.5% for loans
outstanding which aggregate less than $50 million or (ii) 1.75% for loans
outstanding which exceed $50 million), or cost of funds plus the applicable
margin. The Credit Facility restricts payments of dividends and other
distributions, restricts Mac-Gray from making certain acquisitions and
incurring indebtedness, and requires it to maintain certain financial ratios.
The Credit Facility is secured by pledges of the capital stock of Mac-Gray's
subsidiaries and a lien on Mac-Gray's assets.

Acquisitions. On April 24, 1998, Mac-Gray acquired through Mac-Gray
Services, Inc. one hundred percent of the outstanding capital stock of
Amerivend. The acquisition was completed pursuant to the Amerivend

21
<PAGE>

Agreement. The purchase price was approximately $33.3 million in cash,
including the payment of approximately $6.8 million of debt. A portion of the
purchase price, $1.5 million, is being held in escrow to satisfy any potential
claims in accordance with the Amerivend Agreement. The funds used to pay the
purchase price were comprised primarily of borrowings under the Credit
Facility. Amerivend is a provider of card and coin-operated laundry equipment
in Florida and Georgia. Amerivend also is the principal distributor of Maytag
commercial laundry products in Alabama, Florida and Georgia.

On April 23, 1998, Mac-Gray acquired Copico through the purchase by Mac-Gray
Services, Inc. of one hundred percent of the outstanding capital stock of
Copico. The acquisition was completed pursuant to the Copico Agreement. In
consideration and pursuant to the Copico Agreement, Mac-Gray issued 250,000
shares of Mac-Gray Common Stock valued at approximately $4.2 million based
upon the closing price of the Mac-Gray Common Stock on April 23, 1998. The
cash portion of the purchase price was approximately $11.1 million, including
the payment of approximately $6.1 million of debt. The funds used to pay the
cash portion of the consideration were comprised primarily of borrowings under
the Credit Facility. 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. The Amerivend and Copico acquisitions have been
accounted for using the purchase method of accounting.

On March 12, 1998, Mac-Gray acquired Intirion. The consideration paid
consisted of 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
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. The transaction has been accounted for as a
pooling of interests. Mac-Gray and Intirion incurred aggregate transaction
costs of $884,000 associated with the Merger, primarily in the first quarter
of 1998.

RESULTS OF OPERATIONS

Three months ended March 31, 1998 compared to three months ended March 31,
1997 and pro forma three months ended March 31, 1997

In 1998, Mac-Gray consummated its acquisition of Intirion in a transaction
accounted for as a pooling of interests. Due to the differing year ends of
Mac-Gray and Intirion, the three months ended March 31, 1997 represents
consolidated results for the period from January 1997 through March 1997 for
Mac-Gray consolidated with the three-month period from July 1996 through
September 1996 for Intirion. The three months ended March 31, 1998 represents
consolidated results for the period from January 1998 through March 1998 for
both Mac-Gray and Intirion. The pro forma three months ended March 31, 1997,
summarized below, represents consolidated results for the period from January
1997 through March 1997 for both Mac-Gray and Intirion.

<TABLE>
<CAPTION>
PRO FORMA
THREE MONTHS ENDED
MARCH 31, 1997
(IN THOUSANDS)
------------------
(UNAUDITED)
<S> <C>
Revenue................................................... $22,658
Cost of Revenue........................................... 16,090
-------
Gross profit.............................................. 6,568
Operating expenses........................................ 3,950
-------
Income from operations.................................... 2,618
Interest expense, net..................................... (648)
Other income (expense), net............................... (4)
-------
Income before provision for income taxes.................. 1,966
Provision for income taxes................................ (166)
-------
Net income................................................ $1,800
=======
</TABLE>

22
<PAGE>

Revenue. Revenue increased by $752,000, or 3%, to $27,989,000 for the three
months ended March 31, 1998 from $27,237,000 for the three months ended March
31, 1997. Revenue increased by $5,331,000, or 24%, from $22,658,000 for the
pro forma three months ended March 31, 1997. Route revenue increased
$3,837,000, due to the expansion of existing operations and the additional
revenues from the laundry route businesses acquired during 1997. Product sales
decreased by $3,976,000, from the three months ended March 31, 1997 to the
three months ended March 31, 1998. This decrease was a result of the
comparison of dissimilar periods for 1997 and 1998, since Intirion
historically experiences stronger product sales to the college and university
market during the period from July to September than during January through
March. Product sales from the pro forma three months ended March 31, 1997 to
the three months ended March 31, 1998 increased by $1,266,000. This increase
was primarily due to the increase in existing business, as a result of
increased sales and marketing efforts, and from sales by the businesses
acquired during 1997. Rental revenue increased by $891,000 to $1,568,000 for
the three months ended March 31, 1998 from the three months ended March 31,
1997, and by $228,000 from the pro forma three months ended March 31, 1997.

Commissions. Commissions increased by $1,898,000, or 26%, to $9,154,000 for
the three months ended March 31, 1998 from $7,256,000 for the three months
ended March 31, 1997. This increase was primarily attributable to an increase
in laundry route revenue, since commissions are generally paid based upon a
percentage of revenue earned in Mac-Gray's laundry rooms.

Route Expenditures. 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 $386,000, or
12%, to $3,632,000 for the three months ended March 31, 1998 from $3,246,000
for the three months ended March 31, 1997, and by $656,000 or 22% for the pro
forma three months ended March 31, 1997. The increase was due to the general
increase in revenue, which resulted in increased servicing, collecting,
counting and depositing activity, and to the addition of branch locations as a
result of acquisitions. The costs for the three months ended March 31, 1997
were higher than the costs for the pro forma three months ended March 31, 1997
due to the historically higher costs incurred by Intirion during the period
from July through September for the rental program to the college and
university market.

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 46%, to $3,005,000 for the three
months ended March 31, 1998 from $2,052,000 for the three months ended March
31, 1997, and by $756,000 from the pro forma three months ended March 31,
1997. The increase was primarily attributable to the acquisitions of
businesses during 1997, which resulted in additional machines to depreciate,
as well as an increase in intangible assets to amortize, and the placement of
additional machines at Mac-Gray's existing locations.

Cost of Product Sales. Cost of product sales decreased by $2,616,000, or
36%, to $4,666,000 for the three months ended March 31, 1998 from $7,282,000
for the three months ended March 31, 1997, and increased by $890,000 from the
pro forma three months ended March 31, 1997. These changes correspond to the
changes in product sales revenue.

General and Administration. General and administration expenses increased by
$97,000, or 6%, to $1,798,000 for the three months ended March 31, 1998 from
$1,701,000 for the three months ended March 31, 1997, and by $151,000 from the
pro forma three months ended March 31, 1997. These changes resulted from
increased professional fees incurred by Mac-Gray, and the addition of
administrative personnel at both Mac-Gray and Intirion to handle the business
growth.

Sales and Marketing. Sales and marketing expense decreased by $113,000, or
4%, to $2,409,000 for the three months ended March 31, 1998 from $2,522,000
for the three months ended March 31, 1997. This decrease resulted from the
significant temporary increase in Intirion's sales and marketing personnel
necessary to handle the strong sales to the college and university market
during July through September. Sales and marketing expense

23
<PAGE>

increased by $273,000 from the pro forma three months ended March 31, 1997 to
the three months ended March 31, 1998. The increase was attributable to the
expansion of the marketing department and an increase in the number of field
sales representatives.

Merger-Related Costs. One-time, non-recurring costs associated with the
acquisition of Intirion, which was accounted for as a pooling transaction,
totaled $884,000 in the three months ended March 31, 1998.

Interest Expense. Interest expense, net of interest income, decreased by
$374,000, or 54%, to $315,000 for the three months ended March 31, 1998 from
$689,000 for the three months ended March 31, 1997, and by $333,000 from the
pro forma three months ended March 31, 1997. A portion of the net proceeds
received from the IPO were used to reduce existing indebtedness of Mac-Gray
under the Old Credit Facility and resulted in reduced interest expense for the
first quarter of 1998.

Income Tax Expenses. Income tax expense increased by $976,000, to $1,154,000
for the three months ended March 31, 1998 from $178,000 for the three months
ended March 31, 1997 and by $988,000 from the pro forma three months ended
March 31, 1997 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 the historical income tax provision for Mac-Gray
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 the first quarter of 1998
was significantly higher than the amount recorded in the corresponding period
in 1997. The effective tax rate of 54% for the quarter ended March 31, 1998
exceeded the statutory rate primarily as a result of certain merger-related
costs which are not deductible for tax purposes.

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

Revenue. Revenue increased by $22,587,000, or 27%, to $104,847,000 in 1997
from $82,260,000 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. Product
sales increased by $9,115,000, due to growth of revenue from existing
distributorships and the distributorships acquired during 1996 and 1997 and
due to increased sales of Microfridge(R) products to all market segments. 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. Rental revenue also increased $646,000
due to Intirion's academic living rental program.

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.

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 $2,635,000, or 34%, to $10,478,000
in 1997 from $7,843,000 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 at
existing locations.

24
<PAGE>

Cost of Product Sales. Cost of product sales increased by $6,613,000, or
43%, to $22,021,000 in 1997 from $15,408,000 in 1996. This increase was a
direct result of increased product sales.

General and Administration. General and administration expenses increased by
$984,000, or 17%, to $6,923,000 in 1997 from $5,939,000 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 $2,463,000, or
32%, to $10,181,000 in 1997 from $7,718,000 in 1996. This increase was
attributable to the expansion of the marketing department, led by the hiring
of an experienced national marketing executive in the third quarter of 1996,
and an increase in the number of field sales representatives.

Interest Expense. Interest expense, net of interest income, increased by
$621,000, or 26%, to $2,975,000 in 1997 from $2,354,000 in 1996. This increase
was primarily attributable to the increased borrowings incurred to finance the
acquisitions made during 1996 and 1997 and to the increase in product
purchases. 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 Old Credit Facility, as further described below.

Income Tax Expense. Income tax expense increased by $4,714,000 to $5,228,000
in 1997 from $514,000 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 for Mac-Gray 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 $15,908,000, or 24%, to $82,260,000 in 1996
from $66,352,000 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 product sales. 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. Product sales increased by $5,674,000 due to acquisitions
and growth of existing businesses. 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. Rental
revenue also increased $728,000 due to Intirion's academic living rental
program.

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.

Route Expenditures. 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
$2,720,000, or 33%, to $10,971,000 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 $1,749,000, or 29%, to
$7,843,000 in 1996 from

25
<PAGE>

$6,094,000 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 additional machines at existing locations.

Cost of Product Sales. Cost of product sales increased by $3,174,000, or
26%, to $15,408,000 in 1996 from $12,234,000 in 1995. This increase was
attributable to increased product sales.

General and Administration. General and administration expenses increased by
$135,000, or 2%, to $5,939,000 in 1996 from $5,804,000 in 1995. This increase
was attributable to the hiring of additional clerical and administrative staff
to help support the increase in Mac-Gray's 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 $1,263,000,
or 20%, to $7,718,000 in 1996 from $6,455,000 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 $1,026,000, or 77%, to
$2,354,000 in 1996 from $1,328,000 in 1995. This increase was primarily
attributable to increased borrowings incurred to finance the six acquisitions
completed during 1996 and the increase in product purchases to support the
increase in revenues.

Income Tax Expense. Income tax expenses increased by $114,000, or 29%, to
$514,000 in 1996 from $400,000 in 1995. As the historical income tax provision
for Mac-Gray 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-five percent
(35%) of Mac-Gray's total revenue. Route and rental revenues are derived
substantially during the school year which includes the first, second and
fourth calendar quarters. Conversely, Mac-Gray increases its operating
expenditures during the third calendar quarter when colleges and universities
are not in session as a result of Mac-Gray's increased product installation
activities. Product sales to this market are also high during the third
calendar quarter.

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 acquisitions, capital expenses including the purchase of new laundry
machines, Microfridge(R) equipment and smart card based payment systems, the
payment of a dividend of $9,000,000 to Mac-Gray's shareholders prior to the
IPO and the repayment of the Old 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 were used as needed to finance the recent acquisitions of
Amerivend and Copico. 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.

26
<PAGE>

Cash flows (used in) provided by operations were ($1,089,000) and $2,501,000
for the three months ended March 31, 1998 and 1997, respectively, and
$10,473,000, $15,768,000 and $10,364,000 for the years ended December 31,
1997, 1996 and 1995, respectively. Cash flow from operations consists
primarily of laundry route revenue, product sales, laundry equipment service
revenue, and rental revenue, commissions, route expenditures, cost of product
sales, cost of rental revenue, general and administration expenses and sales
and marketing expenses. Mac-Gray also incurred costs as a result of the Mac-
Gray and Intirion pooling transaction.

Cash used in investing activities was $3,048,000 and $3,698,000 for the
three months ended March 31, 1998 and 1997, respectively, and $22,791,000,
$24,338,000 and $8,952,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Mac-Gray invested $1,223,000 in connection with the
Intirion acquisition and a small route acquisition during the three months
ended March 31, 1998 and $12,196,000, $14,487,000 and $1,178,000 for the
fiscal years ended December 31, 1997, 1996 and 1995, respectively, in
connection with the acquisitions consummated during those years. Capital
expenditures were $2,253,000 and $4,231,000 for the three months ended March
31, 1998 and 1997, respectively, and $11,584,000, $10,010,000 and $8,121,000
for the years ended December 31, 1997, 1996 and 1995, respectively.

Net cash flows provided by (used in) financing activities were $4,698,000
and $1,631,000 for the three months ended March 31, 1998 and 1997,
respectively, and $13,248,000, $7,516,000 and ($589,000) for the years ended
December 31, 1997, 1996 and 1995, respectively. Financing activities for those
periods consist primarily of proceeds from the IPO, proceeds from and
repayments of bank borrowings, capital stock transactions, 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.

Until April 23, 1998, Mac-Gray maintained a $50 million revolving line of
credit with State Street Bank and Trust Company and CoreStates Bank. Mac-Gray
was in material compliance with all covenants of that facility, or received a
written waiver with respect to any non-compliance therewith, for the three
months ended March 31, 1998. On April 23, 1998, Mac-Gray refinanced the
amounts outstanding under the Old Credit Facility with the proceeds of a new
revolving line of credit and term loan facility with State Street Bank and
Trust Company, CoreStates Bank and BankBoston, N.A. The Credit Facility
provides for borrowings under a revolving line of credit of up to $90 million,
and converts to a term loan after three years. The term loan has a weighted
five year amortization schedule with a balloon payment due after the second
year of the term loan. Outstanding indebtedness under the Credit Facility
bears interest at Mac-Gray's option at a rate equal to the prime rate minus
.5% or LIBOR plus the applicable margin (either (i) 1.5% for loans outstanding
which aggregate less than $50 million or (ii) 1.75% for loans outstanding
which exceed $50 million) or the cost of funds rate plus the applicable
margin. The Credit Facility imposes certain financial and operational
covenants on Mac-Gray, including restrictions on indebtedness, certain capital
expenditures, investments and acquisitions, and on Mac-Gray's ability to pay
dividends and to make distributions. The Credit Facility is secured by a
blanket lien on the assets of Mac-Gray and 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."

27
<PAGE>

Mac-Gray has used all of the net proceeds from the IPO to repay existing
outstanding indebtedness under the Old 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 Old Credit
Facility, the 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, 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. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131) which is required to be adopted
by Mac-Gray in its fiscal 1998 financial statements. SFAS 131 establishes
standards for reporting information on operating segments in financial
statements. Mac-Gray is currently reviewing the impact of SFAS 131 on its
financial statements.

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<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of Mac-Gray, their positions with Mac-
Gray and their ages as of June 10, 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.................... 62 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.

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

29
<PAGE>

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

30
<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 two 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.

31
<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.

32
<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 1,342,411 shares of Mac-Gray Common Stock
for issuance under the 1997 Stock Plan, of which 809,290 shares are subject to
outstanding options and 533,121 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.

33
<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

34
<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,

35
<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

36
<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 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.

37
<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

38
<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

39
<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.

40
<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>
COMPANY PRO FORMA
YEAR ENDED YEAR ENDED
DECEMBER 31, SUN SERVICES PRO FORMA ACQUISITION DECEMBER 31,
1997 ACQUISITION (1) 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(2) 77,411
-------- ------ -------- ----- --------
Operating expenses...... 17,857 360 18,217 (69)(3) 18,148
-------- ------ -------- ----- --------
Income from operations.. 11,078 319 11,397 (77) 11,320
Interest expense...... (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(4)............. (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 (loss) per
common share (Note 5).. $ 0.34
========
Weighted average common
shares outstanding
(Note 5)............... 8,449
========
Net income (loss) per
common share--assuming
dilution (Note 5)...... $ 0.37
========
Weighted average common
shares outstanding--
assuming dilution
(Note 5)............... 8,709
========
Pro forma tax adjusted
net income(5).......... $ 5,105 $ 138 $ 5,243 $ (46) $ 5,197
======== ====== ======== ===== ========
Pro forma tax adjusted
net income per common
share(6)............... $ 0.58
========
Pro forma tax adjusted
net income per common
share-assuming
dilution(6)............ $ 0.56
========
</TABLE>
- --------
(1) 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.
(2) 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.
(3) 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.
(4) 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.

(5) 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.

(6) 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.

41
<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 June 9, 1998)...................... $17 3/4 $14 3/8
</TABLE>

On June 9, 1998, the closing sales price of Mac-Gray Common Stock, as
reported on the NYSE, was $15 1/8 per share. As of June 9, 1998, there were
13,424,118 shares of Mac-Gray Common Stock outstanding held by 85 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 June 9, 1998, there were 13,424,118 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 85 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.

42
<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.

43
<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,

44
<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 were acquired by the Selling Securityholders pursuant to the
Merger Agreement. The resale of the Shares by the Selling Securityholders is
restricted by Rule 145 promulgated under the Securities Act, and such Shares
cannot be transferred unless (i) their resale is registered under the
Securities Act or (ii) they are transferred in accordance with Rule 145 or
another exemption from registration under the Securities Act.

REGISTRATION RIGHTS AGREEMENT

In connection with the Merger, Mac-Gray and the Selling Securityholders
entered into that certain registration rights agreement dated as of March 12,
1998 (the "Registration Rights Agreement"). The material provisions of the
Registration Rights Agreement are set forth below. A copy of the Registration
Rights Agreement 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 agreed to use its best efforts to file and cause to
become effective under the Securities Act no later than April 12, 1998 a
resale registration statement covering all of the Shares. The Registration
Statement, of which this Prospectus is a part, satisfies that obligation. May-
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) March 12, 1999.

Piggyback Registration. If at any time or times prior to March 12, 2000 Mac-
Gray shall determine to register under the Securities Act any shares of Mac-
Gray Common Stock (except in certain specified situations), the Selling
Securityholder shall have the right to request the inclusion in such
registration of some or all of the Shares held by them. In the event of such a
request, Mac-Gray shall use commercially reasonable efforts to cause such
Shares to be included in such registration on the same terms and conditions as
any similar securities of Mac-Gray or any other securityholder included
therein and to permit the sale or other disposition of such Shares in
accordance with the intended method of distribution thereof.

Certain Other Provisions. All expenses incident to Mac-Gray's performance of
its registration obligations under the Registration Rights Agreement,
including the reasonable fees and expenses of one counsel reasonably
satisfactory to Mac-Gray retained in connection with each registration by the
Selling Securityholders of the Shares being registered, will be paid by Mac-
Gray. The Selling Securityholders will be responsible for

45
<PAGE>

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 (other than
the fees and expenses of one legal counsel as provided above) and out-of-
pocket expenses of the Selling Securityholders and their agents, including,
without limitation, any travel costs.

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 RESALE RESALE(1)
- -------------- -------------- -------------- ------------
<S> <C> <C> <C>
Robert P. Bennett.................... 259,190 259,190 --
Gelco Corporation.................... 346,153 346,153 --
Eastech II L.P....................... 145,028 145,028 --
Eastech III L.P...................... 217,543 217,543 --
</TABLE>
- --------

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

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

46
<PAGE>

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 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 and,
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
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.

47
<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, 1997 and March 31,
1998 (unaudited)....................................................... F-3
Consolidated Statement of Income for the Years Ended December 31, 1995,
1996, 1997 and for the Three Months Ended March 31, 1997 and 1998 (un-
audited)............................................................... F-4
Consolidated Statement of Stockholders' Equity for the Years Ended De-
cember 31, 1995, 1996, 1997 and for the Three Months Ended March 31,
1998 (unaudited)....................................................... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1995, 1996, 1997 and for the Three Months Ended March 31, 1997 and 1998
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
SUN SERVICES OF AMERICA, INC. AND R. BODDEN COIN-OP-LAUNDRY, INC.
Report of Independent Accountants....................................... F-23
Combined Balance Sheet as of December 31, 1996 and March 31, 1997 (unau-
dited)................................................................. F-24
Combined Statement of Income for the Year Ended December 31, 1996 and
for the Three Months Ended March 31, 1996 and 1997 (unaudited)......... F-25
Combined Statement of Stockholder's Equity for the Year Ended December
31, 1996 and the Three Months Ended March 31, 1997 (unaudited)......... F-26
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-27
Notes to Combined Financial Statements.................................. F-28
</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,

except as to the pooling
of interests with Intirion
which is as of March 12, 1998

F-2
<PAGE>

MAC-GRAY CORPORATION

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1998
---------------- -----------
1996 1997 (UNAUDITED)
------- ------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 2,844 $ 3,774 $ 4,335
Trade receivables, net of allowance for doubt-
ful accounts.................................. 4,621 6,570 6,723
Available-for-sale security.................... 343 -- --
Inventory...................................... 4,749 7,208 7,934
Deferred income taxes.......................... 23 571 357
Prepaid commissions and other current assets... 1,819 2,377 3,358
------- ------- --------
Total current assets......................... 14,399 20,500 22,707
Property, plant and equipment, net............. 36,891 43,615 45,012
Intangible assets, net......................... 12,207 28,648 28,229
Prepaid commissions and other assets........... 2,720 5,080 5,002
------- ------- --------
Total assets................................. $66,217 $97,843 $100,950
======= ======= ========
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCK-
HOLDER'S EQUITY
Current liabilities:
Current portion of long term debt.............. $ 7,550 $ 7,922 $ 5,289
Current portion of capital lease obligations... 251 476 440
Accounts payable............................... 8,399 7,825 3,508
Accrued commissions............................ 4,940 5,585 5,642
Accrued expenses............................... 1,653 2,631 2,683
Deferred revenues and deposits................. 95 102 1,437
------- ------- --------
Total current liabilities.................... 22,888 24,541 18,999
Long-term debt................................... 23,473 5,395 13,829
Long-term capital lease obligations.............. 193 491 551
Deferred income taxes............................ 546 5,329 5,488
Deferred retirement obligation................... 1,156 1,052 1,026
Other liabilities................................ -- 429 260
Commitments and contingencies (Note 12).......... -- -- --
Redeemable common stock, 612,026 shares.......... -- 7,797 7,797
Senior redeemable 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. ($1 par
value; 200,000 shares authorized, 154,275
shares issued and outstanding at December 31,
1996)......................................... 154 -- 126
Common stock of Mac-Gray Corporation ($.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 56,346
Retained earnings (deficit).................... 18,377 (4,345) (3,472)
Net unrealized gain on available-for-sale secu-
rity, net of tax.............................. 258 -- --
Less: 54,275 shares held in treasury at cost... (8,930) -- --
------- ------- --------
Total stockholders' equity..................... 13,774 48,302 53,000
------- ------- --------
Total liabilities, redeemable common stock
and stockholders' equity.................... $66,217 $97,843 $100,950
======= ======= ========
</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 THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue...................... $66,352 $82,260 $104,847 $ 27,237 $ 27,989
Cost of revenue:
Commissions................. 20,471 25,760 31,717 7,256 9,154
Route expenditures.......... 8,251 10,971 12,449 3,246 3,632
Depreciation and amortiza-
tion....................... 5,455 7,060 9,725 1,874 2,824
Cost of product sales....... 12,234 15,408 22,021 7,282 4,666
------- ------- -------- --------- ---------
Total Cost of Revenue ..... 46,411 59,199 75,912 19,658 20,276
------- ------- -------- --------- ---------
Gross profit................. 19,941 23,061 28,935 7,579 7,713
Operating expenses:
General and administration.. 5,804 5,939 6,923 1,701 1,798
Sales and Marketing......... 6,455 7,718 10,181 2,522 2,409
Depreciation................ 639 783 753 178 181
Merger-related costs........ -- -- -- -- 884
------- ------- -------- --------- ---------
Total operating expenses... 12,898 14,440 17,857 4,401 5,272
------- ------- -------- --------- ---------
Income from operations....... 7,043 8,621 11,078 3,178 2,441
Interest expense, net........ (1,328) (2,354) (2,975) (689) (315)
Other income (expense), net.. 55 (87) 181 (4) 20
------- ------- -------- --------- ---------
Income before provision for
income taxes................ 5,770 6,180 8,284 2,485 2,146
Provision for income taxes... (400) (514) (5,228) (178) (1,154)
------- ------- -------- --------- ---------
Net income................... $ 5,370 $ 5,666 $ 3,056 $ 2,307 $ 992
------- ------- -------- --------- ---------
Accretion and dividends on
redeemable preferred
stock....................... 240 240 320 161 62
------- ------- -------- --------- ---------
Income available to common
stockholders................ $ 5,130 $ 5,426 $ 2,736 $ 2,146 $ 930
======= ======= ======== ========= =========
Net income per common share.. $ 0.68 $ 0.72 $ 0.32 $ 0.28 $ 0.08
======= ======= ======== ========= =========
Weighted average common
shares outstanding.......... 7,554 7,554 8,449 7,554 12,188
======= ======= ======== ========= =========
Net income per common share--
assuming dilution........... $ 0.67 $ 0.71 $ 0.31 $ 0.28 $ 0.07
======= ======= ======== ========= =========
Weighted average common
shares outstanding--assuming
dilution.................... 7,686 7,686 8,709 7,686 12,657
======= ======= ======== ========= =========
UNAUDITED PRO FORMA TAX AD-
JUSTED DATA (NOTE 15):
Income before provision for
income taxes.............. $ 5,770 $ 6,180 $ 8,284 $ 2,485
Provision for income tax-
es........................ 2,484 2,446 3,179 (802)
------- ------- -------- ---------
Pro forma tax adjusted net
income.................... $ 3,286 $ 3,734 $ 5,105 $ 1,683
======= ======= ======== =========
Pro forma tax adjusted net
income available to common
stockholders per common
share..................... $ 0.40 $ 0.46 $ 0.57 $ 0.20
======= ======= ======== =========
Pro forma tax adjusted net
income available to common
stockholders per common
share-assuming dilution... $ 0.40 $ 0.45 $ 0.55 $ 0.20
======= ======= ======== =========
</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 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
---------- ----- ------- -------- ----- -------- ------- --------
Net income (unaudited)
...................... -- -- -- 930 -- -- -- 930
Inclusion of Intirion's
net equity activity
for the six months
ended December 31,
1997 (unaudited) ..... -- -- (13) 15 -- -- -- 2
Exchange of Intirion
preferred shares for
Mac-Gray common stock
(unaudited) .......... 275,224 3 3,821 -- -- -- -- 3,824
Intirion dividends paid
(unaudited) .......... -- -- -- (72) -- -- -- (72)
Options exercised (un-
audited) ............. 1,300 -- 14 -- -- -- -- 14
---------- ----- ------- -------- ----- -------- ------- --------
Balance, March 31, 1998
(unaudited) ........... 12,562,092 $ 126 $56,346 $ (3,472) $ -- -- $ -- $ 53,000
========== ===== ======= ======== ===== ======== ======= ========
</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 THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income...................... $ 5,370 $ 5,666 $ 3,056 $ 2,307 $ 992
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortiza-
tion......................... 6,094 7,812 10,481 2,052 3,005
(Gain) loss on sale of as-
sets......................... (72) 11 (178) 47 (128)
Deferred income taxes......... 71 60 4,235 -- 374
Decrease (increase) in accounts
receivable..................... 1,112 (2,207) (1,905) (862) 174
(Increase) decrease in
inventory...................... (2,737) 827 (2,149) 1,773 (407)
(Increase) in prepaid expenses
and other assets............... (1,480) (1,331) (3,009) (1,389) (895)
Increase (decrease) in accounts
payable, accrued commissions
and accrued expenses........... 1,969 4,889 (65) (4,705) (3,089)
Increase in deferred rental
revenue and customer deposits.. 37 41 7 3,278 (1,115)
------- ------- ------- ------- -------
Net cash flows provided by op-
erating activities........... 10,364 15,768 10,473 2,501 (1,089)
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Capital expenditures............ (8,121) (10,010) (11,584) (4,231) (2,253)
Acquisition of businesses (Note
2)............................. (1,178) (14,487) (12,196) -- (1,223)
Proceeds from sale of property
and equipment.................. 347 159 656 533 428
Proceeds from sale of
securities..................... -- -- 333 -- --
------- ------- ------- ------- -------
Net cash flows used in
investing activities......... (8,952) (24,338) (22,791) (3,698) (3,048)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Payments on long-term debt and
capital lease obligations...... (2,610) (2,293) (3,658) (505) (4,174)
Retirement of line of credit and
term loan...................... -- (5,378) (19,512) -- --
Advances on line-of-credit,
net............................ 4,407 18,541 4,668 2,360 8,931
Contribution of capital and
proceeds from sale of common
stock.......................... 1,009 1,366 45,174 -- 13
Cash dividends paid............. (3,395) (4,520) (13,124) (224) (72)
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 1,631 4,698
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents................. 823 (1,054) 930 434 561
Cash and cash equivalents,
beginning of period.............. 3,075 3,898 2,844 2,844 3,774
------- ------- ------- ------- -------
Cash and cash equivalents, end of
period........................... $ 3,898 $ 2,844 $ 3,774 $ 3,278 $ 4,335
======= ======= ======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMA-
TION:
Interest paid................... $ 1,321 $ 2,331 $ 3,272 $ 708 $ 350
Income taxes paid............... 242 437 1,116 193 349
</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 financial statements include the accounts of Mac-
Gray Corporation and its wholly owned subsidiaries. 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. On March 12, 1998, the Company completed the acquisition of
Intirion Corporation ("Intirion"). This transaction was accounted for as a
pooling-of-interests and, therefore, the accompanying financial statements
have been retroactively restated to reflect the financial position and results
of operations and cash flows of Intirion with the Company for all periods
presented (see Note 2). All significant intercompany transactions and balances
have been eliminated. Certain reclassifications have been made to the
financial statements to conform to the current year presentation.

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 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.

Unaudited Interim Financial Statements--The accompanying financial
information as of March 31, 1998 and for the three month periods ended March
31, 1997 and 1998 is unaudited. The unaudited interim financial information as
of and for the three month period ended March 31, 1998 has been prepared on
the same basis as the accompanying annual financial statements. In the opinion
of management, such interim financial information reflects adjustments
consisting of normal and recurring adjustments necessary for a fair
presentation of such financial information. The unaudited results of
operations for the interim periods ended March 31, 1997 and 1998 are not
necessarily indicative of the results of operations to be expected for any
other interim period or for the full year.

2. ACQUISITIONS

On March 12, 1998, the Company acquired Intirion Corporation pursuant to an
Agreement and Plan of Merger dated December 22, 1997. Pursuant to the
agreement, Intirion equity securities were exchanged for approximately 1.6
million shares of Mac-Gray common stock and approximately $1 million in cash.
Intirion Corporation had a June 30 year end and the results of operations for
the three years ended June 30, 1997, were combined with the results of
operations for Mac-Gray's three years ended December 31, 1997, respectively.
Additionally, the financial position of Intirion as of June 30, 1996 and 1997
has been combined with the Company's financial position as of December 31,
1996 and 1997, respectively. As such, results of operations for Intirion for
the six months ended December 31, 1997 (including revenue and net income of
$13,355 and $289, respectively) were not included in the consolidated
statement of operations for the year ended December 31, 1997. In order to
conform Intirion's year end to Mac-Gray's year end, an adjustment has been
made to retained earnings in fiscal 1998 to include the net income of Intirion
for this six month period.

F-7
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

Costs directly associated with the pooling transaction of $884 were incurred
in the three months ended March 31, 1998. These costs include legal,
accounting and severance costs directly associated with the pooling
transaction and are classified as merger-related costs on the income
statement. Additionally, $123 of sales and marketing expenses and $66 of
general and administrative expenses incurred by Intirion in the three months
ended March 31, 1998 are considered to be non-recurring as they were directly
attributable to the individuals whose employment was terminated subsequent to
the transaction.

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
------- ------- --------
$66,352 $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>

In October and November, 1997, the Company acquired certain assets of two
coin-operated laundry businesses for approximately $7,150. These acquisitions
were 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.

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.

F-8
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 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.

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. 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.

F-9
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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.

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 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.

Coin route equipment-not yet placed in service--These assets represent
laundry machines that management estimates will be installed in coin route
laundry rooms and have not been purchased for commercial sale.

Intangible Assets--Intangible assets primarily consist of various non-
compete agreements and goodwill recorded in connection with the 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. Intangible
assets also include customer lists which are being amortized on a straight-
line basis ranging from five to ten years.

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

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

F-10
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 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. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS 131). In accordance
with this statement, the Company will implement 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 this
statement on its financial statements.

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 $697,
$932 and $1,912 for the years ended December 31, 1995, 1996 and 1997,
respectively.

F-11
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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.

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

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.

F-12
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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>

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%. Subsequent to year end,
the Company refinanced its credit facility (see Note 16).

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)

F-13
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

80% of the 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.

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................................................................. $ 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,

F-14
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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.

<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 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>

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>

F-15
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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:

<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 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 has 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>

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

11. STOCKHOLDERS EQUITY

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.

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
and 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 2).

F-16
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 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:

<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. was a
guarantor on a line-of-credit for a customer in the amount of $706. The
customer incurred substantial losses. While the guarantee was secured by a
pledge of the borrowing company's assets, it was uncertain if those assets and
profits from continuing operations would be adequate to retire the line-of-
credit. The Company recorded a reserve of $250 at December 31, 1997 for
estimated losses on this guarantee. During the three months ended March 31,
1998, the customer defaulted on the line of credit and the Company succeeded
to the assets and assumed the liabilities of the customer in accordance with
the guarantee and related agreements.

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.

F-17
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 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.

F-18
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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>

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.

<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.

F-19
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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 available to common stockhold-
ers....................................... $2,736 8,449 $0.32
====== ===== =====
Effect of dilutive securities:
Stock options.............................. 128
Contingent shares.......................... 132
-----
Net income available to common stockholders--
assuming dilution........................... $2,736 8,709 $0.31
====== ===== =====
<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 available to common
stockholders.............................. $5,426 7,554 $0.72
====== ===== =====
Effect of dilutive securities:
Stock options.............................. --
Contingent shares.......................... 132
-----
Net income available to common stockholders--
assuming dilution........................... $5,426 7,686 $0.71
====== ===== =====
<CAPTION>
FOR THE YEAR ENDED 1995
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net Income................................... $5,370
Less: Accretion and dividends on redeemable
preferred stock............................. (240)
------
Net income available to common
stockholders.............................. $5,130 7,554 $0.68
====== ===== =====
Effect of dilutive securities:
Stock options.............................. --
Contingent shares.......................... 132
-----
Net income available to common stockholders--
assuming dilution........................... $5,130 7,686 $0.67
====== ===== =====
</TABLE>

F-20
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1998
(UNAUDITED)
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net Income................................... $ 992
Less: Accretion and dividends on redeemable
preferred stock............................. (62)
------
Net income available to common
stockholders.............................. $ 930 12,189 $0.08
====== ====== =====
Effect of dilutive securities:
Stock options.............................. 336
Contingent shares.......................... 132
------
Net income available to common stockholders--
assuming dilution........................... $ 930 12,657 $0.07
====== ====== =====
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
(UNAUDITED)
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net Income................................... $2,307
Less: Accretion and dividends on redeemable
preferred stock............................. (161)
------
Net income available to common
stockholders.............................. $2,146 7,554 $0.28
====== ====== =====
Effect of dilutive securities:
Stock options.............................. --
Contingent shares.......................... 132
------
Net income available to common stockholders--
assuming dilution........................... $2,146 7,686 $0.28
====== ====== =====
</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

Long-term Debt. At March 31, 1998, the balance outstanding under the 1997
Credit Facility was $8,254, with an 8% interest rate. Long-term debt also
includes various notes payable totaling $5,210, various unsecured notes
payable to former shareholders totaling $2,200, and amounts outstanding under
Intirion's secured demand line of credit of $1,994 at March 31, 1998. In
addition, through Intirion, the Company also had outstanding borrowings of
$1,460 at March 31, 1998 pursuant to a secured demand line with Intirion's
primary supplier relating to the purchase of finished goods. On April 17,
1998, the outstanding bank debt of Intirion in the amount of $1,948 was
retired using funds drawn on the 1997 Credit Facility.

F-21
<PAGE>

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(IN THOUSANDS, EXCEPT PER SHARE DATA)

On April 23, 1998, the outstanding debt under Mac-Gray's $50 million
revolving credit facility with State Street Bank and Trust Company and
CoreStates Bank (the "Old Credit Facility") was refinanced under a new senior
secured revolving and term loan credit facility with State Street Bank and
Trust Company, CoreStates Bank and BankBoston, N.A. (the "Credit Facility").
The Credit Facility provides for borrowings under a revolving line of credit
of up to $90 million and converts to a term loan after three years. The term
loan has a weighted five year amortization schedule with a balloon payment due
after the second year of the term loan. Outstanding indebtedness under the
Credit Facility bears interest at Mac-Gray's option, at a rate equal to the
prime rate minus .5% or LIBOR plus the applicable margin (either (i) 1.5% for
loans outstanding which aggregate less than $50 million, or (ii) 1.75% for
loans outstanding which exceed $50 million), or cost of funds plus the
applicable margin. The Credit Facility restricts payments of dividends and
other distributions, restricts Mac-Gray from making certain acquisitions and
incurring indebtedness, and requires it to maintain certain financial ratios.
The Credit Facility is secured by pledges of the capital stock of Mac-Gray's
subsidiaries and a lien on Mac-Gray's assets.

Acquisitions. On April 24, 1998, Mac-Gray acquired through Mac-Gray
Services, Inc., a Delaware corporation and wholly-owned subsidiary of Mac-Gray
("Mac-Gray Services"), one hundred percent of the outstanding capital stock of
Amerivend Corporation, a Florida corporation, and the assets of Amerivend
Southeast Corporation, a Georgia corporation (together with Amerivend
Corporation, "Amerivend"). The acquisition was completed pursuant to a Stock
and Asset Purchase Agreement, dated as of March 4, 1998 (the "Amerivend
Agreement"), by and among Mac-Gray Services, Amerivend, Gerald E. Pulver and
the Gerald E. Pulver Grantor Retained Annuity Trust. Pursuant to the Amerivend
Agreement, the purchase price was approximately $33.3 million in cash,
including the payment of approximately $6.8 million of debt. A portion of the
purchase price, $1.5 million, is being held in escrow to satisfy any potential
claims in accordance with the Amerivend Agreement. The funds used to pay the
purchase price were comprised primarily of borrowings under the Credit
Facility. Amerivend is a provider of card and coin-operated laundry equipment
in Florida and Georgia. Amerivend also is the principal distributor of Maytag
Corporation's ("Maytag") commercial laundry products in Alabama, Florida and
Georgia.

On April 23, 1998, Mac-Gray acquired Copico, Inc., a Massachusetts
corporation ("Copico"), through the purchase by Mac-Gray Services, Inc. of one
hundred percent of the outstanding capital stock of Copico. The acquisition
was completed pursuant to a Stock Purchase Agreement, dated as of March 31,
1998 (the "Copico Agreement"), by and among Mac-Gray Services, Copico and
certain stockholders of Copico. In consideration and pursuant to the Copico
Agreement, Mac-Gray issued 250,000 shares of Mac-Gray Common Stock valued at
approximately $4.2 million based upon the closing price of the Mac-Gray Common
Stock on April 23, 1998. The cash portion of the purchase price was
approximately $11.1 million, including the payment of approximately $6.1
million of debt. The funds used to pay the cash portion of the consideration
were comprised primarily of borrowings under the Credit Facility. 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.

The Amerivend and Copico acquisitions have been accounted for using the
purchase method of accounting.

F-22
<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-23
<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-24
<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-25
<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-26
<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-27
<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-28
<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-29
<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-30
<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-31
<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.

11. 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%.

12. 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-32
<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 and the NYSE listing fee:

<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT*
----------------- -------
<S> <C>
Commission registration fees..................................... $ 0
NYSE listing fee................................................. 3,388
Legal fees and expenses.......................................... 30,000
Accounting fees and expenses..................................... 15,000
Printing expenses................................................ 10,000
Miscellaneous.................................................... 5,000
-------
Total........................................................ $63,388
=======
</TABLE>
--------

*None of the expenses listed in this Item 13 are to be borne by the
Selling Securityholders.

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: (i) 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; (ii)
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);
(iii) each exhibit marked by an X was previously filed as an exhibit to Mac-
Gray's Registration Statement on Form S-1 (No. 333-49795); and (iv) each
exhibit marked by a Z was previously filed as an exhibit to Mac-Gray's Current
Report on Form 8-K dated April 23, 1998.

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).*
2.2 Stock Purchase Agreement by and among Mac-Gray Services, Inc., Copico,
Inc. and Certain Stockholders, dated as of March 31, 1998.X
2.3 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.Z
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 23, 1998, by and among the Registrant, the
other Borrowers (as defined therein), the lenders named therein and
State Street Bank and Trust Company, as agent.
10.5 Security Agreement dated as of April 23, 1998 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks (as
defined therein).
10.6 Revolving Line of Credit and Term Note dated April 23, 1998 issued by
the Registrant in favor of the Banks (as defined therein).
10.7 Pledge Agreements dated as of April 23, 1998 by and among the
Registrant, Mac-Gray Services, Inc. and the Banks (as defined therein).
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.*
</TABLE>

II-3
<PAGE>

<TABLE>
<C> <S>
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.*
10.21 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).*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (contained in the Signature Page to the Registrant's
previously filed Registration Statement on Form S-4 (No. 333-45899)).*
27.1 Financial Data Schedule.
</TABLE>

(b)Financial Statement Schedules

No Financial Statement Schedules are filed herewith.

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;

(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-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Mac-Gray
Corporation has duly caused this Post-Effective Amendment No. 4 to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cambridge, The Commonwealth of
Massachusetts, on June 10, 1998.

MAC-GRAY CORPORATION

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

Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 to the 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 June 10, 1998
____________________________________ Executive Officer and
Stewart Gray MacDonald, Jr. Director (Principal
Executive Officer)

* Executive Vice President June 10, 1998
____________________________________ Mergers and
Patrick A. Flanagan Acquisitions, Secretary
and Director

/s/ John S. Olbrych Chief Financial Officer June 10, 1998
____________________________________ and Treasurer
John S. Olbrych (Principal Financial
and Accounting Officer)

* Director June 10, 1998
____________________________________
Jeffrey C. Huenink

* Director June 10, 1998
____________________________________
Jerry A. Schiller

* Director June 10, 1998
____________________________________
John P. Leydon

* Director June 10, 1998
____________________________________
Eugene B. Doggett
</TABLE>

*By: /s/ Stewart Gray MacDonald, Jr.
-----------------------------------
Stewart Gray MacDonald, Jr.
Attorney-in-Fact

II-5
<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).*
2.2 Stock Purchase Agreement by and among Mac-Gray Services, Inc., Copico,
Inc. and certain stockholders, dated as of March 31, 1998.*
2.3 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.Z
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 23, 1998, by and among the Registrant,
the other Borrowers (as defined therein), the lenders named therein
and State Street Bank and Trust Company, as agent.
10.5 Security Agreement dated as of April 23, 1998 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks
(as defined therein).
10.6 Revolving Line of Credit and Term Note dated April 23, 1998 issued by
the Registrant in favor of the Banks (as defined therein).
10.7 Pledge Agreements dated as of April 23, 1998 by and among the
Registrant, Mac-Gray Services, Inc. and the Banks (as defined
therein).
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.*
10.21 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).*
21.1 Subsidiaries of the Registrant.
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).
23.2 Consent of Price Waterhouse LLP.
24.1 Powers of Attorney (contained in the Signature Page to the Registrant's
previously filed Registration Statement on Form S-4, as amended (No.
333-45899)).*
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.

X Previously filed as an exhibit to Mac-Gray's Registration Statement on Form
S-1 (No. 333-49795).

Z Previously filed as an exhibit to Mac-Gray's Current Report on Form 8-K
dated April 23, 1998.

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF GOODWIN, PROCTER & HOAR LLP]

June 10, 1998

Mac-Gray Corporation
22 Water Street
Cambridge, MA 02141

Re: Legality of Securities to be Registered
Under Registration Statement on Form S-1
----------------------------------------

Ladies and Gentlemen:

This opinion is rendered to you in connection with the preparation of the
Registration Statement on Form S-1 (File No. 333-45899) (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the proposed issuance and sale, from time to time, by certain
selling stockholders of Mac-Gray Corporation (the "Company") of up to 967,914
shares (the "Shares") of the Company's common stock, $.01 par value per share
(the "Common Stock").

In connection with rendering this opinion, we have examined the Amended and
Restated Certificate of Incorporation of the Company, as amended through the
date hereof and on file with the Secretary of State of the State of Delaware,
the Bylaws of the Company, as amended through the date hereof, such records of
the corporate proceedings of the Company as we deemed material, the Registration
Statement and the exhibits thereto, and such other certificates, receipts,
records and documents as we considered necessary for the purposes of this
opinion. In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as certified, photostatic or facsimile copies, the confirmation
of public officials and others. As to facts material to our opinion, we have
relied upon certificates or telephonic confirmations of public officials and
certificates, documents, statements and other information of the Company or
representatives or officers thereof.

We are attorneys admitted to practice in The Commonwealth of Massachusetts.
We express no opinion concerning the laws of any jurisdictions other than the
laws of the United States of America and the Delaware General Corporation law,
and also express no opinion with respect to the blue sky or securities laws of
any state, including Delaware.

Based upon the foregoing, we are of the opinion that under the Delaware
General Corporation Law, pursuant to which the Company was incorporated, the
Shares have been authorized for issuance and are validly issued, fully paid and
nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registraton Statement and to the reference to us with respect to this opinion
under the heading "Legal Matters" in the Prospectus which is a part of such
Registration Statement.

Very truly yours,

/s/ GOODWIN, PROCTER & HOAR LLP

GOODWIN, PROCTER & HOAR LLP

<PAGE>

EXHIBIT 10.4

CREDIT AGREEMENT
----------------

STATE STREET BANK AND TRUST COMPANY
(FOR ITSELF AND AS AGENT FOR)
CORESTATES BANK, N.A.,
BANKBOSTON, N.A.
AND
MAC-GRAY CORPORATION, MAC-GRAY SERVICES, INC. AND
INTIRION CORPORATION

$90,000,000 SENIOR SECURED
REVOLVING CREDIT AND TERM LOAN FACILITY

APRIL 23, 1998
<PAGE>

TABLE OF CONTENTS
-----------------

PAGE
----

ARTICLE I - THE CREDIT FACILITY......................................... 1
1.01. The Credit Facility............................................... 1
(a) Revolving Line of Credit and Term Loan Facility; Revolving Loans.. 1
(b) Request for Loans................................................. 2
(c) Repayment of Principal; Premium................................... 2
(d) Interest Payments................................................. 3
(e) Commitment Fee.................................................... 3
(f) Use of Loan Proceeds.............................................. 3
(g) Letters of Credit................................................. 3
(h) Amortization...................................................... 4
1.02. Interest Rate Options............................................. 4
(a) Interest Rate Options............................................. 4
(b) Rate Quotations................................................... 5
1.03. Interest Periods.................................................. 5
1.04 COF Interest Periods.............................................. 5
1.05. Interest After Default............................................ 6
1.06. LIBOR Unascertainable............................................. 6
1.07. Inadequacy of COF Loan Pricing.................................... 7
1.08. Selection of Interest Rate Options................................ 7

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1.09. Payments.......................................................... 7
1.10. Pro Rata Treatment of Banks....................................... 8
1.11. Availability...................................................... 8
1.12. Charges Against Accounts.......................................... 8
1.13. Payment on Non-Business Days...................................... 8
1.14. Security Documents................................................ 8
1.15. Additional Compensation in Certain Circumstances.................. 8
(a) Increased Costs or Reduced Return Resulting From
Taxes, Reserves, Capital Adequacy Requirements, Expenses, Etc......... 9
(b) Indemnity......................................................... 9
1.16. Renewal........................................................... 10

ARTICLE II - CONDITIONS................................................. 10
2.01. Conditions to Closing............................................. 10
(a) Documents......................................................... 10
(b) Warranties, Covenants True........................................ 10
(c) Closing Certificate............................................... 10
(d) Results of Searches............................................... 10
(e) Insurance......................................................... 11
(f) Financial Statements.............................................. 11
(g) Acquisition Documents and Approvals............................... 11
(h) Other Documents................................................... 11
(i) No Adverse Change................................................. 12

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<PAGE>

(j) Closing Fee....................................................... 12
(k) Legal Expenses.................................................... 12
(l) Legal Opinion..................................................... 12
(m) Termination of Prior Credit Agreement............................. 12
2.02. Conditions of Making Loans........................................ 12
(a) Representations and Warranties.................................... 12
(b) Performance....................................................... 13

ARTICLE III - REPRESENTATIONS AND WARRANTIES............................ 14
3.01. Organization...................................................... 14
3.02. Authority......................................................... 14
3.03. Approvals......................................................... 14
3.04. Valid Obligations................................................. 15
3.05. Security Interest................................................. 15
3.06. Assets............................................................ 15
3.07. Agreements........................................................ 15
3.08. Insurance......................................................... 16
3.09. Litigation; Claims................................................ 16
3.10. Labor Matters..................................................... 16
3.11. ERISA............................................................. 16
3.12. Financial Statements.............................................. 17
3.13. Taxes............................................................. 17

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3.14. Investments....................................................... 17
3.15. Investment Company................................................ 17
3.16. Indebtedness...................................................... 17
3.17. Environmental Protection.......................................... 17
3.18. Margin Stock...................................................... 18
3.19. Representations Accurate.......................................... 18

ARTICLE IV - COVENANTS.................................................. 19
4.01. Affirmative Covenants Other Than Financial Covenants
and Reporting Requirements............................................ 19
(a) Property; Insurance............................................... 19
(b) Maintain Rights................................................... 19
(c) Books and Records; Inspection..................................... 19
(d) Operating Accounts................................................ 20
(e) Conduct of Business............................................... 20
(f) Financing Statements.............................................. 20
4.02. Negative Covenants................................................ 20
(a) Indebtedness...................................................... 20
(b) Liens............................................................. 21
(c) Guaranties........................................................ 21
(d) Transfers......................................................... 22
(e) Mergers........................................................... 22
(f) Investments....................................................... 22

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(g) Principal Office.................................................. 23
(h) Write Up of Assets................................................ 23
(i) Dividends......................................................... 23
(j) Environmental Matters............................................. 23
(k) ERISA............................................................. 24
(l) Waiver of Rights.................................................. 24
(m) Sale Leaseback.................................................... 24
(n) Subsidiaries; Additional Security................................. 24
(o) Agreements with Affiliated Person................................. 24
(p) Regulatory Compliance............................................. 24
4.03. Financial Covenants............................................... 24
(a) Maximum Senior Leverage........................................... 24
(b) Minimum Shareholders Equity....................................... 25
(c) Maximum Capital Expenditures...................................... 25
(e) Minimum Fixed Charge Coverage Ratio............................... 25
(e) Current Ratio..................................................... 25
4.04. Reporting Requirements............................................ 25
(a) Financial Reports................................................. 25
(b) Other Financial Reports........................................... 26
(c) Notices........................................................... 27

ARTICLE V - EVENTS OF DEFAULT; REMEDIES................................. 28
5.01. Events of Default................................................. 28

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(a) Representations and Warranties.................................... 28
(b) Covenants......................................................... 28
(c) Security Documents................................................ 28
(d) Other Defaults.................................................... 28
(e) Displacement of Management........................................ 28
(f) Liens............................................................. 28
(g) Seizure of Assets................................................. 28
(h) Judgments......................................................... 28
(i) Insolvency........................................................ 29
(j) Loss; Material Adverse Effect..................................... 29
(k) ERISA............................................................. 29
(l) Security Interest................................................. 29
5.02. Remedies.......................................................... 29
5.03. Set-off........................................................... 30

ARTICLE VI - AGENCY..................................................... 31
6.01. Authorization of Agent and Relationship........................... 31
6.02. Disclaimer of Agent............................................... 31
6.03. Bank's Funding Obligations........................................ 31
6.04. Payments by the Borrowers......................................... 32
6.05. Payments by Agent................................................. 33
6.06. Direct Payments................................................... 34

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6.07. Administration of the Loans....................................... 34
6.08. Unanimous Consent of Banks........................................ 34
6.09. Reliance by Borrowers............................................. 35
6.10. Rights of Agent................................................... 35
6.11. Acknowledgments, Representations and Covenants of Banks........... 36
6.12. Collective Action of the Banks.................................... 37
6.13. Successor Agent................................................... 37
6.14. Provisions Operative Between Banks and Agent Only................. 38

ARTICLE VII - MISCELLANEOUS............................................. 38
7.01. Further Assurances................................................ 38
7.02. Right to Cure..................................................... 39
7.03. Environmental Matters............................................. 39
7.04. Waivers; Release of Pledge Agreements of Certain Stockholders..... 39
7.05. Delays............................................................ 40
7.06. Notices........................................................... 40
7.07. Jurisdiction...................................................... 40
7.08. Execution......................................................... 40
7.09. Governing Law..................................................... 40
7.10. Fees.............................................................. 40
7.11. Binding Nature.................................................... 41

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7.12. Severability...................................................... 41
7.13. Under Seal........................................................ 41

ARTICLE VIII - DEFINITIONS.............................................. 41
8.01. Definitions....................................................... 41
8.02. Use of Defined Terms.............................................. 49
8.03. Accounting Terms.................................................. 49

EXHIBITS
- --------

Exhibit A Form of Note
Exhibit B Form of Security Agreement
Exhibit C Form of Corporate Pledge Agreement
Exhibit D Form of Subsidiary Guaranty Agreement
Exhibit E Form of Subsidiary Security Agreement

SCHEDULES
- ---------

Schedule 3.01 Foreign Qualifications
Schedule 3.05 Liens
Schedule 3.06 Locations
Schedule 3.07 Agreements with Affiliates
Schedule 3.08 Insurance
Schedule 3.09 Litigation; Claims
Schedule 3.12 Financial Statements
Schedule 3.14 Investments
Schedule 3.16 Indebtedness
Schedule 3.17 Environmental Protection
Schedule 4.02(c) Guaranties

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<PAGE>

This Credit Agreement (the "Agreement") is made as of April 23, 1998 between
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company with its
Principal Office at 225 Franklin Street, Boston, Massachusetts 02110, for itself
and as agent for the Banks (as hereinafter defined), CORESTATES BANK, N.A., a
national banking association with its head office at 1345 Chestnut Street,
Philadelphia, Pennsylvania, 19107 and BANKBOSTON, N.A., a national banking
association with its head office at 100 Federal Street, Boston, Massachusetts
02110 (each, a "Bank" and collectively, the "Banks") and MAC-GRAY CORPORATION,
MAC-GRAY SERVICES, INC. AND INTIRION CORPORATION, each a Delaware corporation
with their designated Principal Office at 22 Water Street, Cambridge,
Massachusetts, 02141 (each a "Borrower" and collectively the "Borrowers").

WHEREAS, each Borrower has requested that the Banks provide, and subject to
the terms and conditions of this Agreement and of the other agreements and
documents referred to herein, the Banks have agreed to provide, to the Borrowers
a senior secured credit facility of up to $90,000,000 (the "Credit Facility") to
provide for the financing of acquisitions, restructurings and working capital
requirements of the Borrowers.

NOW THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Borrowers, in order
to induce the Banks to provide the Credit Facility, and intending to be legally
bound, hereby jointly and severally agree with the Banks as follows:

ARTICLE I
THE CREDIT FACILITY

1.01. The Credit Facility. The Credit Facility shall consist of a revolving
-------------------
line of credit and term loan facility pursuant to which the Banks may from time
to time make Loans to the Borrowers and/or issue Letters of Credit on behalf of
the Borrowers.

(a) Revolving Line of Credit and Term Loan Facility; Revolving Loans.
----------------------------------------------------------------
Subject to the terms and conditions hereinafter set forth, the Banks shall make
loans to the Borrowers under the Revolving Line of Credit and Term Loan Facility
(the "Revolving Loans") and/or issue Letters of Credit on behalf of the
Borrowers at the Principal Office of the Agent, on any Business Day prior to
April 23, 2001, in such amounts as the Borrowers may request; provided, however,
that the aggregate of all Revolving Loans and all Letters of Credit outstanding
shall at no time exceed $90,000,000. Within the foregoing limits, subject to
the terms and conditions of this Agreement, the Borrowers may obtain Revolving
Loans and/or Letters of Credit, repay Revolving Loans in whole or in part and
obtain Revolving Loans again on one or more occasions. Each Revolving Loan
advanced upon the Prime Rate Option shall be in the principal amount of Thirty
Thousand Dollars ($30,000) or an integral multiple thereof. Each Revolving Loan
advanced upon the LIBOR Option shall be in the principal amount of Thirty
Thousand Dollars ($30,000) or an integral multiple thereof. Each Revolving Loan
advanced upon the COF Option shall be in the principal amount of One Thousand
Dollars ($1,000) or an integral

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<PAGE>

multiple thereof. The Revolving Loans shall be evidenced by the Revolving Note
of the Borrowers, dated as of the date on which the initial Revolving Loan is
made. The Borrowers hereby irrevocably authorize each Bank to make or cause to
be made, on a schedule attached to the Revolving Note or on the books of each
Bank, at or following the time of making each Revolving Loan and of receiving
any payment of principal, an appropriate notation reflecting such transaction
and the then aggregate unpaid principal balance of the Revolving Loans. The
amount so noted shall constitute prima facie evidence as to the amount owed by
the Borrowers with respect to principal of the Revolving Loans. Failure of any
Bank to make any such notation shall not, however, affect any obligation of the
Borrowers hereunder or under the Revolving Note.

(b) Request for Loans. The Borrowers will give the Agent at least three
-----------------
(3) Business Day's prior telephonic or written notice, specifying the amount and
date of each Loan or Letter of Credit requested, the Interest Rate Option
selected by the Borrower with respect thereto pursuant to Section 1.02 and, for
LIBOR Loans or COF Loans, the Interest Period selected by the Borrower with
respect thereto pursuant to Section 1.03 or 1.04, as applicable. Any telephonic
notice given under this Section will be followed by written notice given not
later than the next following Business Day. The Agent may rely in good faith on
the identity and authority of any person providing such telephonic notice.

(c) Repayment of Principal; Premium. The Borrowers shall repay in full
-------------------------------
all Loans and all interest thereon and all other charges incurred in connection
therewith upon the Termination Date. The Borrowers may prepay, at any time,
without penalty, the whole or any portion of (i) any Prime Rate Loan provided
that each such prepayment, if less than the aggregate amount of all Prime Rate
Loans then outstanding, shall be in the amount of One Thousand Dollars ($1,000)
or an integral multiple thereof or (ii) any LIBOR Loans provided at each such
payment, if less than the aggregate amount of all LIBOR Loans then outstanding,
shall be in the amount of $1,000 or an integral multiple thereof provided,
further, however, that any prepayments of LIBOR Loans other than on the last day
of the applicable LIBOR Interest Period shall be subject to the provisions of
Section 1.15(b)(i) herein. In the event that at any time the Loans outstanding
are in an amount which exceeds the aggregate amount of all Loans and Letters of
Credit permissible hereunder, the Borrowers will forthwith prepay so much of the
Loans as may be required so that the aggregate of all Loans and Letters of
Credit outstanding will not exceed the amount permissible hereunder. The Banks
may, at their discretion, renew the senior secured Credit Facility described in
this Agreement by extending the Termination Date. Neither the inclusion in this
Agreement of financial covenants relating to periods after the Termination Date
or any other terms and provisions hereof, however, will be deemed to create any
implication that the Banks are required to renew such revolving line of credit.
In the event that Borrowers prepay, without the express consent of the Banks,
all principal and all interest outstanding under this Credit Facility or
otherwise terminate this facility within the first three years after the Closing
Date following or in connection with the financing of Borrowers by one or more
lenders none of which is currently a Bank hereunder, then in such event, a
premium shall be due and payable in the amount of one half of one percent (0.5%)
of the aggregate amount of the total Credit Facility; provided, however, that
Borrowers may prepay all of the principal and interest outstanding under this
Credit Facility at any time without penalty if the funds used to make such
payment are the proceeds of a public offering of debt or equity securities of
the Borrowers or a

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<PAGE>

private placement of debt or equity securities of the Borrowers, including a
placement in accordance with Rule 144A of the Securities Act of 1933, as
amended, provided further, however, that any prepayments of LIBOR Loans other
than on the last day of the applicable LIBOR Interest Period shall be subject to
the provisions of Section 1.15(b)(i) herein.

(a) Except as otherwise provided in this Section, the Borrowers shall
have the right at their option from time to time to prepay the Loans in whole or
part

(i) at any time with respect to any Loan to which the Prime Rate
Option applies;

(ii) on the last day of the applicable LIBOR Interest Period with
respect to Loans to which a LIBOR Option applies;

(iii) on the last day of the applicable COF Interest Period with
respect to Loans to which a COF Option applies.

(d) Interest Payments. The Borrowers will pay interest on the principal
-----------------
amount of the aggregate Loans outstanding from time to time, from the date of
the initial Loan until payment of all Loans and the Note in full and the
termination of this Agreement, such interest to be payable monthly in arrears on
each Payment Date, commencing with the first such Payment Date after the date of
this Agreement, and at the end of each LIBOR Interest Period or COF Loan period,
but not less than quarterly, with regard to LIBOR Loans, and on the date of
payment of the Loans in full.

(e) Commitment Fee. The Borrowers shall pay to the Agent, in connection
--------------
with the establishment and maintenance of the revolving line of credit, a
commitment fee (the "Commitment Fee") equal to (i) one-half of one percent
(0.5%) per annum of the average daily unused portion of the Credit Facility
during the preceding calendar quarter (or such shorter period as has elapsed
from the Closing Date to the end of the current calendar quarter) for each
business day during such period with respect to which the aggregate balance of
the Loans outstanding as of the close of each such day was less than
$35,000,000; or (ii) one-quarter of one percent (0.25%) for each business day
during such period with respect to which the aggregate balance of the Loans
outstanding as of the close of each such day equaled or exceeded $35,000,000.
The Commitment Fee shall be payable in arrears, on the first day of each of the
months of April, July, October and January in each year, commencing July 1,
1998.

(f) Use of Loan Proceeds. The proceeds of each Revolving Loan will be
--------------------
used by the Borrowers solely to (i) refinance the secured indebtedness of Mac-
Gray Services, Inc., Sun Services of America, Inc. and R. Bodden Coin-Op
Laundry, Inc.; (ii) fund the acquisitions of Amerivend Corporation and Copico,
Inc. ("Copico"); (iii) fund one or more standby or documentary letters of
credit; (iv) support general working capital needs; and (v) for Permitted
Acquisitions.

(g) Letters of Credit. As part of the Credit Facility, the Agent will
-----------------
issue on behalf of the Borrowers, at the request of the Borrowers, one or more
standby or documentary letters of credit;

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<PAGE>

provided, however, that (a) each such letter of credit issued by the Agent on
behalf of the Borrower (individually a "Letter of Credit" and collectively the
"Letters of Credit") shall by its terms expire no later than the earlier of (i)
one year from the date of issuance thereof or (ii) 30 days prior to the
Termination Date, and (b) the aggregate amount of outstanding Letters of Credit
shall not exceed $10,000,000 at any time. Upon the issuance of any Letter of
Credit in an amount greater than $50,000 by the Agent, the Agent will promptly
notify each Bank of the date of issuance, amount and expiration date of each
such Letter of Credit. As a condition of the issuance of each such Letter of
Credit, the Borrowers shall (1) execute the Agent's prevailing letter of credit
documentation, as in effect from time to time, and (2) pay to the Agent the
Agent's prevailing letter of credit issuance, maintenance, commission and
negotiation fee(s), as in effect from time to time and (3) pay (or have paid) in
quarterly installments in advance to the Agent an annual total commission equal
to 130 basis points of the aggregate face amount of each such Letter of Credit.
Any and all amounts which the Agent is required to advance pursuant to the
Letters of Credit shall become, at the time the amounts are advanced, Prime Rate
Loans from the Banks. The Agent will notify the Banks of the amount required to
be advanced pursuant to the Letters of Credit. Before 12:00 noon (Boston time)
on the date of any advance that the Agent is required to make pursuant to the
Letters of Credit, each Bank shall make available such Bank's Proportionate
Share of such advance in immediately-available funds to the Agent. The Borrowers
agree to be bound by the terms of the Agent's application and/or agreement for
Letters of Credit and the Agent's written regulations and customary practices
relating to Letters of Credit.

(h) Amortization. On the third anniversary of the Closing, the
------------
principal amounts of any and all Revolving Loans then outstanding shall be
converted (the "Conversion Date") to a five-year amortization schedule with a
weighted amortization schedule in years four and five after the Closing as
follows: (i) during the first year following the Conversion Date, ten percent
(10%) of the balance of the aggregate Loans outstanding on the Conversation Date
shall be due and payable in quarterly installments in arrears on the first
business day of each calendar quarter; (ii) during the second year following the
Conversion Date, fifteen percent (15%) of the balance of the aggregate Loans
outstanding on the Conversion Date shall be due and payable in quarterly
installments in arrears on the first business date of each calendar quarter; and
(iii) a final payment of all Loans then outstanding, including all principal and
interest (as well as other fees and expenses due to the Banks) due and payable
on the second anniversary of the Conversion Date. On and after Conversion Date,
the Borrower will retain the right to select Interest Rate Options in accordance
with Section 1.02.

(i) Closing Fee. The Borrowers shall pay to the Agent for the benefit
-----------
of the Banks at the Closing a fee in connection with the establishment of this
facility in the amount of Four Hundred Thousand Dollars ($400,000.00) which may
be paid monthly in advance by the Borrowers in twelve equal installments, with
the first such payment to be made at the Closing.

1.02. Interest Rate Options. The Borrowers shall pay interest in respect of
---------------------
the outstanding unpaid principal amount of the Loans as selected by it at the
Prime Rate Option or LIBOR Option set forth below applicable to the Loans. The
Agent's determination of a rate of interest and any change therein shall in the
absence of manifest error be conclusive and binding upon all parties hereto. If
at any time the designated rate applicable to any Loan made by any Bank exceeds
such Bank's highest lawful rate,

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<PAGE>

the rate of interest on such Bank's Loan shall be limited to such Bank's highest
lawful rate.

(a) Interest Rate Options. The Borrowers shall have the right to
---------------------
select from the following Interest Rate Options applicable to the Loans:

(i) Prime Rate Option: A fluctuating rate per annum (computed
-----------------
on the basis of a year of 360 days, as the case may be, and actual days elapsed)
equal to the Prime Rate minus 0.5%, such interest rate to change automatically
from time to time effective as of the effective date of each change in the Prime
Rate.

(ii) LIBOR Option: A rate per annum (computed on the basis of a
------------
year of 360 days and actual days elapsed) equal to LIBOR plus the Applicable
Margin.

(iii) COF Option: A rate per annum (computed on the basis of a
----------
year of 360 days and actual days elapsed) equal to the COF Base Rate plus the
Applicable Margin.

(b) Rate Quotations. The Borrowers may call the Agent on or before
---------------
the date on which a Loan request is to be delivered to receive an indication of
the rates then in effect, but it is acknowledged that such indication shall not
be binding on the Agent or the Banks nor affect the rate of interest which
thereafter is actually in effect when the election is made.

1.03. LIBOR Interest Periods. At any time when the Borrowers shall select,
----------------------
convert to or renew a LIBOR Loan, the Borrowers shall notify the Agent thereof
at least three (3) Business Days prior to the effective date of such LIBOR Loan
by submitting a Loan request. The loan request shall specify an interest period
during which such LIBOR Loan Option shall apply, such periods to be one, two,
three, or six months (or quarterly for periods longer than three months) or a
maximum of twelve months ("LIBOR Interest Period"), provided, that:

(a) any LIBOR Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such LIBOR Interest Period shall end on the next preceding Business Day;

(b) any LIBOR Interest Period which begins on the last day of a
calendar month for which there is no numerically corresponding day in the
subsequent calendar month during which such LIBOR Interest Period is to end
shall end on the last Business Day of such subsequent month;

(c) the Borrowers shall not select, convert to or renew a LIBOR
Interest Period for any portion of the Loans that would end after the
Termination Date; and

(d) in the case of the renewal of a LIBOR Loan at the end of a LIBOR
Interest Period, the first day of the new LIBOR Interest Period shall be the
last day of the preceding LIBOR Interest Period, without duplication in payment
of interest for such day.

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<PAGE>

1.04 COF Interest Periods. At any time when the Borrowers shall select,
--------------------
convert to or renew a COF Loan, the Borrowers shall notify the Agent thereof at
least three (3) Business Days prior to the effective date of such COF Loan by
delivering a Loan request. The Loan request shall specify an interest period
during which such COF Loan Option shall apply, such periods to be one to sixty
months ("COF Interest Period"), provided, that all COF Loans will terminate on
or prior to the Termination Date and provided further that:

(a) any COF Interest Period which would otherwise end on a date which
is not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in the next calendar month, in which case such
COF Interest Period shall end on the next preceding Business Day;

(b) any COF Interest Period which begins on the last day of a
calendar month for which there is no numerically corresponding day in the
subsequent calendar month during which such COF Interest Period is to end shall
end on the last Business Day of such subsequent month;

(c) the Borrower shall not select, convert to or renew a COF Interest
Period for any portion of the Loans that would end after the Termination Date.

(d) in the case of the renewal of a COF Loan at the end of a COF
Interest Period, the first day of the new COF Interest Period shall be the last
day of the preceding COF Interest Period, without duplication in payment of
interest for such day.

1.05. Interest After Default. To the extent permitted by applicable law,
----------------------
upon the occurrence and during the continuation of an Event of Default, any
principal, interest, fee or other amount payable hereunder shall bear interest
for each day thereafter until paid in full (before and after judgment) at a rate
per annum which shall be equal to two percentage points (2%) above the rate of
interest otherwise applicable with respect to such amount or the Prime Rate if
no rate of interest is otherwise applicable, but in no event in excess of the
highest rate permitted under applicable law. The Borrowers acknowledge that
such increased interest rate reflects, among other things, the fact that such
Loans or other amounts have become a substantially greater risk given their
default status and that the Banks are entitled to additional compensation for
such risk.

1.06. LIBOR Unascertainable. If
---------------------

(a) on any date on which LIBOR would otherwise be determined, any Bank
shall have determined (which determination shall be conclusive absent manifest
error) that:

(i) adequate and reasonable means do not exist for ascertaining
LIBOR, or

(ii) a contingency has occurred which materially and adversely
affects the London interbank market relating to LIBOR, or

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<PAGE>

(b) if at any time any Bank shall have determined (which determination
shall be conclusive absent manifest error) that:

(i) the making, maintenance or funding of any LIBOR Loan has
been made impracticable or unlawful by compliance by such Bank in good faith
with any law or any interpretation or application thereof by any official body
or with any request or directive of any such official body (whether or not
having the force of law), or

(ii) LIBOR will not adequately and fairly reflect the cost to
such Bank of the establishment or maintenance of any LIBOR Loan, or

(iii) after making all reasonable efforts, deposits of the
relevant amount in U.S. Dollars for the relevant LIBOR Interest Period for a
LIBOR Loan are not available to such Bank with respect to a proposed LIBOR Loan
in the London interbank market,

(iv) then in the case of any event specified in subsection (a)
above, any Bank shall promptly so notify the Agent and the Borrowers thereof and
in the case of any event specified in subsection (b) above, such Bank shall
promptly so notify the Agent in writing as to the specific circumstances of such
event, and the Agent shall promptly send copies of such notice to the other
Banks and the Borrowers. Upon such date as shall be specified in such notice
(which shall not be earlier than the date such notice is given) the obligation
of (A) the Banks in the case of such notice given by the Agent or (B) such Bank
in the case of such notice given by such Bank the right of the Borrowers to
select, convert to or renew a LIBOR Loan shall be suspended until the Agent
shall have later notified the Borrowers or such Bank shall have later notified
the Agent, of the Agent's or such Bank's, as the case may be, determination
(which determination shall be conclusive absent manifest error) that the
circumstances giving rise to such previous determination no longer exist. If at
any time the Agent makes a determination under subsection (a) or (b) of this
Section 1.06, and the Borrowers have previously notified the Agent of their
selection of, conversion to or renewal of a LIBOR Loan and such LIBOR Loan has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Prime Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Agent of a
determination under subsection (b) of this Section 1.06, the Borrowers shall,
subject to the Borrowers' indemnification obligations under Section 1.15(b), as
to any LIBOR Loan of the Banks on the date specified in such notice either
convert such LIBOR Loan to a Prime Rate Loan otherwise available with respect to
such Loan or prepay such Loan in accordance with the provisions of this
Agreement. Absent due notice from the Borrower of conversion or prepayment such
Loan shall automatically be converted to a Prime Rate Loan upon such specified
date.

1.07. Inadequacy of COF Loan Pricing. If with respect to any Interest Period
------------------------------
for any COF Loan:

(i) no timely quotations of the applicable rate are offered to the
Banks by the Reference Banks for funds as contemplated herein, or

(ii) the COF Rate as determined by the Agent will not adequately and
fairly reflect the

-7-
<PAGE>

cost to the Banks of maintaining or funding a COF Loan, then the Agent shall
forthwith give notice thereof to Borrowers, whereupon until the Agent notifies
Borrowers that the circumstances giving rise to such suspension no longer exist,
(A) the obligation of the Banks to make COF Loans shall be suspended, and (B)
Borrowers shall either (1) repay in full the then outstanding principal amount
of the COF Loans, together with accrued interest thereon on the last day of the
then current Interest Period applicable to the COF Loans, or (2) convert the COF
Loans to LIBOR Loans or Prime Rate Loans in accordance with Section 1.03 on the
------------
last day of the then-current Interest Period applicable to such COF Loans.

1.08. Selection of Interest Rate Options. If the Borrowers fail to select a
----------------------------------
LIBOR Interest Period or a COF Interest Period in accordance with the provisions
of Sections 1.03 and 1.04 in the case of renewal of a LIBOR Loan or a COF Loan,
the Borrowers shall be deemed to have converted such Loan or portion thereof to
a Prime Rate Loan commencing upon the last day of that LIBOR Interest Period or
COF Interest Period, as the case may be. If an Event of Default shall occur and
be continuing, the Agent may in its discretion limit the Borrowers to the Prime
Rate Option.

1.09. Payments. All payments and prepayments to be made in respect of
--------
principal, interest, commitment fees, closing fee, Letter of Credit fees,
Agent's fees or other fees or amounts due from the Borrowers hereunder shall be
payable prior to 12:00 noon (Boston time) on the date when due without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by the Borrowers, and without setoff, counterclaim or other
deduction of any nature. Such payments shall be made to the Agent at the
Principal Office of the Agent for the ratable accounts of the Banks with respect
to the Loans in U.S. dollars and in immediately available funds, and the Agent
shall promptly distribute such amounts to the Banks in immediately available
funds in accordance with Section 6.04 hereunder. All monies received by the
Banks hereunder shall be applied (i) first to reasonable fees, charges, costs
and expenses payable to the Banks under this Agreement, any of the Security
Documents or any Letter of Credit documents; (ii) next to interest then accrued
on account of the Loans; and only thereafter (iii) to principal of the Loans;
and finally (iv) to any and all other obligations and liabilities owing to
either Bank by the Borrower, however or whenever arising. Interest shall be
calculated on the basis of the actual number of days and a year of 360 days.

1.10. Pro Rata Treatment of Banks. Each borrowing, and each selection of,
---------------------------
conversion to or renewal of any Loan or Interest Rate Option and each payment or
prepayment by the Borrower with respect to principal, interest, commitment fees,
closing fee, Letter of Credit fees, or other fees or amounts due from the
Borrower hereunder to the Banks with respect to the Loans, except for the
Agent's fees, shall be made in proportion to the Loans outstanding from each
Bank and if no such Loans are then outstanding, in proportion to the
Proportionate Share of each Bank.

1.11. Availability. The proceeds of all Loans shall be credited by the Agent
------------
to a general deposit account of any of the Borrowers with the Agent.

1.12. Charges Against Accounts. The Agent may charge any general deposit
------------------------
account of any of the Borrowers at the Agent with the amount of all payments of
interest, principal and other sums due, from time to time, under this Agreement,
the Note and/or any Letter of Credit or documents relating thereto

-8-
<PAGE>

and will thereafter notify the Borrowers of the amount so charged. The failure
of the Agent so to charge any account or to give any such notice shall not
affect the obligation of the Borrowers to pay interest, principal or other sums
as provided herein, in the Note and/or any Letter of Credit or documents
relating thereto.

1.13. Payment on Non-Business Days. Whenever any payment to be made to the
----------------------------
Agent or any Bank hereunder or under the Note shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next succeeding
Business Day, and interest payable on each such date shall include the amount
thereof which shall accrue during the period of such extension of time.

1.14. Security Documents. Payment of the principal and interest under the
------------------
Note and of all other obligations of the Borrower under this Agreement or any
Letter of Credit documents shall be secured by the following:

(a) A security interest in all assets now or hereafter owned by the
Borrowers, as more fully set forth in a Security Agreement substantially in the
form of Exhibit B hereto;
---------

(b) A pledge of the capital stock owned by Mac-Gray Corporation (of
each of its Subsidiaries) as more fully set forth in the Corporate Pledge
Agreement substantially in the form of Exhibit C hereto; and
---------

(c) All such other security agreements or assignments, if any, with
respect to patents, copyrights, trademarks, and other intellectual property of
the Borrowers and any of its subsidiaries, as the Bank may now or hereafter
reasonably request to create and perfect its security interest therein.

(Collectively, all of the foregoing documents now or hereafter delivered
pursuant to the terms of this Section 1.12, together with the Note, being
referred to herein as the "Security Documents").

1.15. Additional Compensation in Certain Circumstances.
-------------------------------------------------

(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
-----------------------------------------------------------------
Capital Adequacy Requirements, Expenses, Etc.. If any Law, guideline or
- ---------------------------------------------
interpretation or any change in any Law, guideline or interpretation or
application thereof by any official body charged with the interpretation or
administration thereof or compliance with any request or directive (whether or
not having the force of Law) of any central bank or other official body:

(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Note, the Loans or payments by the
Borrower of principal, interest, commitment fees, or other amounts due from the
Borrower hereunder or under the Note (except for taxes on the overall net income
of such Bank), imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend credit
extended by, or assets (funded or contingent) of, deposits with or for the
account of, or other acquisitions of funds by, any Bank, or

-9-
<PAGE>

(ii) imposes, modifies or deems applicable any capital adequacy
or similar requirement (A) against assets (funded or contingent) of, or letters
of credit, other credits or commitments to extend credit extended by, any Bank,
or (B) otherwise applicable to the obligations of any Bank under this Agreement,
and

(iii) the result of any of the foregoing is to increase the cost
to, reduce the income receivable by, or impose any expense (including loss of
margin) upon any Bank with respect to this Agreement, the Note or the making,
maintenance or funding of any part of the Loans (or, in the case of any capital
adequacy or similar requirement, to have the effect of reducing the rate of
return on any Bank's capital, taking into consideration such Bank's customary
policies with respect to capital adequacy) by an amount which such Bank in its
reasonable discretion deems to be material, such Bank shall from time to time
notify the Borrower and the Agent of the amount determined in good faith (using
any averaging and attribution method employed in good faith) by such Bank (which
determination shall be conclusive absent manifest error) to be necessary to
compensate such Bank for such increase in cost, reduction of income or
additional expense. Such notice shall set forth in reasonable detail the basis
for such determination. Such amount shall be due and payable by the Borrower to
such Bank ten (10) Business Days after such notice is given.

(b) Indemnity. In addition to the compensation required by subsection
---------
(a) of this Section 1.15, the Borrowers shall indemnify each Bank against all
liabilities, losses or expenses (including loss of margin, any loss or expense
incurred in liquidating or employing deposits from third parties and any loss or
expense incurred in connection with funds acquired by a Bank to fund or maintain
LIBOR Loans subject to the LIBOR Option or COF Loans subject to the COF Option)
which such Bank sustains or incurs as a consequence of any

(i) payment, prepayment, conversion or renewal of any LIBOR
Loan on a day other than the last day of the corresponding LIBOR Interest Period
or any COF Loan (whether or not such payment or prepayment is mandatory,
voluntary or automatic and whether or not such payment or prepayment is then
due),

(ii) attempt by the Borrowers to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
requests or prepayments; or

(iii) default by the Borrowers in the performance or observance
of any covenant or condition contained in this Agreement or any other Loan
Document, including without limitation any failure of the Borrowers to pay when
due (by acceleration or otherwise) any principal, interest, commitment fee or
any other amount due hereunder.

(iv) If any Bank sustains or incurs any such loss or expense it
shall from time to time notify the Borrowers and the Agent of the amount
determined in good faith by such Bank (which determination shall be conclusive
absent manifest error and may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify such Bank for such loss or expense.
Such notice shall set forth in reasonable

-10-
<PAGE>

detail the basis for such determination. Such amount shall be due and payable by
the Borrowers to such Bank ten (10) Business Days after such notice is given.

1.16. Renewal. The Banks may, at their discretion, renew the revolving line
-------
of credit described in this Agreement by extending the Termination Date.
Neither the inclusion in this Agreement of financial covenants relating to
periods after the Termination Date or any other terms and provisions hereof,
however, will be deemed to create any implication that the Banks are required to
renew such revolving line of credit.

ARTICLE II
CONDITIONS

2.01. Conditions to Closing. The obligations of the Banks to perform any of
---------------------
their obligations under this Agreement, any Security Document or any Letter of
Credit document is subject to the satisfaction of all of the following
conditions on or prior to Closing:

(a) Documents. The Agent shall have received this Agreement and all of
---------
the Security Documents, duly executed and delivered by all parties thereto, and
all actions contemplated by the foregoing documents shall have been accomplished
to the reasonable satisfaction of the Agent and its special counsel.

(b) Warranties, Covenants True. All representations and warranties of
--------------------------
the Borrowers in this Agreement and the Security Documents shall be true and
accurate on the Closing Date in all material respects as if then given, and the
Borrowers shall have performed or observed in all material respects all of the
terms, covenants, conditions and obligations under this Agreement and the
Security Documents which are required to be performed or observed by it or them
on or prior to the Closing Date.

(c) Closing Certificate. The Agent shall have received a certificate,
-------------------
dated as of the Closing Date and executed by the Treasurer or Chief Financial
Officer of each Borrower, in form and content satisfactory to the Bank, stating
the substance of Section 2.01(b).

(d) Results of Searches. The Agent shall have received written results
-------------------
of searches of the records of filing offices, dated as of a date as close to the
Closing Date as practicable, stating that with respect to each jurisdiction in
which Collateral is kept or maintained and with respect to each filing office
where a filing is required to perfect the Banks' security interest in the
Collateral or where a filing may be made which may affect the priority of the
Banks' security interest in such Collateral, there are no financing statements,
assignments or notices of tax liens on file against or with respect to any such
Collateral, other than financing statements in which the Banks are named as the
secured party, and financing statements as to leased equipment disclosed on
Schedule 3.05 hereto.
- -------------

(e) Insurance. The Agent shall have received insurance binders or
---------
certificates of insurance coverage indicating that each Borrower has obtained
insurance as required by

-11-
<PAGE>

Section 4.01(c) of this Agreement.

(f) Financial Statements. Each Bank shall have received copies of the
--------------------
unaudited consolidated balance sheet and statement of income for the two-month
period ended February 28, 1998, with such unaudited statement certified by the
chief financial officer or treasurer of Mac-Gray Corporation as presenting
fairly the financial condition and results of operations of Mac-Gray Corporation
and Mac-Gray Services, Inc., in conformity with GAAP (subject to normal year-end
audit adjustments and absence of footnotes required by GAAP).

(g) Acquisition Documents and Approvals. The Agent shall have received
------------------------------------
on, or as soon as practicable after, the closing of the Amerivend and Copico
acquisitions (i) approval of the acquisition by Mac-Gray Services, Inc. of each
of Amerivend and Copico by the Board of Directors or Shareholders as applicable
of each party to the respective acquisitions; and (ii) documents satisfactory to
counsel for the Banks substantiating the completion of such acquisitions.

(h) Other Documents. The Agent shall have received all other documents
---------------
and assurances required hereunder or which it may have heretofore reasonably
requested in connection with the transactions contemplated by this Agreement,
and such documents shall be certified, when appropriate, by the proper
authorities or corporate officers, including without limitation the following,
and all such documents and all proceedings to be taken in connection with such
transactions shall be reasonably satisfactory in form and substance to the Agent
and its special counsel:

(i) Certified copies of the resolutions of the Board of
Directors of each Borrower evidencing approval of this Agreement, the Security
Documents and the other matters contemplated hereby and certified copies of all
documents evidencing other necessary corporate action or approvals, if any, with
respect to this Agreement, the Security Documents and such other matters,
including, without limitation, any required approvals of governmental
authorities and other persons or entities.

(ii) A certificate, signed by the Secretary or Assistant
Secretary of each Borrower, setting forth the names of the officers of such
Borrower authorized to sign this Agreement, the Security Documents and any and
all certificates, notices and reports referred to herein; such certificate shall
contain the true signatures of such officers.

(iii) A copy of the By-laws of each Borrower, as amended to date,
as certified by its Secretary; certificates of corporate legal existence and
good standing for each Borrower (and each of its subsidiaries) issued as of a
recent date by the appropriate public officials of the State of Delaware and
other appropriate authorities, as the case may be.

(iv) Uniform Commercial Code financing statements and any such
other documents as shall be reasonably requested by the Banks to vest in the
Banks a first priority security interest in and to all of the Collateral subject
only to Permitted Liens.

-12-
<PAGE>

(v) Such documents which, in the reasonable opinion of the
Banks or their special counsel, are required to be obtained in connection with
the Loans under the revolving line of credit by reason of the provisions of any
law or regulation applicable to the Banks (including, without limitation,
executed Forms U-1), and the statements made in such documents shall be such as,
in the opinion of the Banks, will permit such Loans in accordance with such laws
and regulations.

A certificate from the chief financial officer of each Borrower certifying that
as of the Closing Date each Borrower has paid all applicable material taxes then
due and owing or has duly obtained extensions with respect thereto.

(i) No Adverse Change. There shall have occurred no material adverse
-----------------
change in the business, properties or financial condition of the Borrowers on a
consolidated basis, since December 31, 1997.

(j) Closing Fee. At the Closing, the Borrowers shall have paid to the
-----------
Banks, or authorized the Agent to charge against their accounts, (i) the first
of twelve equal monthly installment payments, in the amount of $33,333.33, of
the aggregate closing fee of $400,000, which is to be distributed to the Banks
based upon their Proportionate Share; and (ii) an Agent's fee in the amount of
$25,000 each year during the Credit Facility.

(k) Legal Expenses. At the Closing, the Borrowers shall have paid to
--------------
the Banks, or authorized the Agent to charge against any of their accounts, all
reasonable costs and expenses (including reasonable legal fees and disbursements
of the Banks' special counsel) of the Banks in connection with the preparation
and execution of this Agreement and the Security Documents.

(l) Legal Opinion. All legal matters incident to this Agreement shall
-------------
be reasonably satisfactory to the Banks' special counsel, and the Bank shall
have received at the Closing the legal opinion of Goodwin, Procter & Hoar LLP,
counsel to the Borrowers, in form and substance reasonably satisfactory to the
Banks and their special counsel.

(m) Termination of Prior Credit Agreement. At the Closing, the
-------------------------------------
Borrowers shall have delivered to the Agent executed Uniform Commercial Code-3
termination statements terminating the security interests of BankBoston, N.A. in
and to the property and interests of Intirion Corporation and shall have taken
all other steps which the Agent may require to terminate the BankBoston-Intirion
Credit Agreement.

2.02. Conditions of Making Loans. The obligation of the Banks to make any
--------------------------
Loans or issue any Letters of Credit on or subsequent to the Closing Date is
subject to the satisfaction of the following conditions precedent on or before
the date of making each such Loan or issuing each such Letter of Credit (the
"Borrowing Date"):

(a) Representations and Warranties. The representations and
------------------------------
warranties contained in Article III hereof and in the Security Documents and
otherwise made by the Borrowers in writing in

-13-
<PAGE>

connection with the transactions contemplated by this Agreement shall have been
correct in all material respects as of the date on which made and shall also be
correct in all material respects at and as of such Borrowing Date with the same
effect as if made at and as of such time, except as may have been disclosed in
writing to the Banks by the Borrowers and to which the Banks have consented in
writing and to the extent that the facts upon which such representations and
warranties are based may in the ordinary course be changed by the transactions
permitted or contemplated hereby.

(b) Performance. The Borrowers shall have performed and complied in
-----------
all material respects with all terms and conditions herein required to be
performed or complied with by it prior to or on such Borrowing Date, and on such
Borrowing Date there shall exist no Event of Default or condition which would,
with either or both the giving of notice or the lapse of time, result in an
Event of Default upon consummation of the subsequent Loan to be made or Letter
of Credit to be issued on such Borrowing Date.

Each request by the Borrowers for a Loan or the issuance of a Letter of Credit
subsequent to the Closing Date shall constitute certification by the Borrowers
that the conditions specified in this Section 2.02 will be duly satisfied on the
date of the making of such Loan or the issuance of such Letter of Credit.

-14-
<PAGE>

ARTICLE III
REPRESENTATIONS AND WARRANTIES

The Borrowers incorporate herein all of the representations and warranties set
forth in the Security Documents. In addition, the Borrowers represent and
warrant, jointly and severally, to the Banks as follows:

3.01. Organization. Each Borrower is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Each
Borrower: (i) is duly qualified to do business and in good standing in each
jurisdiction where such qualification is required, except those jurisdictions
where the failure to so qualify will not have a Material Adverse Effect (a list
of the jurisdictions where each Borrower is so qualified as of the date hereof
being set forth on Schedule 3.01 hereto); (ii) and it has all requisite
-------------
corporate power and authority to conduct its business as presently being
conducted and as proposed to be conducted after the Closing and to own its
properties now and after the Closing; and (iii) and it has all requisite
corporate power and authority to execute and deliver, and to perform all of its
obligations under, this Agreement and the other Loan Documents.

3.02. Authority. The execution, delivery and performance by each Borrower
---------
of this Agreement and the other Loan Documents: (i) have been duly authorized
by all necessary corporate action; (ii) do not contravene any provision of such
Borrower's Certificate of Incorporation or by-laws, each as amended to date;
(iii) do not violate any provision of any law, rule or regulation or any
judgment, determination or award applicable to such Borrower; (iv) do not and
will not result in or constitute a default (or constitute an event which with
the passage of time or giving of notice or both could constitute an event of
default) under any agreement to which such Borrower is a party or by which any
of its properties are bound, including, without limitation, any loan or credit
agreement, lease, indenture, debt instrument or mortgage except as would not
have a Material Adverse Effect; and (v) do not and will not result in or require
the creation or imposition of any lien, security interest, mortgage, deed of
trust, pledge or other charge or encumbrance of any nature upon or with respect
to any of the properties of such Borrower, except the security interests and
liens granted to the Banks under the Security Documents. Each Borrower is not
in default in any material respect under any law, rule or regulation, order,
writ, judgment, injunction, decree, determination or award referred to above, or
to such Borrower's knowledge under any loan or credit agreement, lease,
indenture, debt instrument or mortgage referred to above, and such Borrower will
not be in any such default which would have a Material Adverse Effect by virtue
of the transactions to be entered into at the Closing.

3.03. Approvals. No authorization, consent, approval, license or exemption
---------
of, or filing a registration with, any court or governmental department or
commission, board, bureau, agency, instrumentality or other person or entity,
domestic or foreign, is or will be necessary for the valid execution, delivery
or performance by each Borrower of this Agreement or any of the other Loan
Documents, other than filings which have already been made and consents or
approvals which have already been received, and filings required to perfect
under applicable law the security interests and liens granted to the Banks
pursuant to the Security Documents. As of the date hereof, each Borrower is the
lawful holder of all material licenses, permits, certificates and other
governmental authorizations

-15-
<PAGE>

required as of the date hereof for the conduct of the business of such Borrower.
No Borrower knows of any reason that any such material license, permit,
certificate or other governmental authorization will be revoked, canceled,
rescinded, terminated, modified or lost to the extent such revocation,
cancellation, rescission, termination, modification or loss would have a
Material Adverse Effect.

3.04. Valid Obligations. This Agreement and the other Loan Documents have
-----------------
been duly executed and delivered by each Borrower and constitute legal, valid
and binding obligations of such Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except as enforceability may be
subject to general principles of equity, whether such principles are applied in
a court of equity or at law.

3.05. Security Interest. The Banks' security interests in the Collateral
-----------------
located in the jurisdictions of Massachusetts, Florida, California, Illinois,
and Connecticut has been duly perfected to the extent that such security
interests may be perfected in such jurisdictions by filing UCC-1 financing
statements with the Secretary of State of the Commonwealth of Massachusetts and
the Clerk of the City of Cambridge, Massachusetts and the Secretary of the State
of each of Florida, California, Illinois, and Connecticut. Except as set forth
on Schedule 3.05 hereto, no security interest, lien, mortgage, deed of trust,
-------------
pledge, levy, attachment, claim or other charge or encumbrance shall exist at
the Closing with respect to any of the assets or properties of any Borrower
(including, without limitation, the Collateral), other than the security
interests granted to the Banks under the Security Documents or Permitted Liens.

3.06. Assets. Each Borrower has good and valid title to all of its assets
------
and properties (including without limitation, the Collateral), in each case
subject to no security interests, lien, mortgage, pledge, lease, encumbrance,
charge, easement, or encroachment except for Permitted Liens and for defects and
claims which, in the aggregate, could not reasonably be expected to have a
Material Adverse Effect. Each Borrower enjoys peaceful and undisturbed
possession under all leases under which it is operating, and all said leases are
valid and subsisting and in full force and effect in all material respects.
Each Borrower's principal place of business is maintained at the designated
Principal Office at the location indicated in the preamble to this Agreement.
Attached as Schedule 3.06 is a complete list of all locations where each
-------------
Borrower keeps or maintains its assets, properties, books and/or records other
than equipment loaned or consigned to customers or prospective customers in the
ordinary course of such Borrower's business.

3.07. Agreements.
----------

(a) Attached as Schedule 3.07 hereto is a list of all material
-------------
agreements (including all amendments thereto), oral or written, in effect as of
the date hereof between each Borrower and any director, officer, shareholder or
Affiliated Person of such Borrower, including without limitation, all leases and
management, maintenance, brokerage, supply and service contracts and any
contract, agreement or other arrangement providing for the employment of,
furnishing of services to or by, rental of real or personal property to or from
or otherwise requiring payments to or by such Borrower, any director, officer or
shareholder thereof, or any affiliate of any of the foregoing. True, correct and

-16-
<PAGE>

complete copies of all of the agreements (including all amendments, exhibits and
schedules thereto) set forth on Schedule 3.07 have previously been made
-------------
available to the Bank and its special counsel.

(b) Each Borrower is not in violation of any term of its charter or by-
laws, as now in effect, or of any material term of any mortgage, indenture,
judgment, decree, order, instrument, contract or agreement or, to its knowledge,
of any term of any statute, ordinance, administrative determination, or
governmental rule or regulation applicable to it where such violation would have
a Material Adverse Effect.

3.08. Insurance. Attached hereto as Schedule 3.08 is a complete and accurate
--------- -------------
list of all insurance policies of the Borrowers covering their respective
properties and assets as of the date hereof. Each Borrower has previously made
available or on the Closing Date shall make available to the Agent complete and
accurate copies of all insurance policies (or certificates of insurance) listed
on Schedule 3.08. All insurance policies listed on Schedule 3.08 are in full
------------- -------------
force and effect, with the premiums due thereon paid, and no Borrower is in
default with respect to any such policy.

3.09. Litigation; Claims. Except as set forth on Schedule 3.09 hereto, as of
------------------ -------------
the date hereof, there are no actions, suits, proceedings or investigations
pending or, to any Borrower's knowledge, threatened against any Borrower before
any court or any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could prevent or hinder the
consummation of the transactions contemplated hereby or purport by its terms to
challenge the validity or enforceability of this Agreement, any of the other
Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby, or which in any single case or in
the aggregate is likely to result in any Material Adverse Effect or any
material impairment of the right or ability of the Borrowers, on a consolidated
basis, to carry on their operations as now conducted or proposed to be
conducted.

3.10. Labor Matters. Each Borrower is not a party to any collective
-------------
bargaining or similar agreement on the date hereof and has complied in all
material respects with all applicable state and federal laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and other laws related to employment of employees of such Borrower,
and there are no arrears in the payment of wages, withholding or social security
taxes, unemployment insurance premiums or other similar obligations of such
Borrower other than in the ordinary course of business where such arrears would
have a Material Adverse Effect.

3.11. ERISA.
-----

(a) Each "employee pension benefit plan" and "employee welfare benefit
plan" of each Borrower has been maintained and operated in compliance in all
material respects with its terms and with applicable provisions of ERISA, the
Code, all regulations, rulings and other authority issued thereunder, and all
other applicable governmental laws and regulations, including without limitation
bonding requirements and requirements for the filing of applicable reports,
documents, and notices with the Secretary of Labor or the Secretary of the
Treasury and the furnishing of documents to the participants and beneficiaries
of each such plan (as each of the quoted terms is defined or used in ERISA, and
the

-17-
<PAGE>

Code) except where the failure to be in compliance therewith would not have a
Material Adverse Effect.

(b) No "prohibited transaction" or "accumulated funding deficiency" or
"reportable event" has occurred with respect to any "single employer plan" of
such Borrower which would have a Material Adverse Effect. No Borrower,
predecessor to the Borrowers or "commonly controlled entity" has ever been
included in a "multiemployer plan" as to which such Borrower or any "commonly
controlled entity" would have liability if such Borrower or any "commonly
controlled entity" were to withdraw therefrom (as each of the quoted terms is
defined or used in ERISA and the Code) which would have a Material Adverse
Effect.

3.12. Financial Statements. Attached as Schedule 3.12 hereto are the audited
-------------------- -------------
consolidated financial statements of Mac-Gray Corporation, including
consolidated balance sheets, statements of income and retained earnings and cash
flows (collectively, together with the financial statements to be delivered by
the Borrower pursuant to Section 2.01(f) hereof, the "Financial Statements") for
the fiscal year ended December 31, 1997 (the "Statement Dates"). The Financial
Statements are complete and accurate in all material respects and fairly present
the financial condition and results of operations of Mac-Gray Corporation as of
the respective Statement Dates and for the fiscal year then ended, in accordance
with GAAP consistently applied. Mac-Gray Corporation has no liability,
contingent or otherwise, not disclosed in the Financial Statements or in any
notes thereto that could reasonably be expected to have a Material Adverse
Effect. Since the last Statement Date there has not been, nor has there been an
event which is likely to cause, a Material Adverse Effect.

3.13. Taxes. Each Borrower has filed all federal, foreign state, local and
-----
other tax returns, reports and estimates which are required to be filed and has
paid all taxes, fees and other governmental charges shown on such returns,
reports and estimates and on all assessments received by it, to the extent that
such taxes have become due, except for any tax or assessment which is being
contested by such Borrower in good faith and by appropriate proceedings and such
Borrower has set aside on its books sufficient reserves with respect thereto or
with respect to which such Borrower has duly obtained an extension. All of such
tax returns are accurate and complete in all material respects. All other taxes
and assessments of any nature with respect to which such Borrower is obligated
and which have become due are being paid or adequate accruals have been set up
therefor. Each Borrower is not delinquent in the payment of any material tax,
assessment or governmental charge and except as set forth on Schedule 3.13
-------------
attached hereto such Borrower has not requested any extension of time within
which to file any tax return, which return has not since been filed, and no
deficiencies for any material tax, assessment or governmental charge have been
asserted or assessed, and such Borrower knows of no material liability or basis
therefor.

3.14. Investments. Except as set forth on Schedule 3.14, as of the date
----------- -------------
hereof, each Borrower does not own any securities or other equity or debt
interests in any corporation, partnership or other business entity.

3.15. Investment Company. Each Borrower is not an "investment company" (as
------------------
defined in the Investment Company Act of 1940, as amended).

-18-
<PAGE>

3.16. Indebtedness. Attached as Schedule 3.16 hereto is a list of all
------------ -------------
material Indebtedness of the Borrowers as of the Closing Date indicating, as
applicable, the outstanding principal amount of each borrowing or debt, the
current amount due thereon, the terms and schedule for payments in respect
thereof and the security given therefor or in connection therewith.

3.17. Environmental Protection. Except as disclosed in Schedule 3.17,
------------------------ -------------

(a) To their knowledge, each Borrower has not caused or allowed the
generation, use, transportation, treatment, storage, release or disposal of any
Hazardous Substances (as defined below) in connection with the operations of its
business or otherwise, at any real property that such Borrower owns, leases, or
otherwise occupies or uses (the "Premises"), nor has such Borrower released,
disposed of or transported or contracted with any party for the disposal or
transport of any Hazardous Substances at sites other than the Premises, in each
such case except in compliance with all Environmental Laws (as defined below),
except where the failure to so comply results from a minor infraction which will
not give rise to the assessment of any fine or penalty against such Borrower or
the imposition of any lien against any of the properties or assets of such
Borrower, and which could not reasonably be expected to have a Material Adverse
Effect.

(b) To their knowledge, each Borrower has not received any citation,
directive, letter or other communication, written or oral, or any notice of any
proceedings, claims or lawsuits under any Environmental Laws (each an
"Environmental Complaint"), from any person, entity or governmental authority
arising out of the ownership, occupation, or conduct of its operations on the
Premises, nor is it aware of any basis therefor.

(c) Each Borrower has obtained and maintained in full force and effect
all necessary permits, licenses and approvals required by any Environmental Laws
applicable to the business operations conducted on the Premises and is in
compliance with all such permits, licenses and approvals, except where the
failure to so comply will not give rise to the imposition of any lien against
any of the properties or assets of such Borrower and which could not reasonably
be expected to have a Material Adverse Effect.

The term "Environmental Laws" shall mean any federal, foreign, state, local or
other law, ordinance or regulation pertaining to the protection of the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., Massachusetts Oil and Hazardous Material Release Prevention and Response
Act, M.G.L. Chapter 21E, and Massachusetts Hazardous Waste Management Act,
M.G.L. Chapter 21C.

The term "Hazardous Substance" includes oil and petroleum products, asbestos,
polychlorinated biphenyls and urea formaldehyde, and any other materials
classified as hazardous or toxic under any Environmental Laws.

3.18. Margin Stock. Each Borrower is not engaged in the business of
------------
extending credit for the

-19-
<PAGE>

purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System), and no part of the
proceeds of the Note will be used to purchase or carry any margin security or to
extend credit to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of any of the
regulations of the Board of Governors of the Federal Reserve System.

3.19. Representations Accurate. No representation or warranty made by any
------------------------
Borrower herein or in any other Loan Document contains any misrepresentation of
a material fact or omits to state any material fact necessary to make such
representation or warranty not misleading when made. No Borrower has knowledge
of any condition specific to the business of the Borrowers, on a consolidated
basis, which would have a Materially Adverse Effect, or which is likely in the
future to have a Material Adverse Effect, and which has not been set forth in
this Agreement or in the other Loan Documents or otherwise disclosed in writing
to the Banks on or prior to the date hereof. Each Bank hereby acknowledges that
it has received from the Borrowers Mac-Gray Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1997, its Proxy Statement relating
to the 1998 Annual Meeting of Shareholders, and Registration Statement on Form
S-1 (Registration Statement No. 333-49795), filed with the Securities and
Exchange Commission on April 9, 1998, as amended.

ARTICLE IV
COVENANTS

4.01. Affirmative Covenants Other Than Financial Covenants and Reporting
------------------------------------------------------------------
Requirements. Without limiting any other covenants and provisions hereof, each
- -------------
Borrower covenants and agrees that, so long as the Note, any Loan or any
obligation of any Borrower to the Banks, in any capacity, remains unpaid or any
Letter of Credit remains outstanding:

(a) Property; Insurance. Each Borrower will keep all of its property
-------------------
reasonably necessary for the continued operation of its business in good working
order and condition, ordinary wear and tear excepted. Each Borrower will
maintain with financially sound and reputable insurance companies insurance
thereon in at least such amounts and with such deductibles and against at least
such risks (including hazard) as may be reasonably requested by the Banks from
time to time, and such Borrower will furnish to the Banks, upon its written
request, full information with respect to any insurance carried. All property
damage insurance policies maintained by such Borrower shall name the Agent as
loss payee as its interest may appear. No such policy may be terminated without
at least 20 days' prior written notice to the Agent.

(b) Maintain Rights. Each Borrower (and each Subsidiary ) will, except
---------------
in contemplation of any Permitted Acquisition:

(i) keep in full force and effect its corporate existence;

(ii) keep in full force and effect all material rights, licenses,
leases and

-20-
<PAGE>

franchises reasonably necessary to the conduct of its business except for such
rights, licenses, leases and franchises the loss of which would not have a
Material Adverse Effect; provided that nothing in this Section 4.01(d)(ii) shall
prevent the abandonment or termination of any right, license, lease or
franchise, if such Borrower shall have determined that such abandonment or
termination is in the best interest of such Borrower and not disadvantageous to
the Banks; and

(iii) duly observe and conform to all applicable material laws,
statutes, regulations, decrees, judgments, orders, writs and other requirements
of all governmental authorities in any way relating to it or the conduct of its
business, except where the failure to so comply would not have a Material
Adverse Effect.

(c) Books and Records; Inspection. Each Borrower will (i) keep proper
-----------------------------
books of record and account in which entries therein are full, true and correct
in all material respects in conformity with GAAP and all requirements of law,
and (ii) permit representatives of any Bank to visit and inspect any of its
properties and to examine and make abstracts from any of its books of record and
account upon reasonable notice, at any reasonable time during normal business
hours and as often as may reasonably be desired, and to discuss the business,
operations, properties and financial condition of such Borrower with its
officers and with its independent certified public accountants.

(d) Operating Accounts. Each Borrower will maintain the Agent as its
------------------
principal bank of deposit and account.

(e) Conduct of Business. Each Borrower will conduct in the ordinary
-------------------
course the business in which they are presently engaged. The Borrowers will not
enter into any other lines of business, businesses or ventures which are not
related to their existing business.

(f) Financing Statements. Each Borrower, at its expense, shall
--------------------
execute, file and record all such further instruments, and perform such other
acts, as the Agent may reasonably determine are necessary or advisable to
maintain the priority of the liens and security interests in favor of the Banks
purported to be created by the Security Documents to which the Borrower is a
party on all property subject thereto.

4.02. Negative Covenants. Without limiting any other covenants and
------------------
provisions hereof, each Borrower covenants and agrees that, so long as any Note,
Loan, Letter of Credit or any obligation of any Borrower to the Banks, in any
capacity, has not been fully performed:

(a) Indebtedness. Each Borrower will not create, incur, assume,
------------
agree to purchase or repurchase or provide funds in respect of or otherwise
become or be or remain liable with respect to any Indebtedness of any type
whatsoever owed to any person or entity, except:

(i) with respect to (A) any Indebtedness incurred pursuant to the
terms of this Agreement or the Loan Documents or (B) any Indebtedness
outstanding on the date hereof and listed on Schedule 3.16 hereto and any
-------------
refinancing thereof;

-21-
<PAGE>

(ii) Indebtedness of such Borrower for taxes, assessments and
governmental charges or levies, to the extent payment thereof shall not at the
time be required under this Agreement;

(iii) unsecured Current Liabilities of such Borrower (other than
for money borrowed or for the deferred purchase of property) incurred upon
customary terms in the ordinary course of business;

(iv) Indebtedness for capital leases in a maximum cumulative
aggregate amount not to exceed $4,000,000;

(v) Indebtedness for the purchase price of capital assets
incurred in the ordinary course of business, exclusive of capital assets and
indebtedness associated with capital leases referred to in Section 4.02 (a)(iv)
hereof, and any extensions or renewals thereof, provided that such Indebtedness
is either unsecured or secured only by the capital assets so purchased, and
provided further that the aggregate amount of such Indebtedness outstanding does
not exceed $2,000,000 in any twelve-month period;

(vi) guaranties permitted under this Agreement;

(vii) Indebtedness of one Borrower with respect to another
Borrower; and

(viii) Indebtedness of any acquired entity acquired as a
Permitted Acquisition.

(b) Liens. Each Borrower will not create, incur, assume or suffer to
-----
exist any security interest, lien, mortgage, deed of trust, pledge, levy,
attachment, claim or other charge or encumbrance of any nature whatsoever upon
or with respect to any of its property, assets or revenues, whether now owned or
hereafter acquired, or assign or otherwise convey any right to receive income,
except for the following ("Permitted Liens"):

(i) liens in favor of the Banks;

(ii) liens existing on the assets or properties of such Borrower
as of the date hereof and identified on Schedule 3.05 attached hereto and
-------------
liens to secure refinancing of existing Indebtedness to the extent such
Indebtedness is presently secured by liens;

(iii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, landlord's or other like liens arising in the ordinary course of
business in respect of obligations not overdue for a period of more than 60 days
or which are being contested in good faith by appropriate proceedings in a
manner which will not jeopardize or diminish the interest of the Banks in any of
the Collateral subject to the Security Documents;

(iv) liens arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, social security, retirement benefits
or similar legislation;

-22-
<PAGE>

(v) liens for taxes or assessments or governmental charges or
levies (A) that are either not due and payable or (B) that are being contested
in good faith by appropriate proceedings, so long as the enforcement of such
lien is effectively stayed within fifteen days of its imposition;

(vi) liens or encumbrances securing capital leases permitted by
Section 4.02(a)(iv) or the purchase price of capital assets to the extent such
purchase is permitted by Section 4.02(a)(v) hereof, provided that (a) each such
lien or encumbrance is given solely to secure the purchase price of such
property, does not extend to any other property, and (b) the Indebtedness
secured thereby does not exceed the cost of such property;

(vii) attachments, seizures or levies aggregating less than
$500,000 and which remain undischarged for not longer than sixty (60) days after
filing unless the Borrower shall be proceeding diligently and in good faith to
obtain discharges thereof; and

(viii) liens existing at the time of acquisition on (A) assets
or properties acquired as a Permitted Acquisition and (B) assets or properties
of an entity acquired as a Permitted Acquisition, and encumbrances consisting of
easements, rights of way, zoning restrictions, restrictions on the use of real
property and defects and irregularities in the title thereto, landlord's or
lessor's liens under leases to which the Borrowers or any of their Subsidiaries
is a party, and other minor liens or encumbrances none of which interferes
materially with the use of the property affected in the ordinary conduct of the
business of the Borrowers and their Subsidiaries, which defects do not
individually or in the aggregate have a Material Adverse Effect.

(c) Guaranties. Except as set forth on Schedule 4.02(c), each Borrower
----------
will not assume, guarantee, endorse or otherwise become directly or contingently
liable (including without limitation, liable by way of agreement, contingent or
otherwise, to purchase, to provide funds for payments, to supply funds to or
otherwise invest in any debtor or otherwise to assure any creditor against loss)
in connection with any Indebtedness of any other person or entity, except
guaranties by endorsement or similar transactions such as bid or performance
bonds in the ordinary course of business.

(d) Transfers. Except in the case of Permitted Acquisitions, each
---------
Borrower will not sell, lease, transfer or otherwise dispose of any material
portion of the Collateral or any other assets necessary for the effective or
efficient operation or proper maintenance of its business, except (i) for sales
of inventory and obsolete, returned, replaced or worn-out equipment in the
ordinary course of such Borrower's business; and (ii) transfers of Collateral by
and between Borrowers. Each Borrower will not waste or destroy or suffer the
waste or destruction of the Collateral or any material portion thereof; and such
Borrower will not use any of the Collateral in violation of any policy of
insurance thereon. Each Borrower will not sell, assign (other than an
assignment to the Banks), discount or dispose in any way of any Receivables with
or without recourse, except for an assignment for collection in ordinary course
of business.

(e) Mergers. Except in the case of Permitted Acquisitions, each
-------
Borrower will not enter into any transaction of merger (except with another
Borrower) or consolidation, or liquidate, wind up or

-23-
<PAGE>

dissolve itself (or suffer any liquidation or dissolution); nor will such
Borrower acquire by purchase or otherwise, all or substantially all of the
business, property or fixed assets of, or stock or other evidence of beneficial
ownership of, any person or entity, without the prior written consent of the
Banks.

(f) Investments. Except in the case of Permitted Acquisitions, each
-----------
Borrower will not make or permit to exist any investments or loans, directly or
indirectly (in the form of any acquisition of assets other than in the ordinary
course of business or in the form of any acquisition of stock, securities,
indebtedness or obligation of, or any loan, advance, capital contribution or
transfer of property to, or any guarantee or other commitment on behalf of, any
person, or otherwise), other than:

(i) marketable direct full faith and credit obligations of, and
marketable obligations guaranteed by, the United States of America, or any
agency or instrumentality thereof, which mature within one year from the date of
acquisition thereof;

(ii) marketable direct full faith and credit obligations of any
state of the United States of America, or any county, city, town, township or
other governmental subdivision of any such state, which mature within one year
from the date of acquisition thereof, provided that such obligations are
accorded a rating within one of the three highest graded by Moody's Investors
Service, Inc. or Standard & Poor's Inc.;

(iii) certificates of deposit, notes, acceptance and repurchase
agreements having a maturity of not more than one year from the date of
acquisition issued by the Banks or by any bank organized in the United States
having capital, surplus and undivided profits of at least $10,000,000,000 and
interest-bearing accounts in the Banks or any such other bank;

(iv) commercial paper which has received one of the three highest
categories of ratings from either Moody's Investors Services, Inc. or Standard &
Poor's, Inc.;

(v) accounts in any "money market" mutual fund having total
assets in excess of $1,000,000,000;

(vi) advances to the officers, employees, and salesman of the
Borrower with respect to reasonable expenses incurred by such officers,
employees and salesmen which expenses are properly reimbursable by such
Borrower;

(vii) other loans and advances to the employees of such Borrower
which do not exceed $250,000 in the aggregate outstanding at any one time;

(viii) guarantees permitted by this Agreement;

(ix) contributions to the capital of and loans to one Borrower
from another Borrower; and

-24-
<PAGE>

(x) investments of such Borrower existing on the date hereof and
identified on Schedule 3.14 hereto.
-------------

(g) Principal Office. Each Borrower will not move its Principal Office
----------------
until no less than ten days after delivery of written notice thereof to the
Agent, provided that such Borrower shall furnish to the Agent all documentation
that the Agent reasonably requests as being necessary or desirable to obtain,
maintain, perfect and confirm the first priority security interests granted
herein.

(h) Write Up of Assets. Each Borrower will not write up (by creating
------------------
an appraisal surplus or otherwise) the value of its assets above their cost to
such Borrower less the depreciation regularly allowable thereon, without the
prior written consent of the Agent, which shall not be unreasonably withheld.

(i) Dividends. No Borrower will declare, make or pay any dividend or
---------
other distribution on any shares of its capital stock (except dividends payable
solely in shares of capital stock or rights to acquire its capital stock), or
any payment on account of the purchase, redemption, retirement or acquisition of
any shares of its capital stock or any option or warrant therefor absent the
prior written consent of the Banks, provided, however, that it may repurchase or
redeem shares or options therefor from its employees upon termination of
employment as permitted under its 1997 Stock Option and Incentive Plan, and
provided further, that Mac-Gray Corporation may declare, make or pay dividends
on shares of its capital stock in an amount not to exceed in any fiscal year,
fifty percent (50%) of the consolidated Net Income of Mac-Gray Corporation for
its prior fiscal year, provided that such dividend(s) shall not cause an Event
of Default hereunder.

(j) Environmental Matters. Each Borrower will not store, transport,
---------------------
release or dispose of any Hazardous Materials on the Premises except in
compliance in all material respects with all Environmental Laws. Each Borrower
shall promptly after obtaining knowledge thereof provide the Agent with written
notice of each of the following: (i) any potential or known release or threat of
release of any Hazardous Material at or from the Premises, and (ii) any
incurrence of any expense or loss by any governmental authority in connection
with the assessment, containment or removal of any Hazardous Material for which
expense or loss the Borrower may be liable.

(k) ERISA. Each Borrower will not establish any new pension or defined
-----
benefit plan or materially modify any such existing plan for employees subject
to ERISA, which plan provides any benefits based on past service, without the
prior written consent of the Banks to the amount of the aggregate past service
liability thereby created.

(l) Waiver of Rights. Each Borrower will not waive any material debt
----------------
or claim, except in the ordinary course of its business.

(m) Sale Leaseback. Each Borrower will not enter into any sale
--------------
leaseback transaction without the prior written consent of the Bank, which shall
not be unreasonably withheld.

-25-
<PAGE>

(n) Subsidiaries; Additional Security. Except as set forth on Schedule
---------------------------------
4.02(o) hereto, each Borrower will not become a member of any new partnership or
joint venture without the prior written consent of the Agent, which shall not be
unreasonably withheld. In the event that any Borrower organizes or acquires any
new Subsidiaries, each such new Subsidiary (whether wholly or partially owned)
will execute and deliver in favor of the Banks a Subsidiary Guaranty Agreement
and Subsidiary Security Agreement Substantially in the forms of those attached
as Exhibits D and E hereto, and the Borrowers will amend the Corporate Pledge
---------- -
Agreement, Substantially in the form of Exhibit C hereto, to include the capital
---------
stock of any such new Subsidiary or Subsidiaries. In the event that any
Borrower should sell, assign, lease or otherwise transfer any property or
properties material to its business to Mac-Gray Investments, Inc., then in such
event, the Borrowers shall cause Mac-Gray Investments, Inc. to execute the
Subsidiary Guaranty Agreement substantially in the form of Exhibit D hereto and
---------
the Subsidiary Security Agreement substantially in the form of Exhibit E hereto
---------
and deliver such documents to the Agent.

(o) Agreements with Affiliated Person. Except as set forth on Schedule
---------------------------------
3.07, each Borrower shall not enter into any material agreement of any nature
whatsoever with any director, executive officer, or Affiliated Person of such
Borrower, including without limitation any agreement which constitutes or
effects a material modification of any agreement to which such Borrower is a
party as of the date hereof, other than in the ordinary course of its business
unless such agreement is on terms and conditions that are not substantially less
favorable than those that such Borrower could obtain from an unrelated third
party at such time.

(p) Regulatory Compliance. Mac-Gray Corporation shall at all times
---------------------
remain and shall take all reasonable steps necessary to remain in good standing
and not in violation in any material respect of any statute, provision or
regulation promulgated by the Federal Trade Commission, the Securities and
Exchange Commission or the New York Stock Exchange to the extent applicable to
Mac-Gray Corporation.

4.03. Financial Covenants. Without limiting any other covenants and
-------------------
provisions hereof, each Borrower covenants and agrees that, so long as any Loan
or Letter of Credit is outstanding or any obligation of any Borrower to the
Banks, in any capacity, remains unpaid:

(a) Maximum Senior Leverage. The Borrowers, on a consolidated basis,
-----------------------
shall maintain at all times a ratio of Senior Liabilities to EBITDA, measured as
of the end of each fiscal quarter for the prior four consecutive fiscal quarters
then completed of the Borrowers, of not more than 3.5:1 declining to 3.25:1 as
of December 31, 2001 and for all periods thereafter.

(b) Minimum Shareholders Equity. The Borrowers, on a consolidated
---------------------------
basis and measured as of the end of each fiscal quarter within each fiscal year,
shall obtain a Minimum Shareholders Equity of $47,000,000 increasing as of the
end of the first fiscal quarter of each fiscal year by (i) fifty percent (50%)
of positive Net Income for the prior fiscal year; and (ii) one hundred percent
(100%) of net proceeds, if any, of securities issued or sold by the Borrowers
during the prior fiscal year.

-26-
<PAGE>

(c) Maximum Capital Expenditures. The aggregate Capital Expenditures
----------------------------
of the Borrowers, on a consolidated basis, for each of the fiscal years
beginning with fiscal year 1998, during the term of this Agreement, shall not
exceed $25,000.000.

(d) Minimum Fixed Charge Coverage Ratio. Borrowers will achieve on an
------------------------------------
annualized and consolidated basis, tested on the last day of each fiscal quarter
of the Borrowers (each a "Determination Date") a ratio of (x) EBITA minus taxes
actually paid in cash for the prior four consecutive fiscal quarters then
completed to (y) the sum of all scheduled principal payments (for the subsequent
twelve month period) plus all interest (for the prior twelve month period) on
any Indebtedness paid or payable by the Borrowers during such period, which
ratio shall not be less than:

Quarters During
Fiscal Year Ratio
--------------- -----

1998 .................................... 2.40:1
1999 .................................... 1.85:1
2000 .................................... 1.85:1
2001 .................................... 1.50:1
2002 .................................... 1.30:1

(e) Current Ratio. On the last day of each fiscal quarter of the
-------------
Borrowers (each a "Determination Date"), Borrowers will have on a consolidated
basis, a ratio of (x) Current Assets to (y) Current Liabilities (minus the
aggregate amount of Loans outstanding hereunder) of not less than 1.1:1.

4.04. Reporting Requirements. So long as any Loan or Letter of Credit shall
-----------------------
be outstanding or any other obligation of any Borrower to the Banks, in any
capacity, shall remain unpaid, each Borrower shall furnish to each Bank the
following reports and information:

(a) Financial Reports. Each Borrower will furnish to each Bank:
-----------------

(i) as soon as available, but in any event within 90 days after
the end of each fiscal year of Mac-Gray Corporation, a copy of the audited
consolidated balance sheet of Mac-Gray Corporation as at the end of such fiscal
year and the related audited consolidated statements of income, stockholders'
equity and cash flows for such fiscal year, in each case setting forth in
comparative form the figures for the previous year, reported on without
exception or qualification as to the scope of the audit by Price Waterhouse or
other independent certified public accountants of nationally recognized standing
or otherwise reasonably acceptable to the Bank, together with any letter from
the management of the Borrower prepared in connection with such Borrower's
annual audit report;

(ii) as soon as available, but in any event within 45 days after
the end of each month, copies of the unaudited consolidated balance sheet of
Mac-Gray Corporation as at the end of such quarter, together with the related
unaudited consolidated statement of income for such quarter and for the

-27-
<PAGE>

portion of the fiscal year of Mac-Gray Corporation through such quarter; all
such financial statements to be complete and correct in all material respects
and prepared in reasonable detail and in conformity with GAAP applied
consistently throughout the periods reflected therein;

(iii) as soon as available, but in any event within 45 days after
the beginning of each fiscal year of Mac-Gray Corporation, a budget for such
fiscal year, together with a projected consolidated and unaudited consolidating
balance sheet, projected consolidated cash flow statement and projected
consolidated profit and loss statement of Mac-Gray Corporation for the
forthcoming fiscal year, in all cases setting forth such financial information
on a month by month basis for such forthcoming fiscal year provided that the
Banks covenant and agree to keep and hold all such budgets and other information
delivered under this Section 4.04(a)(iii) confidential and to share the same
only with their respective employees or agents, who shall also agree to keep all
such information confidential; and

(iv) On or before June 30, 1998, the Borrowers shall deliver the
unaudited consolidated financial statements of Mac-Gray Corporation, including
consolidated balance sheets, statements of income, and retained earnings and
cash flows (the "Financial Statements") for the fiscal quarter ended March 31,
1998.

(b) Other Financial Reports. Mac-Gray Corporation will also furnish to
-----------------------
each Bank :

(i) concurrently with the delivery of each set of the quarterly
financial statements referred to above, a certificate of the Chief Financial
Officer of Mac-Gray Corporation stating that, to the best of such person's
knowledge, during the period covered by such set of financial statements each
Borrower has observed or performed in all material respects all of its covenants
and agreements contained in this Agreement and the other Loan Documents to be
observed, performed or satisfied by it, and that such Chief Financial Officer
has obtained no knowledge of any default or Event of Default (except as
specified in such certificate);

(ii) promptly after the same are sent and received, copies of all
financial statements, reports and notices which such Borrower sends to holders
of any class of capital stock of such Borrower generally;

(iii) promptly, such additional publicly available financial and
other information as the Bank may from time to time reasonably request; and

(iv) as soon as available, a copy of each other report submitted
to such Borrower by its certified public accountants in connection with any
annual, interim or special audit made by them of the books of such Borrower.

-28-
<PAGE>

(i) the occurrence of any Event of Default under this Agreement;

(ii) any default or event of default under any other contractual
obligations of any Borrower which, if not paid or remedied by such Borrower
within 30 days of such default or event of default or waived by the obligee
thereon, could result in liability to such Borrower in excess of $200,000 in any
single instance or $750,000 in the aggregate;

(iii) any pending or threatened litigation, investigation or
proceeding of which any Borrower has knowledge which may exist at any time
between any Borrower and any other party (including without limitation any
governmental authority) which may have a material adverse effect on the
business, operations, property or financial condition of the Borrowers, on a
consolidated basis, or any litigation or proceeding affecting any Borrower which
may have a material adverse effect upon the Borrowers, on a consolidated basis;

(iv) the following events, as soon as possible and in any event
within 15 days after any Borrower knows thereof: (x) the occurrence of any
"reportable event" with respect to any "single employer plan" which in the
reasonable judgment of any Borrower could be expected to have a material adverse
effect on any Borrower or its business, (y) the institution of proceedings or
the taking or expected taking of any other action by any Borrower or any
"commonly controlled entity" to terminate any "single employer plan" with
respect to which there exists any vested unfunded pension liabilities at the
time of such termination, or (z) the "reorganization" or "insolvency" of any
"multiemployer plan" which may reasonably be expected to have a material adverse
effect on the business, operations, property or financial condition of the
Borrowers, on a consolidated basis, (as each of the quoted terms is defined or
used in ERISA or the Code);

(v) a material adverse change in the business, operations,
property or financial condition of any Borrower;

(vi) the revocation, expiration or loss of any material license,
permit or other governmental authorization of any Borrower which would have a
material adverse effect on any Borrowers' consolidated business or financial
condition;

(vii) the issuance, grant or award to or on behalf of any Borrower
of any patent or letters patent, or the registration in the name of or on behalf
of any Borrower of any copyright, trademark trade name or any other form of
intellectual property whatsoever, or the filing, recording or approval of any
application by or on behalf of any Borrower for any of the foregoing; and

(viii) each notice pursuant to paragraphs (i) through (vii) of
this Section 4.04 to be accompanied by a statement of the chief financial
officer of any Borrower setting forth details of the occurrence referred to
therein and stating what action, if any, any Borrower proposes to take with
respect thereto.

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<PAGE>

ARTICLE V
EVENTS OF DEFAULT; REMEDIES

5.01. Events of Default. The occurrence of each of the following shall
-----------------
constitute an Event of Default under this Agreement and under the Security
Documents:

(a) Representations and Warranties. Any representation or warranty made
------------------------------
by any Borrower in this Agreement or in any other Loan Document shall prove to
have been incorrect in any material respect when made, or any information
furnished in writing, whether in this Agreement or in any other Loan Document
shall prove to be untrue in any material respect on the date on which it is or
was given.

(b) Covenants. Any Borrower shall fail to perform or observe any
---------
covenant or condition contained or referred to in this Agreement, including
without limitation the failure to make any payment of principal or interest on
the Note when due or any payment of the Commitment Fee hereunder when due;
provided, however, that any failure to perform under any of Sections 4.01(b),
(c), (d), (e), (f), 4.02 (b) (with respect to involuntary encumbrances only),
4.02(k), , 4.02(a), 4.02(g), 4.02(o), 4.02(p) and 4.04 hereof shall not
constitute an Event of Default under this Agreement until such failure shall
have continued uncured for thirty days.

(c) Security Documents. Any default or event of default shall occur
------------------
under any of the Security Documents, which default or event of default is not
otherwise described in this Section 5.01 and is continuing for thirty (30) days.

(d) Other Defaults. Any default shall exist and remain unwaived or
--------------
uncured for a period of thirty days or more with respect to Indebtedness of any
Borrower in excess of $400,000 in the aggregate, or any event occurs which
permits the acceleration of the maturity of any such Indebtedness.

(e) Displacement of Management. There shall occur any seizure, vesting
--------------------------
or intervention by or under the authority of a governmental authority or other
entity by which the management of any Borrower is displaced or its authority in
the conduct of its business is materially curtailed.

(f) Liens. Any involuntary lien, levy or assessment (other than a
-----
Permitted Lien) is filed or recorded with respect to the assets of any Borrower
which causes or is likely to cause a Material Adverse Effect and is not
released, canceled, revoked, removed, repealed or otherwise terminated within
thirty (30) days after such filing or recording.

(g) Seizure of Assets. Any material portion of the Collateral becomes
-----------------
the subject of an attachment or comes within the lawful possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.

(h) Judgments. Any judgment, order or writ in excess of $500,000 is
---------
rendered or entered against any Borrower and not paid, satisfied or otherwise
discharged within 90 days of the date

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<PAGE>

such judgment, order or writ becomes final and non-appealable.

(i) Insolvency. Any Borrower shall be generally unable to pay its debts
----------
as they become due; the dissolution, termination of existence, cessation of
normal business operations or insolvency of any Borrower; the appointment of a
receiver of any material part of the property of, legal or equitable assignment,
conveyance or transfer of property for the benefit of creditors by, or the
commencement of any proceedings under any bankruptcy or insolvency laws by or
against, any Borrower, provided that any Borrower shall have 45 days after the
commencement thereof to obtain a dismissal or stay of any involuntary
proceedings against such Borrower under any bankruptcy laws.

(j) Loss; Material Adverse Effect. The Borrowers, on a consolidated
-----------------------------
basis, shall suffer a Material Adverse Effect or an event likely to cause a
Material Adverse Effect.

(k) ERISA. Any Borrower shall fail to meet its minimum funding
-----
requirements under ERISA with respect to any employee benefit plan (or other
class of benefit which the Pension Benefit Guaranty Corporation has elected to
insure) or any such plan shall be the subject of termination proceedings
(whether voluntary of involuntary) and there shall result from such termination
proceedings a liability of such Borrower to the Pension Benefit Guaranty
Corporation which in the reasonable opinion of the Bank has material adverse
effect upon the business, operations or financial condition of any Borrower.

(l) Security Interest. The security interest and lien of the Banks in
-----------------
and on any material portion of the Collateral located in Massachusetts,
Connecticut, Florida, California, and Illinois shall not be in full force and
effect as a fully perfected first priority lien except as otherwise expressly
permitted herein or in the Security Agreement.

5.02. Remedies. Upon the occurrence of any Event of Default and at any time
--------
thereafter so long as such Event of Default continues uncured or unwaived, in
addition to any other rights and remedies available to the Agent on behalf of
the Banks hereunder or otherwise, the Agent on behalf of the Banks may exercise
any one or more of the following rights and remedies (all of which shall be
cumulative):

(a) Declare the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this Agreement, and all other Indebtedness of the Borrower to the
Banks, forthwith due and payable, whereupon the same shall become forthwith due
and payable, without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived by the Borrower.

(b) Terminate the revolving line of credit established by Section 1.01
of this Agreement.

(c) Exercise all of the rights and remedies of a secured party under the
Uniform Commercial Code. The Agent may enter upon the Premises or any of same
and may take physical possession of the Collateral or render the Collateral
unusable by process of law or peaceably without process of law. Each Borrower
shall peaceably surrender the Collateral and shall upon the request from

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<PAGE>

the Agent assemble it and make it available to the Agent at a place or places
designated by the Agent which is or are reasonably convenient to such Borrower
and the Agent. To the extent permitted by law, the Agent may maintain possession
of any Collateral on any property owned, leased by or licensed to such Borrower,
or remove same or any part thereof to such place or places as the Bank may
elect. The Borrowers will also deliver to the Agent upon request all documents
of title and other instruments relating to the Collateral. Each Borrower waives
all rights which it would otherwise have had under law to prohibit entry to any
premises or to require notice of any replevin or retaking, all to the extent
that the same is permitted by law. The Agent may with only such demand,
advertising or notice as may be required by law, sell and deliver any and all
Collateral held by it for its account at any time or times in one or more
private or public sales, for cash or credit or otherwise, at such price and upon
such terms as the Agent deems advisable in its sole discretion. Notice of any
public sale shall be sufficient if it describes the Collateral to be sold in
general terms, stating the amounts thereof and the location and nature of the
properties covered by the security interests and the prior liens thereon, and is
published, at least once, not less than ten (10) days prior to the sale in any
newspaper of general circulation in the greater Boston, Massachusetts
metropolitan area and such other metropolitan area which the Agent may elect.
All requirements of reasonable notice to the Borrowers shall be met if such
notice is sent to the Borrower, in the manner provided in this Agreement below,
at least ten (10) days before the time of such sale or disposition. The Banks
may be the purchasers at any such sale, if it is public, free from any right of
redemption. The proceeds of sale shall be applied first to the costs of
retaking, refurbishing, storing and selling any Collateral hereunder and to
other costs of collection, and then to the payment of obligations of the
Borrowers to the Banks. The Banks shall be entitled to apply any collections on
account of the Note first to reasonable fees, costs and charges accrued to the
date of receipt, next to accrued interest and only thereafter to principal. Any
excess shall be returned to the Borrowers, and the Borrowers shall remain
jointly and severally liable for any deficiency.

(d) Enforce the provisions of this Agreement by appropriate legal
proceedings, and the Banks may recover damages caused by any breach by any
Borrower of the provisions of this Agreement, including court costs, reasonable
attorneys' fees and other reasonable costs and expenses incurred in the
enforcement of the obligations of any Borrower hereunder.

(e) Exercise all rights and remedies hereunder, under each of the other
Loan Documents and under any other agreement with the Banks; and exercise all
other rights and remedies which the Banks may have under applicable law.

(f) Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default, described in Section 5.01(i) hereof, the
entire unpaid principal amount of the Note then outstanding, together with all
interest accrued and unpaid on all such amounts, and all other amounts payable
under this Agreement, shall be immediately due and payable without presentment,
demand, protest, or notice of any kind.

5.03. Set-off. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any rights, upon the occurrence
and continuance of any Default by any Borrower, the Banks are hereby authorized
at any time or from time to time, without presentment, demand, protest

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<PAGE>

or other notice of any kind to any Borrower or to any other person or entity,
all of which are hereby expressly waived, to set off and to appropriate and
apply any and all deposits and any other Indebtedness at any time held or owing
by either Bank to or for the credit or the account of any Borrower against and
on account of the obligations and liabilities of any Borrower to either Bank
under this Agreement or otherwise, irrespective of whether or not the Bank shall
have made any demand hereunder and although said obligations, liabilities or
claims, or any of them, may then be contingent or unmatured and without regard
for the availability or adequacy of other Collateral. Each Borrower also grants
to the Banks a security interest in and to all its deposits and all securities
or other property in the possession of the Banks from time to time, to secure
the prompt and full payment and performance of any and all obligations to the
Banks, and, upon the occurrence of any Event of Default, the Banks may exercise
all rights and remedies of a secured party under the Uniform Commercial Code.

ARTICLE VI
AGENCY

6.01. Authorization of Agent and Relationship. Each Bank hereby appoints
---------------------------------------
State Street Bank and Trust Company as Agent and State Street Bank and Trust
Company hereby accepts such appointment. The appointment may only be terminated
as expressly provided in this Agreement. Each Bank hereby authorizes the Agent
to take all action on its behalf and to exercise such powers and perform such
duties under this Agreement as are expressly delegated to the Agent by its
terms, together with all powers reasonably incidental hereto. The Agent shall
have only those duties and responsibilities which are of a solely mechanical and
administrative nature and which are expressly specified in this Agreement, and
it may perform such duties by or through its agents or employees, but shall not
by reason of this Agreement have a fiduciary duty in respect of any Bank. As to
any matters not expressly provided for by this Agreement, the Agent is not
required to exercise any discretion or to take any action, but is required to
act or to refrain from acting (and is fully protected in so acting or refraining
from acting) upon the instructions of the Banks, as the case may be. Those
instructions shall be binding upon all Banks, but the Agent is not required to
take any action which exposes the Agent to personal liability or which is
contrary to this Agreement or applicable law.

Without limiting the foregoing, each of the Banks hereby grants to the Agent a
power of attorney, and also grants to the Agent the right to delegate its
authority as attorney to any other person, whether or not an officer or employee
of the Agent.

6.02. Disclaimer of Agent. The Agent makes no representation or warranty,
-------------------
and assumes no responsibility with respect to the due execution, legality,
validity, sufficiency, enforceability or collectibility of this Agreement or any
other Security Document. The Agent assumes no responsibility for the financial
condition of the Borrower, or for the performance of the obligations of the
Borrower under this Agreement or any other Security Document. The Agent assumes
no responsibility with respect to the accuracy, authenticity, legality,
validity, sufficiency or enforceability of any documents, papers, materials or
other information furnished by the Borrower to the Agent on behalf of the Banks.
The Agent shall not be required to ascertain or inquire as to the performance or
observance of any of the

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<PAGE>

terms, conditions, provisions, covenants or agreements contained herein or as to
the use of the proceeds of the Loans or (unless the officers or employees of the
Agent acting in their capacity as officers or employees on the Borrower's
accounts have actual knowledge thereof, or have been notified thereof in writing
by the Borrower) of the existence or possible existence of any Event of Default.
Neither the Agent nor any of its directors, officers, agents or employees shall
be liable for any action taken or omitted to be taken by it or them as Agent
under or in connection with the Agreement except for its or their own negligence
or willful misconduct. The Agent shall have the same rights and powers hereunder
as any other Bank, and may exercise the same as though it were not performing
the duties and functions delegated to it as Agent hereunder.

6.03. Bank's Funding Obligations.
---------------------------

(a) Each Bank shall advance to the Agent prior to 12:00 p.m. (Boston
time), in immediately-available funds, such Bank's Proportionate Share in the
portion of the Loan to be advanced by the Agent. If such funds are not received
at such time, but all applicable conditions set forth in Article I hereof have
been satisfied, each Bank authorizes and requests the Agent to advance for the
Bank's account, pursuant to the terms hereof, the Bank's respective
Proportionate Share in such portion of the Loan and agrees to reimburse the
Agent in immediately-available funds for the amount thereof prior to 2:00 p.m.
(Boston time) on the day any portion of the Loan is advanced hereunder;
provided, however, that the Agent is not authorized to make any such advance for
the account of any Bank who has previously notified the Agent in writing that
such Bank will not be performing its obligations to make further advances
hereunder; and provided, further, that the Agent shall be under no obligation to
make any such advance.

(b) Unless the Agent has actual knowledge that a Bank has not made or
will not make available to the Agent the applicable loan amount required from
such Bank, the Agent shall be entitled to assume that such amount has been or
will be received from such Bank when so due and the Agent may (but shall not be
obligated to), in reliance upon such assumption, make available to the Borrower
a corresponding amount. If such amount is not in fact received by the Agent
from such Bank and the Agent has made available a corresponding loan amount to
the Borrower as aforesaid, such Bank shall pay to the Agent on demand an amount
equal to the product of (i) the Prime Rate per annum multiplied by (ii) the
amount that should have been paid to the Agent by such Bank on such Loan Date
and was not, multiplied by (iii) a fraction, the numerator of which is the
number of days that have elapsed from and including such Loan Date to but
excluding the date on which the amount is received by the Agent from such Bank
and the denominator of which is 360. A certificate of the Agent containing
details of the amount owing by a Bank under this Section shall be binding and
conclusive in the absence of manifest error.

(c) Notwithstanding the provisions of Section 6.03(b), if any Bank fails
to make available to the Agent its Proportionate Share of any Loan (such Bank
being herein called the "Defaulting Bank"), the Agent shall forthwith give
notice of such failure by the Defaulting Bank to the Borrower and the other
Banks. The Agent shall then forthwith give notice to the other Banks that any
Bank may make available to the Agent all or any portion of the Defaulting Bank's
Proportionate Share of

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<PAGE>

such Loan in the place of the Defaulting Bank, but in no way shall any other
Bank or the Agent be obligated to do so. If more than one Bank gives notice that
it is prepared to make funds available in the place of a Defaulting Bank in such
circumstances and the aggregate of the funds which such Banks (herein
collectively called the "Contributing Banks") and individually called the
"Contributing Bank") are prepared to make available exceeds the amount of the
Loan which the Defaulting Bank failed to make, then each Contributing Bank shall
be deemed to have given notice that it is prepared to make available its
Proportionate Share of such Loan based on the Contributing Banks' relative
commitments to advance in such circumstances. If any Contributing Bank makes
funds available in the place of a Defaulting Bank in such circumstances, then
the Defaulting Bank shall pay to any Contributing Bank making the funds
available in its place, forthwith on demand, any amount advanced on its behalf
together with interest thereon at the rate applicable to such Loan from the date
of advance to the date of payment, against payment by the Contributing Bank
making the funds available of all interest received in respect of the Loan from
the Borrower. The failure of any Bank to make available to the Agent its
Proportionate Share of any Loan as required herein shall not relieve any other
Bank of its obligations to make available to the Agent is Proportionate Share of
any Loan as required herein.

6.04. Payments by the Borrowers. All payments (except the Agent's fees) made
-------------------------
by or on behalf of the Borrowers pursuant to this Agreement shall be made to and
received by the Agent and shall be distributed by the Agent to the Banks as soon
as possible upon receipt by the Agent and in any event within five (5) business
days of receipt. Subject to Section 6.05, the Agent shall distribute:

(a) payments of interest in accordance with each Bank's Proportionate
Share of the Loans;

(b) repayments of principal in accordance with each Bank's Proportionate
Share of the Loans; or

(c) all other payments received by the Agent (except the Agent's fees)
including, without limitation, amounts received upon the realization of
Collateral, in accordance with each Bank's Proportionate Share of the Loans
provided, however, that with respect to proceeds of realization, no Bank shall
receive an amount in excess of the amounts owing to it in respect of the
Obligations.

6.05. Payments by Agent. The following provisions shall apply to any and all
-----------------
payments made by the Agent to the Banks hereunder:

(a) the Agent shall be under no obligation to make any payment (whether
in respect of principal, interest, fees or otherwise) to any Bank until an
amount in respect of such payment has been received by the Agent from the
Borrowers;

(b) If the Agent receives less than the full amount of any payment of
principal, interest, fees or other amount owing by the Borrowers under this
Agreement, the Agent shall have no obligation to remit to each Bank any amount
other than such Bank's Proportionate Share of that amount which is the amount
actually received by the Agent;

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<PAGE>

(c) if any Bank advances more or less than its Proportionate Share of
the Loans, such Bank's entitlement to such payment shall be increased or
reduced, as the case may be, in proportion to the amount actually advanced by
such Bank;

(d) the Agent acting reasonably in good faith shall, after consultation
with the Banks in the case of any dispute, determine in all cases the amount of
all payments to which each Bank is entitled and such determination shall, in the
absence of manifest effort, be binding and conclusive; and

(e) upon request, the Agent shall deliver a statement detailing any of
the payments to the Banks referred to herein.

Unless the Agent has actual knowledge that the Borrowers have not made or will
not make a payment to the Agent for value on the date in respect of which such
Borrower has notified the Agent that the payment will be made, the Agent shall
be entitled to assume that such payment has been or will be received from such
Borrower when due and the Agent may (but shall not be obliged to), in reliance
upon such assumption, pay the Banks corresponding amounts. If the payment by
such Borrower is in fact not received by the Agent on the required date and the
Agent has made available corresponding amounts to the Banks, the Borrowers
shall, without limiting their other obligations under this Agreement, indemnify
the Agent against any and liabilities, obligations, losses, damages, penalties,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on or incurred by the Agent as a result. A certificate of the Agent
with respect to any amount owing by any Borrower under this Section shall be
prima facie evidence of the amount owing in the absence of manifest error.

6.06. Direct Payments. The Banks agree among themselves that, except as
---------------
otherwise provided for in this Agreement, all sums received by a Bank relating
to this Agreement by virtue of the Collateral, whether received by voluntary
payment, by the exercise of the right of set-off or compensation or by
counterclaim, cross-action or as proceeds of realization of any Collateral or
otherwise, shall be shared by each Bank in its Proportionate Share under the
Loans and each Bank undertakes to do all such things as may be reasonable
required to give full effect to this Section, including without limitation, the
purchase from other Banks of such notes or a portion thereof by the Bank who has
received an amount in excess of the Proportionate Share under the Loans as shall
be necessary to cause such purchasing Bank to share the excess amount ratably in
its Proportionate Share under the Loans with the other Banks. If any such which
is so shares is later recovered from the Banks who originally received it, the
Bank shall restore its Proportionate Share under the Loans of such sum to such
Banks, without interest. If any Bank (a "Receiving Bank") shall obtain any
payment of monies due under this Agreement as referred to above, the Receiving
Bank shall forthwith remit such payment to the Agent and, upon receipt, the
Agent shall distribute such payment in accordance with the provisions of Section
6.05.

6.07. Administration of the Loans. The Agent may take the following actions
---------------------------
upon notice to the Banks, unless otherwise specified in this Agreement:

(a) subject to Section 6.08, exercise any and all rights of approval
conferred upon the Banks by this Agreement;

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<PAGE>

(b) give prompt and timely written notice to the Borrowers in respect of
any amounts due or overdue under the terms of this Agreement and of any other
matter in respect of which notice may be required, permitted, necessary or
desirable in accordance with or pursuant to this Agreement;

(c) amend, modify or waive any of the terms of this Agreement (including
waiver of an Event of Default) if such amendment, modification or waiver is
approved in advance by the Banks (including the Agent) holding at least two-
thirds in dollar amount of the combined total commitment to fund Loans hereunder
and if such action is not otherwise provided for in Section 6.08;

(d) engage a professional as permitted by Section 6.10(a);

(e) decide to accelerate the amounts outstanding under this Agreement or
the Security Documents as permitted thereby; and

(f) pay insurance premiums, taxes and any other sums as may be
reasonably required to protect the interests of the Banks.

6.08. Unanimous Consent of Banks. The Agent may take the following actions
--------------------------
only if the prior unanimous consent of the Banks is obtained, unless otherwise
specified herein:

(a) amend, modify, discharge, terminate or waive any of the terms of
this Agreement or the Security Documents if such amendment, modification,
discharge, termination or waiver would have a material adverse effect on the
Collateral or on the rights of the Banks under this Agreement or the Security
Agreement;

(b) amend, modify, discharge, terminate or waive any of the term of this
Agreement if such amendment, modification, discharge, termination or waiver
would increase the amount of a Loan, amend the purpose of a Loan, reduce the
interest rate applicable to a Loan, reduce the fees payable with respect to a
Loan, extend any date fixed for payment of principal or interest relating to a
Loan or extend the Maturity Date of the Loan;

(d) declare an Event of Default or take action to enforce performance of
the Obligations of the Borrower and to realize upon the Collateral including the
appointment of a receiver, lease or sale given by the Security Agreement or by
law and take foreclosure proceedings and/or pursue any other legal remedy
necessary provided, however, that in the event the Banks are unable to agree
-------- -------
unanimously upon any of the foregoing actions, either Bank, fifteen days
subsequent to such Bank's notification to all other Banks of such Bank's
intention to so act, may, subject to all applicable provisions to this Agreement
or, any of the Security Documents, proceed unilaterally with any of the items
described in this Section 6.08 absent the unanimous consent of the Banks.

6.09. Reliance by Borrowers. As between the Borrowers, on the one hand, and
---------------------
the Agent and the

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<PAGE>

Banks, on the other hand:

(a) all statements, certificates, consents and other documents which the
Agent purports to deliver on behalf of the Banks shall be binding on each of the
Banks, and the Borrower shall not be required to ascertain or confirm the
authority of the Agent in delivering such documents;

(b) all certificates, statements, notices and other documents which are
delivered by the Borrower to the Agent in accordance with this Agreement shall
be deemed to have been duly delivered to each of the Banks;

(c) all payments which are delivered by the Borrower to the Agent in
accordance with this Agreement shall be deemed to have been duly delivered to
each of the Banks;

(d) unless an Event of Default has occurred and is continuing, the
Borrower's consent to the appointment of any Successor Agent must be obtained,
but the Borrower's consent shall not be unreasonably withheld.

6.10. Rights of Agent.
---------------

(a) In administering the Loans, the Agent may retain, at the expense of
the Banks if such expenses are not recoverable from the Borrowers, such counsel,
auditors and other experts and agents as the Agent may select, in its sole
discretion, acting reasonably and in good faith after consultation with the
Banks.

(b) The Agent shall be entitled to rely on any communication, instrument
or document believed by it to be genuine and correct and to have been signed by
the proper individual or individuals, and shall be entitled to rely and shall be
protected in relying as to legal matters upon opinions of independent legal
advisors selected by it. The Agent may also assume that any representation made
by the Borrowers is true and that no Event of Default has occurred unless the
officers or employees of the Bank acting as Agent, acting in their capacity as
officers or employees responsible for the Borrowers' accounts have actual
knowledge to the contrary or have received notice to the contrary from any other
party to this Agreement.

(c) The Agent may, without any liability to account, accept deposits
from and lend money to and generally engage in any kind of banking, or other
business with the Borrower, as if it were not the Agent.

(d) Except in its own right as a Bank, the Agent shall not be required
to advance its own funds for any purpose, and in particular shall not be
required to pay with its own funds insurance premiums, taxes or public utility
charges or the cost of repairs or maintenance with respect to the assets which
are the subject matter of the Security Agreement, nor shall it be required to
pay with its own funds the fees of counsel, auditors, experts or agents engaged
by it as permitted hereby.

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<PAGE>

(e) The Agent shall be entitled to receive a fee for acting as Agent, as
agreed between the Agent and the Borrowers from time to time.

6.11. Acknowledgments, Representations and Covenants of Banks.
-------------------------------------------------------

(a) It is acknowledged and agreed by each Bank that it has itself been,
and will continue to be, solely responsible for making its own independent
appraisal of and investigations into the financial condition, creditworthiness,
property, affairs, status and nature of the Borrowers. Accordingly, each Bank
confirms to the Agent that it has not relied, and will not hereafter rely, on
the Agent (a) to check or inquire on its behalf into the adequacy or
completeness of any information provided by the Borrowers under or in connection
with this Agreement or the transactions herein contemplated (whether or not such
information has been or is hereafter distributed to such Bank by the Agent) or
(b) to assess to keep under review on its behalf the financial condition,
creditworthiness, property, affairs, status or nature of the Borrowers.

(b) Each Bank represents and warrants that it has the legal capacity to
enter into this Agreement pursuant to its charter and any applicable law and has
not violated its charter, bylaw or other documents or any applicable law by so
doing.

(c) Each Bank agrees to indemnify the Agent (to the extent not
reimbursed by the Borrowers), ratably according to its Proportionate Share from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against the
Agent in any way relating to or arising out of this Agreement or related
Documents or the transactions therein contemplated, provided that no Bank shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Agent's gross negligence or willful misconduct. Without limiting the
generality of the foregoing, each Bank agrees to reimburse the Agent promptly
upon demand for its Proportionate Share of any out-of-pocket expenses (including
counsel fees) incurred by the Agent in connection with the preservation of any
rights of the Agent or the Banks under, or the enforcement of, or legal advice
in respect of rights or responsibilities under this Agreement, to the extent
that the Agent is not reimbursed for such expenses by the Borrowers. The
obligation of the Banks to indemnify the Agent shall survive the termination of
this Agreement.

(d) Each of the Banks acknowledges and confirms that in the event the
Agent does not receive payment in accordance with this Agreement, it shall not
be the obligation of the Agent to maintain the Loans in good standing nor shall
any Bank have recourse to the Agent in respect of any amounts owing to such Bank
under this Agreement.

(e) Each Bank acknowledges and agrees that its obligation to advance its
Proportionate Share of Loans in accordance with the terms of this Agreement is
independent and in no way related to the obligation of any other Bank hereunder.

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<PAGE>

(f) Except to the extent recovered by the Agent from the Borrowers,
promptly following demand therefor, each Bank shall pay to the Agent an amount
equal to such Bank's Proportionate Share of any and all reasonable costs,
expenses, claims, losses and liabilities incurred by the Agent in connection
with this Agreement and the Security Documents (including, without limitation,
the collection or enforcement thereof), except for those incurred by reason of
the Agent's negligence or willful misconduct.

(g) Notwithstanding any provisions of this Credit Agreement to the
contrary, the Banks (other than the Agent) shall not be entitled to participate
to the full extent of their Proportionate Share with respect to any Revolving
Loan arising from any Letter of Credit issued for the account of the Borrowers
in an amount less than $50,000. The Banks further agree that any Letter of
Credit fees paid by the Borrowers to the Agent on account of that certain
standby Letter of Credit issued in favor of Jeff Heunink for the account of the
Borrowers shall be shared by the Banks as follows: Agent shall receive and
retain a fee equal to 25 basis points (as an additional Agent's fee), and the
remaining basis points shall be distributed to the Banks in accordance with
their Proportionate Share.

6.12. Collective Action of the Banks. Except as otherwise provided herein,
------------------------------
each of the Banks hereby acknowledges that to the extent permitted by applicable
law, the Security Agreement and the remedies provided under the Security
Documents to the Banks are for the benefit of the Banks collectively and acting
together and not severally and further acknowledges that its rights hereunder
and under the Security Agreement are to be exercised not severally, but by the
Agent upon the decision of the Banks as required by this Agreement.
Accordingly, notwithstanding any of the provisions contained herein or in the
Security Agreement, each of the Banks hereby covenants and agrees that it shall
not be entitled to take any action hereunder or thereunder including, without
limitation, any declaration of default hereunder or thereunder but that any such
action shall be taken only by the Agent with the prior written agreement of the
Banks. Each of the Banks hereby further covenants and agrees that upon any such
written agreement being given by the Banks, it shall co-operate fully with the
Agent to the extent requested by the Agent. Notwithstanding the foregoing, in
the absence of instructions from the Banks and where in the sole opinion of the
Agent, acting reasonably and in good faith, the exigencies of the situation
warrant such action, the Agent may without notice to or consent of the Banks
take such action on behalf of the Banks as it deems appropriate or desirable in
the interest of the Banks.

6.13. Successor Agent. Subject to the appointment and acceptance of a
---------------
Successor Agent as provided in this Section, and subject to Section 6.07.4, the
Agent may resign at any time by giving 30 days' written notice thereof to the
Banks and the Borrowers, and may be removed at any time by the Banks upon 30
days' written notice. Upon receipt of notice by the Banks of the resignation of
the Agent, or upon giving notice of termination to the Agent, the Banks may,
within 21 days, appoint a successor from among the Banks or, if no Bank is
willing to accept such an appointment, from among other institutions which each
have combined capital and reserves in excess of $250,000,000. If no Successor
Agent has been so appointed and has accepted such appointment within 21 days
after the retiring Agent's giving of notice of resignation or receiving of
notice of termination, then the retiring Agent may, on behalf of the Banks,
appoint a Successor Agent. Upon the acceptance of any appointment as Agent
hereunder by a Successor Agent, the retiring Agent shall pay the Successor Agent
any unearned portion

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<PAGE>

of any fee paid to the Agent for acting as such, and the Successor Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
further duties and obligations as Agent under this Agreement and the other
Security Documents. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article shall continue to inure to its benefit and be
binding upon it as to any actions taken or omitted to be taken by it while it
was Agent hereunder.

6.14. Provisions Operative Between Banks and Agent Only. Except as otherwise
-------------------------------------------------
provided herein, the provisions of this Article relating to the rights and
obligations of the Banks and the Agent inter se shall be operative as between
the Banks and the Agent only, and the Borrowers shall not have any rights or
obligations under or be entitled to rely for any purpose upon such provisions.

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<PAGE>

ARTICLE VII
MISCELLANEOUS

7.01. Further Assurances. Each Borrower shall do all things and deliver all
------------------
instruments reasonably requested by the Agent to protect or perfect any security
interest granted or intended to be granted hereunder. If any Borrower fails
promptly to comply with any such request, or if any Event of Default shall have
occurred hereunder, such Borrower authorizes the Agent to execute, in the name
or on behalf of such Borrower, any financing statement or other document or
instrument that the Agent may require to perfect, protect or establish any
security interest or lien interest to which the Bank may be then entitled
hereunder and further authorizes the Agent to sign the Borrower's name on the
same. Each Borrower appoints (but only for the purposes of protecting the
Banks' interests in the Collateral or the Banks' rights to receive payments
under this Agreement or the Note or otherwise exercising any of its rights
hereunder or causing the performance and fulfillment of the obligations and
agreements intended to be performed and fulfilled by the Borrower under this
Agreement) the Agent as such Borrower's attorney-in-fact with the power: at any
time when an Event of Default has occurred and is continuing, to endorse the
name of the Borrower on any checks, notes, drafts, or other forms of payment or
security relating to any Collateral that may come into the possession of the
Banks; at any time when an Event of Default has occurred and is continuing, to
sign the name of such Borrower on invoices or bills of lading, drafts against
customers, notices of assignment, verifications and schedules; at any time when
an Event of Default has occurred and is continuing, to demand, collect, receive
payment of, receipt for, settle, compromise or adjust and give discharges and
releases in respect of the Receivables or any of them; at any time when an Event
of Default has occurred and is continuing, to commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Receivables or any of them and to enforce any other
rights in respect thereof or in respect of the goods which have given rise
thereto; at any when an Event of Default has occurred and is continuing, to
defend any suit, action or proceeding brought against such Borrower in respect
of any Receivables or the goods which have given rise thereto, to settle,
compromise or adjust any suit, action or proceeding hereinbefore described and,
in connection therewith, to give such discharges or releases as the Agent may
deem appropriate; at any time when an Event of Default has occurred and is
continuing, to notify the U.S. Postal Service authorities to change the address
of delivery of mail to an address designated by the Agent and to open and
dispose of mail addressed to such Borrower; and, generally, to do all things
necessary to carry out the intent of this Agreement. This power, being coupled
with an interest, is irrevocable, and such Borrower approves all such acts of
such attorney-in-fact. The powers conferred on the Agent by this Agreement are
solely to protect the interest of the Bank and shall not impose any duty upon
the Agent to exercise any such power, and neither the Agent nor such attorney-
in-fact shall be liable for any act or omission, error in judgment or mistake of
law, except for its gross negligence, willful misconduct or bad faith. Except
as otherwise required by applicable law with respect to the preservation of
Collateral in the possession of the Banks, the Banks shall have no duty as to
the collection or protection of any Collateral and shall have no duty as to the
preservation of rights against prior parties or any other rights pertaining
thereto, except as provided by applicable law.

7.02. Right to Cure. In the event that any Borrower shall fail to purchase
-------------
or maintain insurance, to pay any tax, assessment, governmental charge or levy,
except as the same may be otherwise permitted

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<PAGE>

hereunder, or in the event that any lien, encumbrance or security interest
prohibited hereby shall not be paid in full or discharged, or in the event that
any Borrower shall fail to pay or comply with any other obligation hereunder,
the Banks may, but shall not be required to, pay, satisfy, perform, discharge or
bond the same for the account of such Borrower, and all moneys so paid by the
Banks shall be payable on demand and shall bear interest at the lesser of (i) a
floating rate per annum equal to five percent (5%) plus the Prime Rate with a
change in such rate of interest to become effective on the same day on which any
change in the Prime Rate is effective, or (ii) the maximum rate permitted by the
applicable law.

7.03. Environmental Matters.
---------------------

(a) The Borrowers hereby agree, jointly and severally, to indemnify the
Banks and hold the Banks harmless from and against any and all losses,
liabilities (including strict liability), damages, injuries, expenses (including
reasonable attorneys' fees, costs of any settlement or judgment) and claims of
any and every kind whatsoever paid, incurred or suffered by, or asserted or
levied against, the Banks by any person or entity for, with respect to, or in
connection with any Environmental Laws or the use, storage, transportation,
release or disposition of any Hazardous Substances or the clean-up or
remediation thereof with respect to or in connection with the Borrowers, their
business or operations or the Premises; provided, however, that notwithstanding
anything in this Section 6.03 to the contrary, the Borrowers shall not be
required to indemnify the Banks for any losses, liabilities, damages, injuries,
expenses or claims resulting from the Banks' gross negligence or willful
misconduct.

(b) After the occurrence of any environmental complaint brought against
any Borrower arising under any Environmental Laws, the Banks shall have the
right, in its sole discretion, to require the Borrowers to perform (at the
Borrowers' expense) an environmental audit and, if reasonably deemed necessary
by the Banks, an environmental risk assessment, each reasonably satisfactory to
the Bank, and to implement the recommendations set forth in such audit and/or
risk assessment.

7.04. Waivers; Release of Pledge Agreements of Certain Stockholders. This
-------------------------------------------------------------
Agreement and the other Loan Documents may not be changed, waived, discharged or
terminated orally. This Agreement or any Security Document may be amended and
the performance or observance by any Borrower of any term of this Agreement or
any other Loan Document may be waived (either generally or in a particular
instance and either retroactively or prospectively) with, but only with, the
prior written consent of the Banks. The rights and remedies expressed in this
Agreement and in the other Loan Documents are cumulative and not exclusive of
any right or remedy which the Bank may otherwise have. The Banks may release or
surrender, exchange or substitute any real estate or personal property, or both,
or other collateral security now or hereafter held as security for the payment
of the Note or any other obligations of each Borrower to the Banks under this
Agreement or however arising and may extend the time for payment or otherwise
modify the terms of payment of any part or the whole of the Note.

7.05. Delays. No delay on the part of the Banks in exercising any right,
------
power or privilege hereunder or under any other Loan Document shall operate as a
waiver thereof, nor shall any partial exercise or waiver of any privilege or
right hereunder preclude any further exercise of such privilege or

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<PAGE>

right or the exercise of any other right, power or privilege.

7.06. Notices. Any notices, consents or other communications to be given
-------
under this Agreement or under the other Loan Documents shall be in writing and
shall be deemed given when mailed to the respective parties by overnight courier
or by registered mail addressed as set forth on the first page of this
Agreement, with all such notices, consents and other communications (a) to the
Banks to be sent to the attention of Michael St. Jean, Vice President, State
Street Bank, Trust Company, and Lyle Cunningham, Vice President, CoreStates
Bank, N.A., FC 1-8-4-2, 1345 Chestnut Street, Philadelphia, Pennsylvania 19107
and BankBoston, N.A. Chris Allen, Director, Boston Middle Market, 100 Federal
Street, Boston, MA 02110 with a copy to Mark D. Smith, Testa, Hurwitz &
Thibeault, LLP, High Street Tower, 125 High Street, Boston, MA 02110, (b) to
each Borrower to be sent to the attention of Stewart MacDonald, C.E.O., Mac-Gray
Co., Inc. 22 Water Street, Cambridge, MA 02140 and to Robert P. Whalen,
Esquire, Goodwin, Proctor & Hoar LLP, 53 State Street, Boston, MA 02109 or to
such other addresses as either party may from time to time designate for that
purpose. Section headings and defined terms in this Agreement and the other
Loan Documents are included for convenience only and are not intended to modify
or define any term or provision of any such instrument.

7.07. Jurisdiction. Each Borrower irrevocably submits to the jurisdiction of
------------
the courts of the Commonwealth of Massachusetts and the United States District
Court for the District of Massachusetts for the purpose of any suit, action or
other proceeding brought by the Banks arising out of or relating to this
Agreement or any other Loan Document, and each Borrower waives and agrees not to
assert by way of motion, as a defense or otherwise in any such suit, action or
proceeding, any claim that each Borrower is not personally subject to the
jurisdiction of the courts of the Commonwealth of Massachusetts, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper.

7.08. Execution. This Agreement may be signed in any number of counterparts,
---------
which together will be one and the same instrument. This Agreement shall become
effective whenever each party shall have signed at least one such counterpart.

7.09. Governing Law. This Agreement shall be governed by the laws of the
-------------
Commonwealth of Massachusetts and for all purposes shall be construed in
accordance with the laws of such Commonwealth.

7.10. Fees. Whether or not any funds are disbursed hereunder, the Borrowers
----
shall pay all of the Bank's reasonable costs and expenses in connection with the
preparation, execution, delivery, review, and enforcement of this Agreement and
the other Loan Documents, and in connection with any subsequent amendments
thereto or waivers thereof, including reasonable legal fees and disbursements.

7.11. Binding Nature. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that the rights and obligations under this Agreement
and under any of the other Loan Documents may not be assigned by any Borrower
without the prior written consent of the Banks. Notwithstanding anything to the
contrary

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<PAGE>

herein or in any of the Loan Documents, the Banks may freely assign, pledge,
hypothecate, transfer or convey part or all of their respective interests
hereunder to the Federal Reserve without notification to the Borrowers.

7.12. Severability. In the event that any provision of this Agreement or the
------------
application hereof to any person, entity property or circumstances shall be held
to any extent to be invalid or unenforceable, the remainder of this Agreement,
and the application of such provision to persons, entities, properties or
circumstances other than those as to which it has been held invalid or
enforceable, shall not be affected thereby, and each provision of this Agreement
shall be valid and enforceable to the fullest extent permitted by law.

7.13. Under Seal. This Agreement shall be deemed to be an instrument under
----------
seal and shall continue in full force and effect so long as any Indebtedness of
the Borrowers to the Banks remains unpaid.

This Agreement shall supersede and replace all prior agreements, whether
written or oral, expressed or implied, by and among (i) State Street Bank and
Trust Company and any Borrower, or (ii) CoreStates Bank, N.A. and any Borrower,
or (iii) BankBoston, N.A. and any Borrower.

ARTICLE VIII
DEFINITIONS

8.01. Definitions. All defined terms used in this Agreement which are not
-----------
otherwise defined herein shall have the respective meanings assigned to them in
the other Loan Documents. For purposes of this Agreement and of the other Loan
Documents, the following additional definitions shall apply:

"Affiliated Person" shall mean any person or entity controlling,
controlled by or under common control with any Borrower.

"Agent" in such capacity shall mean State Street Bank and Trust Company.

"Applicable Margin" shall mean (i) one hundred fifty basis points for
Loans outstanding which aggregate less than fifty million dollars ($50,000,000)
(including any Loans to be dispersed by Agent in connection with a pending loan
request of Borrowers) or (ii) one hundred and seventy five basis points for
Loans outstanding which equal or exceed fifty million dollars ($50,000,000)
(including any Loans to be dispersed by Agent in connection with a pending loan
request of Borrowers).

"BankBoston-Intirion Credit Agreement" shall mean that certain credit
agreement between BankBoston, N.A. and Intirion Corporation dated as of May 3,
1995, as amended.

"Banks," "Bank" in the plural shall mean State Street Bank and Trust
Company, CoreStates Bank, N.A. and Bank Boston, N.A.; in the singular, each a
Bank.

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<PAGE>

"Borrower," "Borrowers" shall have the meaning specified in the preamble
to this Agreement.

"Borrowing Date" shall mean the date on which any advance of loans is
made by either Bank to any Borrower.

"Business Day" shall mean any day which is not a Saturday, or a Sunday or
a public holiday under the laws of the United States of America or the
Commonwealth of Massachusetts applicable to a national banking association.

"Capital Expenditure" shall mean any payment made or required to be made,
directly or indirectly, by any Borrower for the purposes of acquiring or
constructing fixed assets, real property or equipment, except for such payments
made in connection with a Permitted Acquisition, which, in accordance with GAAP,
would be added as a debit to the fixed asset account of such Borrower,
including, without limitation, amounts paid or payable under and conditional
sale or other title retention agreement or under any lease or other periodic
payment agreement which is of such a nature that payment obligations of such
Borrower thereunder would be required by GAAP to be capitalized and shown as
liabilities on the balance sheet of the Borrower.

"Cash Equivalents" shall mean those investments which, under GAAP, are
treated as equivalent to cash.

"Closing" shall mean a closing held at 11:00 a.m., in the offices of
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts 02110, on April 23, 1998, or such other date, time and place as
the parties hereto mutually agree.

"Closing Date" shall mean the date on which the Closing shall occur.

"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
regulations issued pursuant thereto.

"COF Base Rate" shall mean, with respect to any Interest Period, the rate
of interest per annum determined by the Agent (in accordance with its customary
practices) to be the prevailing secondary funds market offering offered to the
Agent at approximately 10:00 A.M. (Boston time) (or as soon thereafter as
practicable) on the first day of such Interest Period by dealers of recognized
standing, for the purchase at face value of funds from the Agent in an amount
equal or comparable to the principal amount of the COF Loan to which such
Interest Period relates, and for a period of time equal or comparable to the
length of such Interest Period.

"COF Loans" shall mean Loans which bear interest at the COF Rate for such
Interest Period.

"Collateral" shall have the meaning specified in Section 2 of the
Security Agreement.

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<PAGE>

"Cost of Funds ("COF") Option" shall mean, with respect to each COF Loan
for each Interest Period, a fixed rate per annum (computed on the basis of a
year of 360 days, as the case may be, and actual days elapsed) equal to the COF
Base Rate plus the Applicable Margin (the "COF Rate").

"Consent" shall mean the written consent of the Agent or the Banks.

"Credit Facility" shall have the meaning specified in the preamble to
this Agreement.

"Current Assets" shall mean all assets of any corporation or other entity
which would, in accordance with generally accepted accounting principles, be
classified as current assets of an entity conducting a business the same as or
similar to that of such entity; excluding, however, (i) assets which have been
pledged, assigned, mortgaged, hypothecated or otherwise encumbered to secure any
Indebtedness which is not included in Current Liabilities and (ii) any and all
amounts due from affiliated entities.

"Current Liabilities" shall mean all liabilities of any corporation or
other entity which would, in accordance with generally accepted accounting
principles, be classified as current liabilities of an entity conducting a
business the same as or similar to that of such entity, including, without
limitation, all capitalized lease payments and other payments under capitalized
leases and fixed prepayments of, and sinking fund payments with respect to,
Indebtedness required to be made within one year from the date of determination,
plus all Indebtedness in respect of Revolving Loans without regard to the date
of maturity of any such Loans.

"EBITDA" shall mean for any period, the Net Income (or Net Loss,
expressed as a negative number) of the Borrowers (on a consolidated basis) for
such period, plus each of the following items, without duplication: (i) the
amount of the provision for depreciation and/or amortization actually deducted
on the books of the Borrowers (on a consolidated basis) for the purposes of
computation of such Net Income (or Net Loss) for the period involved, (ii) all
federal and state income taxes (but not ad valorem property taxes, sales taxes
or taxes in the nature of an excise tax) paid by the Borrowers (on a
consolidated basis) with respect to such period, and (iii) all interest on any
Indebtedness paid or accrued during such period and actually deducted on the
books of the Borrowers (on a consolidated basis) for the purposes of computation
of such Pre-Tax Net Income (or Net Loss) for the period involved provided,
however, that for the purposes of Section 4.03 (a) the meaning of "EBITDA" may
be adjusted as follows:

If the Borrowers make a Permitted Acquisition and the Banks approve of
the historical and pro forma financial statements of the business acquired in
such Permitted Acquisition, EBITDA shall be adjusted as set forth in paragraphs
(A), (B) and (C) below and the adjustments in Paragraphs (A), (B) and (C) below
shall apply to computations of the ratio in Section 4.03(a) beginning on the
date of such Permitted Acquisition and until the end of the four fiscal quarters
after such Permitted Acquisition. (The adjustments described in Paragraphs (A)
and (B) below shall not apply to computations of such ratios made as of the end
of the fiscal quarter immediately preceding the date of such Permitted
Acquisition.)

(A) Determinations of Net Income (or Net Loss) or Pre-tax Net Income
(or Net

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<PAGE>

Loss) shall include cash flow from operations for periods prior to such
Permitted Acquisition which shall include (i) the sum of net income,
depreciation, amortization, other non-cash charges to net income, interest
expense and income tax expense of the acquired business, plus the adjustment, if
any pursuant to clause (C) below, minus (ii) non-cash credits to net income of
such business, in each case as determined in accordance with GAAP;

(B) Extraordinary or nonrecurring expenses under GAAP incurred in
connection with such Permitted Acquisition shall be excluded in determining the
net income of the acquired business when computing consolidated cash flow from
operations in the preceding sentence if the Banks have agreed to such exclusion;
and

(C) To the extent, in the determination of net income of the acquired
business utilized in clause (A) above, deductions were taken in respect of
rental expense pursuant to operating leases in accordance with GAAP and
following the consummation of a Permitted Acquisition the Borrowers
appropriately amend such leases so that, in accordance with GAAP, such rental
expense pursuant to operating leases may properly be treated as rental expense
pursuant to capital leases (and the Borrower treats such leases as capital
leases for periods following the consummation by the Borrowers of such Permitted
Acquisition) then, such net income for purposes of clause (A) above shall be
increased by the deductions taken in respect of rental expense pursuant to such
operating leases during the period of determination.

"EBITA" shall mean for any period, the Net Income (or Net Loss, expressed as a
negative number) of the Borrowers (on a consolidated basis) for such period,
plus each of the following items, without duplication: (i) the amount of the
provision for amortization actually deducted on the books of the Borrowers (on a
consolidated basis) for the purposes of computation of such Net Income (or Net
Loss) for the period involved, (ii) all federal and state income taxes (but not
ad valorem property taxes, sales taxes or taxes in the nature of an excise tax)
paid by the Borrowers (on a consolidated basis) with respect to such period, and
(iii) all interest on any Indebtedness paid or accrued during such period and
actually deducted on the Consolidated books of the Borrowers (on a consolidated
basis) for the purposes of computation of such Pre-Tax Net Income (or Net Loss)
for the period involved provided, however, that for the purposes of Section 4.03
(d) the meaning of "EBITA" may be adjusted as follows:

If the Borrowers make a Permitted Acquisition and the Banks approve of
the historical and pro forma financial statements of the business acquired in
such Permitted Acquisition, EBITA shall be adjusted as set forth in paragraphs
(A), (B) and (C) below and the adjustments in Paragraphs (A), (B) and (C) below
shall apply to computations of the leverage ratio in Section 4.03(d) beginning
on the date of such Permitted Acquisition and until the end of the four fiscal
quarters after such Permitted Acquisition. (The adjustments described in
Paragraphs (A) and (B) below shall not apply to computations of such ratios made
as of the end of the fiscal quarter immediately preceding the date of such
Permitted Acquisition.)

(A) Determinations of Net Income (or Net Loss) or Pre-tax Net Income
(or Net Loss) shall include cash flow from operations for periods prior to such
Permitted Acquisition which shall

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<PAGE>

include (i) the sum of net income, amortization, other non-cash charges to net
income, interest expense and income tax expense of the acquired business, plus
the adjustment, if any pursuant to clause (C) below, minus (ii) non-cash credits
to net income of such business, in each case as determined in accordance with
GAAP;

(B) Extraordinary or nonrecurring expenses under GAAP incurred in
connection with such Permitted Acquisition shall be excluded from the net income
of the acquired business when computing consolidated cash flow from operations
in the preceding sentence if the Banks have agreed to such exclusion; and

"Environmental Laws" shall have the meaning specified in Section 3.18 of
this Agreement.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the regulations issued pursuant thereto.

"Event of Default" shall have the meaning specified in Section 5.01
hereof.

"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time.

"Indebtedness" shall mean with respect to each Borrower (i) all
indebtedness or other obligations of such Borrower for borrowed money or for the
deferred purchase price of property or services, other than for trade accounts
payable incurred in the ordinary course of such Borrower's business, (ii) all
indebtedness or other obligations of any other person for borrowed money or for
the deferred purchase price of property or services, other than for trade
accounts payable incurred in the ordinary course of such Borrower's business, in
respect of which such Borrower is liable, contingently or otherwise, to pay or
advance money or property as guarantor, endorser or otherwise (except as
endorser for collection in the ordinary course of business), or which such
Borrower has agreed to purchase or otherwise acquire, and (iii) all lease
obligations of such Borrower which are required, in accordance with GAAP, to be
capitalized on the books of the lessee.

"Interest Period" shall mean with respect to any Loan:

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<PAGE>

(i) initially, the period commencing on the Borrowing Date with
respect to such Loan and ending one to twelve months thereafter (provided,
however, COF Loans may have an Interest Period of one to sixty months), as
selected by the Borrowers in the notice of borrowing given with respect thereto;
and

(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Loan and ending one to twelve
months thereafter (provided, however, COF Loans may have an Interest Period of
one to thirty-six months), as selected by the Borrowers by irrevocable notice to
the Banks not less than three Business Days prior to the last day of the then-
current Interest Period with respect thereto;

provided, that, all of the foregoing provisions relating to Interest
--------
Periods are subject to the following:

(a) if any Interest Period pertaining to a Loan would otherwise end on
a day that is not a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event such
Interest Period shall end on the immediately preceding Business Day;

(b) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date except as provided in Section
1.01(d); and

(c) any Interest Period pertaining to a Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month.

"Interest Rate Option" shall mean any of the LIBOR Option or the COF
Option or the Prime Rate Option.

"Letters of Credit" shall have the meaning specified in Section 1.01(h)
of this Agreement.

"Liabilities" shall mean all liabilities of each Borrower, including,
without limitation, all lease rental payments and other payments under capital
leases and fixed prepayments of, and sinking fund payments with respect to,
Indebtedness (including Indebtedness evidenced by the Note).

"LIBOR" or "LIBOR Rate" shall mean with respect to the Loans comprising
any borrowings to which the LIBOR Option applies for any LIBOR Interest Period,
which rate shall be determined by the Agent by dividing (i) the rate of interest
(as determined by the Agent in accordance with its usual procedures) at which
LIBOR deposits, in an amount equal to the portion of the Loans as to which a
LIBOR Interest Option has been elected and which have a term corresponding to
the LIBOR Interest Period in question, which are offered to the Agent by first-
class banks in the London Interbank Office on

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<PAGE>

the first day of such LIBOR Interest Period as determined by the Agent at
approximately 11:00 a.m. (London time) two Banking Days prior to the date upon
which the LIBOR Interest Period in question is to commence, (which determination
by the Agent shall, in the absence of manifest error, be conclusive,) by (ii) a
number equal to 1.00 minus the LIBOR Reserve Percentage. The LIBOR Rate may also
be expressed by the following formula:

LIBOR Rate = London Interbank Office
(by a first class bank)
-----------------------
1.00 - LIBOR Reserve Percentage

The LIBOR Rate shall be adjusted with respect to any LIBOR-Rate Option
outstanding on the effective date of any change in the LIBOR-Rate Reserve
Percentage as of such effective date. The Agent shall give prompt notice to the
Borrower of the LIBOR-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.

"LIBOR Interest Period" shall have the meaning assigned to that term in
Section 1.03 hereof.

"LIBOR Loans" shall mean Loans subject to the LIBOR Option.

"LIBOR Reserve Percentage" shall mean the maximum percentage (expressed
as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the
Agent (which determination shall be conclusive absent manifest error) which is
in effect during any relevant period, as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal, and
emergency reserve requirements) with respect to LIBOR currency funding
(currently referred to as "LIBOR Currency Liabilities") of a member bank in such
System.

"Loan Documents" shall mean this Agreement, the Note, the Security
Documents and all other agreements, instruments, documents and certificates
executed or delivered in connection with the transactions contemplated therein.

"Loans" shall mean collectively, the Revolving Loans whether such Loans
are Prime Rate Loans and/or the LIBOR Loans and/or COF Loans made by the Bank to
any Borrower pursuant to Section 1.01 of this Agreement.

"Material Adverse Effect" shall mean a material adverse change in the
business, condition, affairs, properties, or operations of the Borrowers, on a
consolidated basis.

"Net Income" or "Net Loss" for any fiscal period shall mean net income
(or net loss, expressed as a negative number), after deduction of or credit for
applicable income taxes, as such net income after taxes or net loss would be set
forth on an income statement for such fiscal period prepared in accordance with
GAAP.

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<PAGE>

"Nominee" shall mean a business entity, formed or appointed by Agent to
own or manage any Collateral in the possession or control of Lenders.

"Note" means the Revolving Line of Credit and Term Notes in the form of
Exhibit A attached hereto.
- ---------

"Payment Date" shall mean the first day of each month on which the Agent
is open for business in the Commonwealth of Massachusetts from and after the
Closing Date.

"Permitted Acquisition" shall mean an acquisition (by purchase or merger)
by any Borrower or a Subsidiary (a) of all or substantially all of the assets or
100% of the outstanding capital stock or joint venture or partnership interests
of any entity engaged in a business directly related to that of the Borrowers
for which the purchase price consideration payable by any or all Borrowers is
less than $10,000,000 in the aggregate, or (b) to which the Banks have given
their prior written consent.

"Permitted Lien" shall have the meaning given that term in Section
4.02(b) hereof.

"Pledge Agreement" shall mean the Pledge Agreement of the Borrowers in
the form of Exhibit C hereto.

"Pre-Tax Net Income" for any fiscal period shall mean net income (or net
loss, expressed as a negative number), before deduction of or credit for
applicable income taxes, as such pre-tax net income or net loss would be set
forth on an income statement for such fiscal period prepared in accordance with
GAAP.

"Prime Rate Loans" shall mean Loans subject to the Prime Rate Option.

"Prime Rate" shall mean the rate of interest announced by the Agent from
time to time as its "Prime Rate" or "Base Rate"; provided, however, that such
rate is not necessarily the lowest rate charged by the Bank to its customers.

"Principal Office" of the Agent or the Borrowers shall mean the
respective office(s) located at the address set forth on the first page hereof.

"Proportionate Share" shall mean each Bank's commitment to fund Loans; in
the case of State Street Bank and Trust Company, 33.33%; and in the case of
CoreStates Bank, N.A., 33.33%; and in the case of BankBoston, N.A., 33.33%.

"Receivables" shall mean all of the present and future accounts, accounts
receivable and notes, drafts, acceptances and other instruments representing or
evidencing a right to payment for goods sold or for services rendered of any
Borrower, including all right, title and interest of any Borrower in the goods
or services which have given rise thereto and any right of stoppage in transit,
whether the same are now owned or hereafter acquired or arising.

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<PAGE>

"Security Agreement" shall mean the Security Agreement in the form of
Exhibit B hereto.
- ---------

"Subsidiary Security Agreement" shall mean the Subsidiary Security
Agreement in the form of Exhibit E hereto.
---------

"Subsidiary Guaranty Agreement" shall mean the Subsidiary Guaranty
Agreement in the form of Exhibit D hereto.
---------

"Security Documents" shall have the meaning specified in Section 1.13 of
this Agreement.

"Senior Liabilities" shall mean all Liabilities of the Borrowers to the
Banks arising hereunder or under the Note and Letter(s) of Credit and any
interest bearing obligations of Borrowers incurred on account of borrowed money.

"Shareholder's Equity" shall mean shareholder's equity (determined in
accordance with GAAP), including all assets that would be considered intangibles
under GAAP including, without limitation, good will.

"Subsidiary" shall mean with respect to any Borrower, (i) any
corporation, limited liability company or trust of which more than fifty percent
(50%) (by number of shares or number of votes) of the outstanding capital stock,
member interests or shares of beneficial interests normally entitled to vote for
the election of one or more directors or trustees is at such time owned directly
or indirectly by such Borrower or one or more of such Borrower's affiliates and
(ii) any corporation, trust, limited liability company, partnership or other
entity which is controlled or capable of being controlled by such Borrower or
one or more such Borrower's affiliates.

"Tangible Net Worth" shall mean stockholders' equity (determined in
accordance with GAAP) minus all assets that would be considered intangibles
under GAAP, such intangible assets including, without limitation, such items as
goodwill, trademarks, tradenames, copyrights, patents, licenses and rights in
any thereof, unamortized debt discount, capitalized software development or
acquisition costs, costs or value of purchased software and all write-ups in the
book value of any asset.

"Termination Date" shall mean the earlier of (i) April 23, 2003, (ii)
such earlier date on which the Banks make a declaration in accordance with the
provisions of Section 5.02(a) hereof or (iii) the payment and satisfaction in
full of all obligations of any Borrower to Banks hereunder, under the Security
Documents, or in connection herewith or therewith. The Banks may, at their
discretion, renew or extend the lines of credit by extending the Termination
Date. Neither the inclusion in this Agreement of financial covenants relating
to periods after the Termination Date or any other terms and provisions hereof
shall be deemed to create any implication that the Banks are required to renew
or extend such revolving line of credit.

8.02. Use of Defined Terms. Any defined term used in the plural preceded by
--------------------
the definite article shall be taken to encompass all members of the relevant
class. Any defined term used in the singular

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<PAGE>

preceded by "any" shall be taken to indicate any number of the members of the
relevant class.

8.03. Accounting Terms. All accounting terms not specifically defined herein
----------------
shall be construed in accordance with United States generally accepted
accounting principles consistently applied on the basis used by the concerned
entity in prior years.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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<PAGE>

IN WITNESS WHEREOF, each of the Borrowers and the Banks have caused this
Credit Agreement to be executed by their duly authorized officers as of the date
first above written.

THE BORROWERS:

MAC-GRAY CORPORATION

By:
-------------------------------
Name:
-------------------------
Title:
-------------------------

MAC-GRAY SERVICES, INC.

By:
-------------------------------
Name:
-------------------------
Title:
-------------------------

INTIRION CORPORATION

By:
-------------------------------
Name:
-------------------------
<PAGE>

Title:
-------------------------

2
<PAGE>

IN WITNESS WHEREOF, each of the Borrowers and the Banks have caused this
Credit Agreement to be executed by their duly authorized officers as of the date
first above written.

THE BANKS:

STATE STREET BANK AND TRUST
COMPANY, for itself and as agent for
CORESTATES BANK, N.A. and
BANKBOSTON, N.A.

By:
-------------------------------
Name:
-------------------------
Title:
-------------------------

CORESTATES BANK, N.A.

By:
-------------------------------
Name:
-------------------------
Title:
-------------------------

BANKBOSTON, N.A.

By:
-------------------------------
<PAGE>

Name:
-------------------------
Title:
-------------------------

<PAGE>

EXHIBIT 10.5

SECURITY AGREEMENT
------------------

SECURITY AGREEMENT ("Security Agreement"), dated as of April 23, 1998 made
by MAC-GRAY CORPORATION, MAC-GRAY SERVICES, INC. and INTIRION CORPORATION (each
a "Borrower" and collectively the "Borrowers") in favor of STATE STREET BANK AND
TRUST COMPANY for itself and as Agent for CORESTATES BANK, N.A. and BANKBOSTON,
N.A. (each a "Bank" and collectively the "Banks").

RECITALS

Pursuant to the Credit Agreement dated as of April 23, 1998 (as amended,
supplemented or otherwise modified from time to time, the "Credit Agreement"),
between the Borrowers and the Banks, the Banks have agreed to make advances to
the Borrowers upon the terms and subject to the conditions set forth therein, to
be evidenced by the Notes issued by the Borrowers thereunder. It is a condition
precedent to the obligation of the Banks to make advances to the Borrowers under
the Credit Agreement that the Borrowers shall have executed and delivered this
Security Agreement to the Banks.

NOW, THEREFORE, in consideration of the premises and to induce the Banks to
make advances to the Borrowers under the Credit Agreement, the Borrowers hereby
agree jointly and severally with the Banks, as follows:

1. Defined Terms. Unless otherwise defined herein, terms which are
-------------
defined in the Credit Agreement and used herein are so used as so defined; the
following terms which are defined in the Uniform Commercial Code in effect in
The Commonwealth of Massachusetts on the date hereof are used herein as so
defined: Accounts, Chattel Paper, Documents, Equipment, Fixtures, General
Intangibles, Instruments, Inventory and Proceeds; and the following terms shall
have the following meanings:

"Code" means the Uniform Commercial Code as from time to time in
effect in The Commonwealth of Massachusetts.

"Collateral" shall have the meaning assigned to it in Section 2 of
this Security Agreement.

-1-
<PAGE>

"Copyrights" means all copyrights, registered and unregistered, and
all registrations thereof and applications therefor whether in the United States
Copyright Office or elsewhere, now existing or hereafter acquired, and all
renewals thereof.

"Obligations" means the unpaid principal amount of, and interest on,
the Notes and all other obligations and liabilities of the Borrowers to the
Banks, whether direct or indirect, absolute or contingent, due or to become due,
or now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Credit Agreement, the Notes, the Pledge Agreements, any of
the other Security Documents or this Security Agreement and any other document
executed and delivered in connection therewith or herewith and each other
obligation and liability, whether direct or indirect, absolute or contingent,
due or to become due, or now or hereafter existing, of the Borrowers to the
Banks, whether on account of principal, interest, reimbursement obligations,
fees, indemnities, costs, expenses (including, without limitation, all fees and
disbursements of counsel to the Banks) or otherwise.

"Patents" means (a) all letters patent of the United States or any
other country and all reissues and extensions thereof, and (b) all applications
for letters patent of the United States or any other country, and all divisions,
continuations and continuations-in-part thereof.

"Security Agreement" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.

"Trademarks" means (a) all trademarks, trade names, corporate names,
business names, fictitious business names, trade styles, service marks, logos
and other source or business identifiers, and the goodwill associated therewith,
now existing or hereafter adopted or acquired, all registration and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political
subdivision thereof, and (b) all renewals thereof.

"Vehicles" means all cars, trucks, trailers, construction and earth
moving equipment and other vehicles covered by a certificate of title law of any
state and all tires and other appurtenances to any of the foregoing.

2. Grant of Security Interest. As collateral security for the prompt and
--------------------------
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations, the Borrowers hereby grant to the
Banks a security interest in all of the following property now owned or at any
time hereafter acquired by each Borrower or in

-2-
<PAGE>

which each Borrower now has or at any time in the future may acquire any right,
title or interest (collectively, the "Collateral"): all (i) Accounts; (ii)
Chattel Paper; (iii) Copyrights; (iv) Documents; (v) Equipment; (vi) Fixtures;
(vii) General Intangibles; (viii) Instruments; (ix) Inventory; (x) Patents; (xi)
Trademarks; (xii) Vehicles; and (xiii) to the extent not otherwise included, all
Proceeds and products of any and all of the foregoing.

3. Rights of Banks; Limitations on Banks' Obligations.
---------------------------------------------------

(a) Borrowers Remain Liable under Accounts. Anything herein to the
---------------------------------------
contrary notwithstanding, each Borrower shall remain liable under each of the
Accounts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms of any
agreement giving rise to each such Account. The Banks shall not have any
obligation or liability under any Account (or any agreement giving rise thereto)
by reason of or arising out of this Security Agreement or the receipt by the
Banks of any payment relating to such Account pursuant hereto, nor shall the
Banks be obligated in any manner to perform any of the obligations of each
Borrower under or pursuant to any Account (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

(b) Notice to Account Debtors. Upon the request of the Banks at any
-------------------------
time after the occurrence and during the continuance of an Event of Default,
each Borrower shall notify account debtors on the Accounts that the Accounts
have been assigned to the Banks and that payments in respect thereof shall be
made directly to the Banks. The Banks may in their own name or in the name of
others communicate with account debtors on the Accounts to verify with them to
its satisfaction the existence, amount and terms of any Accounts.

(c) Collections on Accounts. The Banks hereby authorize the Borrowers
-----------------------
to collect the Accounts, subject to the Banks' direction and control, and the
Banks may curtail or terminate said authority at any time after the occurrence
and during the continuance of an Event of Default. If required by the Banks at
any time after the occurrence and during the continuance of an Event of Default,
any payments of Accounts, when collected by the Borrowers, shall be forthwith
(and, in any event, within two Business Days) deposited by the Borrowers in the
exact form received, duly endorsed by the Borrowers to the Banks if required, in
a special collateral account maintained by the Banks, subject to withdrawal by
the Banks only, as hereinafter provided, and, until so turned over, shall be
held by the Borrowers in trust for the Banks,

-3-
<PAGE>

segregated from other funds of the Borrowers. All Proceeds constituting
collections of Accounts while held by the Banks (or by the Borrowers in trust
for the Banks) shall continue to be collateral security for all of the
Obligations and shall not constitute payment thereof until applied as the
Borrowers and the Banks, or, if an Event of Default shall have occurred and be
continuing, at any time at the Banks' election, the Banks shall apply all or any
part of the funds on deposit in said special collateral account on account of
the Obligations in such order as the Banks may elect, and any part of such funds
which the Banks elect not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the Banks
to the Borrowers or to whomsoever may be lawfully entitled to receive the same.
At the Banks' request, the Borrowers shall deliver to the Banks all original and
other documents evidencing, and relating to, the agreements and transactions
which gave rise to the accounts, including, without limitation, all original
orders, invoices and shipping receipts.

(d) Title to Collateral. Each Borrower represents and warrants to the
-------------------
Banks that it has good title to all of the Collateral, free and clear of all
liens, security interests and adverse interests, other than the Permitted Liens,
in favor of any person or entity other than the Banks.

(e) Trust Account. Notwithstanding anything to the contrary provided
-------------
herein, the Banks may at any time or from time to time, in its sole discretion,
elect to require the Borrowers to establish with the Banks a trust account and
to deal with all of its Accounts subject to the provisions of this Section.
Following such election, the Borrowers will collect their Accounts as the Banks'
collection agent, hold such collections in trust for the Banks without
commingling the same with other funds of the Borrowers and will promptly, on the
day of receipt thereof, transmit such collections to the Banks in the identical
form in which they were received by the Borrowers, with such endorsements as may
be appropriate, accompanied by a report, in form approved by the Banks, showing
the amount of such collections and the cash discounts applicable thereto.

4. Covenants. Each Borrower covenants and agrees with the Banks that,
---------
from and after the date of this Security Agreement until the Obligations are
paid in full:

(a) Further Documentation; Pledge of Instruments and Chattel Paper.
--------------------------------------------------------------
At any time and from time to time, upon the written request of the Banks, and at
the sole expense of the Borrowers, the Borrowers will promptly and duly execute
and deliver such further instruments and documents and take such further action
as the Banks may reasonably request for the purpose of obtaining or preserving
the full benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation

-4-
<PAGE>

statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the Liens created hereby. The Borrowers also hereby authorize the
Banks to file any such financing or continuation statement without the signature
of the Borrowers to the extent permitted by applicable law. A carbon,
photographic or other reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any jurisdiction. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be immediately delivered to the Banks, duly endorsed in a manner
satisfactory to the Banks, to be held as Collateral pursuant to this Security
Agreement.

(b) Indemnification. Each Borrower, jointly and severally, agrees to
---------------
pay, and to save the Banks harmless from, any and all liabilities, costs and
expenses (including, without limitation, legal fees and expenses) (i) with
respect to, or resulting from, any delay in paying, any and all excise, sales or
other taxes which may be payable or determined to be payable with respect to any
of the Collateral, (ii) with respect to, or resulting from, any delay in
complying with any law, rule, regulation or order of any Governmental Authority
applicable to any of the Collateral or (iii) in connection with any of the
transactions contemplated by this Security Agreement. In any suit, proceeding
or action brought by the Banks under any Account for any sum owing thereunder,
or to enforce any provisions of any Account, the Borrowers will save, indemnify
and keep the Banks harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or reduction
or liability whatsoever of the account debtor or obligor thereunder, arising out
of a breach by the Borrowers of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to or in favor of
such account debtor or obligor or its successors from the Borrowers.

(c) Maintenance of Records. Each Borrower will keep and maintain at
----------------------
its own cost and expense satisfactory and complete records of the Collateral,
including without limitation, a record of all payments received and all credits
granted with respect to the Accounts. For the Banks' further security, each
Borrower shall grant to the Banks a security interest in all of such Borrower's
books and records pertaining to the Collateral, and such Borrower shall turn
over any such books and records to the Banks or to its representatives during
normal business hours at the request of the Banks.

(d) Right of Inspection. The Banks shall at all times have full and
-------------------
free access during normal business hours, and upon reasonable prior notice, to
all the books, correspondence and records of the Borrowers, and the Banks or
their representatives may examine the same, take extracts therefrom and make
photocopies thereof, and the Borrowers agree to render to the Banks, at the
Borrowers' cost and expense, such clerical and other assistance as may be

-5-
<PAGE>

reasonably requested with regard thereto. The Banks and their representatives
shall at all times also have the right during normal business hours, and upon
reasonable prior notice, to enter into and upon any premises where any of the
Inventory or Equipment is located for the purpose of inspecting the same,
observing its use or otherwise protecting its interests therein.

(e) Compliance with Laws, etc. Each Borrower will comply in all
--------------------------
material respects with all laws, rules, regulations and orders of any
Governmental Authority applicable to the Collateral or any part thereof or to
the operation of such Borrower's business; provided, however, that such Borrower
may contest any such law, rule, regulation or order in any reasonable manner
which shall not, in the reasonable opinion of the Banks, adversely affect the
Banks' rights or the priority of its liens on the Collateral.

(f) Payment of Obligations. Each Borrower will pay promptly when due
----------------------
all taxes, assessments and governmental charges or levies imposed upon the
Collateral or in respect of its income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if (i) the validity thereof is being contested in good faith
by appropriate proceedings, (ii) such proceedings do not involve any material
danger of the sale, forfeiture or loss of any of the Collateral or any interest
therein and (iii) such charge is adequately reserved against on such Borrower's
books in accordance with GAAP.

(g) Limitation on Liens on Collateral. Each Borrower will not create,
---------------------------------
incur or permit to exist, will defend the Collateral against, and will take such
other action as is necessary to remove, any Lien or claim on or to the
Collateral, other than Permitted Liens, and will defend the right, title and
interest of the Banks in and to any of the Collateral against the claims and
demands of all Persons whomsoever.

(h) Limitations on Dispositions of Collateral. Each Borrower will not
-----------------------------------------
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so, except for sales of Collateral permitted by the
Credit Agreement.

(i) Limitations on Discounts, Compromises, Extensions of Accounts.
-------------------------------------------------------------
Other than in the ordinary course of business as generally conducted by the
Borrowers over a period of time, each Borrower will not grant any extension of
the time of payment of any of the Accounts, compromise, compound or settle the
same for less than the full amount thereof, release, wholly or partially, any
Person liable for the payment thereof, or allow any credit or discount
whatsoever thereon.

-6-
<PAGE>

(j) Maintenance of Equipment. Each Borrower will maintain each item
------------------------
of Equipment in good operating condition, ordinary wear and tear and immaterial
impairments of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose.

(k) Maintenance of Insurance. Each Borrower will maintain, with
------------------------
financially sound and reputable companies, insurance policies (i) insuring the
Inventory, Equipment and Vehicles against loss by fire, explosion, theft and
such other casualties as may be reasonably satisfactory to the Banks and (ii)
insuring such Borrower and the Banks against liability for personal injury and
property damage relating to such Inventory, Equipment and Vehicles, such
policies to be in such form and amounts and having such coverage as may be
reasonably satisfactory to the Banks, with losses payable to such Borrower and
the Banks as their respective interests may appear. All such insurance shall
(i) contain a breach of warranty clause in favor of the Banks, (ii) provide that
no termination, cancellation, material reduction in amount or material change in
coverage thereof shall be effective until at least 30 days after receipt by the
Banks of written notice thereof, (iii) name the Banks as an insured and (iv) be
reasonably satisfactory in all other respect to the Banks. From time to time
upon the request of the Banks, each Borrower shall deliver to the Banks a report
of a reputable insurance broker with respect to such insurance in such form as
the Banks may from time to time reasonably request.

(l) Further Identification of Collateral. Each Borrower will furnish
------------------------------------
to the Banks from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Banks may reasonably request, all in reasonable detail.

5. Banks' Appointment as Attorney-in-Fact.
--------------------------------------

(a) Powers. Each Borrower hereby irrevocably constitutes and appoints
------
the Banks and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of such Borrower and in the name of such Borrower or in
its own name, from time to time in the Banks' discretion, for the purpose of
carrying out the terms of this Security Agreement, to take any and all
appropriate action and to execute any and all instruments which may be necessary
or desirable to accomplish the purposes of this Security Agreement, and, without
limiting the generality of the foregoing, such Borrower hereby gives the Banks
the power and right, on behalf of such Borrower, without notice to or assent by
such Borrower, to do the following:

(i) in the case of any Account, at any time when the authority of such

-7-
<PAGE>

Borrower to collect the Accounts has been curtailed or terminated pursuant to
the first sentence of Section 3(c) hereof, or in the case of any other
Collateral, at any time when any Event of Default shall have occurred and is
continuing, in the name of such Borrower or its own name, or otherwise, to take
possession of and endorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Account, Instrument,
general Intangible or with respect to any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Banks for the
purpose of collecting any and all such moneys due under any Account, Instrument,
General Intangible or with respect to any other collateral whenever payable;

(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance called
for the terms of this Security Agreement and to pay all or any part of the
premiums therefor and the costs thereof; and

(iii) upon the occurrence and during the continuance of any
Event of Default, (A) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Banks or as the Banks shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all moneys,
claims and other amounts due or to become due at any time in respect of or
arising out of any Collateral; (C) to sign and endorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any thereof and to enforce any other right in respect
of any Collateral; (E) to defend any suit, action or proceeding brought against
such Borrower with respect to any Collateral; (F) to settle, compromise or
adjust any suit, action or proceeding described in clause (E) above and, in
connection therewith, to give such discharges or releases as the Banks may deem
appropriate; (G) to assign any Patent or Trademark (along with the goodwill of
the business to which any such Trademark pertains), throughout the world for
such term or terms, on such conditions, and in such manner, as the Banks shall
in its sole discretion determine; and (H) generally, to sell, transfer, pledge
and make any agreement with respect to or otherwise deal with any of the
Collateral as fully and completely as though the Banks were the absolute owners
thereof for all purposes, and to do, at the Banks' option and such Borrower's
expense, at any time, or from time to time, all acts and things which the Banks
deems necessary to protect, preserve or realize upon the Collateral and the
Banks' liens thereon and to effect the intent of this Security Agreement, all as
fully and effectively as such Borrower might do.

Each Borrower hereby ratifies all that said attorneys shall lawfully do or
cause to be done

-8-
<PAGE>

by virtue hereof. This Power of attorney is a power coupled with an interest and
shall be irrevocable.

(b) Other Powers. Each Borrower also authorizes the Banks, at any
------------
time and from time to time, to execute, in connection with the sales provided
for in Section 7 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.

(c) No Duty on Banks' Part. The powers conferred on the Banks
----------------------
hereunder are solely to protect the Banks' interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. The Banks shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrowers for any act or failure
to act hereunder, except for its own gross negligence or willful misconduct.

6. Performance by Banks of Borrowers' Obligations. If any Borrower fails
----------------------------------------------
to perform or comply with any of its agreements contained herein and the Banks,
as provided for by the terms of this Security Agreement, shall itself perform or
comply, or otherwise cause performance or compliance, with such agreement, the
expenses of the Banks incurred in connection with such performance or
compliance, together with interest thereon at a rate per annum equal to the
Prime Rate plus 5%, shall be payable by such Borrower to the Banks on demand and
shall constitute Obligations secured hereby.

7. Remedies. If an Event of Default shall occur and be continuing, the
--------
Banks may exercise, in addition to all other rights and remedies granted to it
in this Security Agreement and in any other instrument or agreement securing,
evidencing or relating to the Obligations, all rights and remedies of a secured
party under the Code. Without limiting the generality of the foregoing, the
Banks, without demand of performance or other demand, presentment, protest,
advertisement or notice of any kind (except any notice required by law referred
to below) to or upon any Borrower or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of the Banks or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. The Banks shall
have the right upon any such public sale or sales, and, to the extent permitted
by law,

-9-
<PAGE>

upon any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity or redemption in such Borrower,
which right or equity is hereby waived or released. Each Borrower further
agrees, at the Banks' request, to assemble the Collateral and make it available
to the Banks at places which the Banks shall reasonably select, whether at any
Borrower's premises or elsewhere. The Banks shall apply the net proceeds of any
such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Banks hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, in such order as the Banks may elect,
and only after such application and after the payment by the Banks of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Banks account for the surplus, if any, to the
Borrowers. To the extent permitted by applicable law, each Borrower waives all
claims, damages and demands it may acquire against the Banks arising out of the
exercise by the Banks of any of their rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at lease 10 days before
such sale or other disposition. Each Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Banks to collect such deficiency.

8. Limitation on Duties Regarding Preservation of Collateral. The Banks'
---------------------------------------------------------
sole duty with respect to the custody, safekeeping and physical preservation of
the Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Banks deals with similar
property for its own account. Neither the Banks nor any of their directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of any Borrower or otherwise.

9. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

10. Severability. Any provision of this Security Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

-10-
<PAGE>

11. Paragraph Headings. The paragraph headings used in this Security
------------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.

12. No Waiver; Cumulative Remedies. The Banks shall not by any act
------------------------------
(except by a written instrument pursuant to Section 15 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Banks, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Banks of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Banks would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.

13. Waivers and Amendments; Successors and Assigns. None of the terms or
----------------------------------------------
provisions of this Security Agreement may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by each Borrower and
the Banks, provided that any provision of this Security Agreement may be waived
by the Banks in a written letter or agreement executed by the Banks or by telex
or facsimile transmission from the Banks. This Security Agreement shall be
binding upon the successors and assigns of the Borrowers and shall inure to the
benefit of the Banks and their respective successors and assigns.

14. Governing Law. This Security Agreement shall be governed by, and
-------------
construed and interpreted in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of law of
such state.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

-11-
<PAGE>

IN WITNESS WHEREOF, each Borrower has caused this Security Agreement to be
duly executed and delivered as of the date first above written.

THE BORROWERS:

MAC-GRAY CORPORATION

By:
------------------------------------
Name:
Title:

MAC-GRAY SERVICES, INC.

By:
------------------------------------
Name:
Title:

INTIRION CORPORATION

By:
------------------------------------
Name:
Title:

-12-
<PAGE>

IN WITNESS WHEREOF, each Borrower has caused this Security Agreement to be
duly executed and delivered as of the date first above written.

THE BANKS:

STATE STREET BANK AND TRUST COMPANY

By:
------------------------------------
Name:
Title:

CORESTATES BANK, N.A.

By:
------------------------------------
Name:
Title:

BANKBOSTON, N.A.

-13-
<PAGE>

By:
------------------------------------
Name:
Title:

-14-

<PAGE>

EXHIBIT 10.6

REVOLVING LINE OF CREDIT AND TERM NOTE
--------------------------------------

$90,000,000 April 21, 1998

FOR VALUE RECEIVED, MAC-GRAY CORPORATION, MAC-GRAY SERVICES, INC. and INTIRION
CORPORATION, each a Delaware Corporation (the "Borrowers") jointly and severally
hereby promise to pay to the order of STATE STREET BANK AND TRUST COMPANY for
itself and as Agent for CORESTATES BANK, N.A. and BANKBOSTON, N.A. (the "Banks")
at the office of the Agent located at 225 Franklin Street, Boston, Massachusetts
02110, or such other place as the holder hereof shall designate, the principal
amount of Ninety Million Dollars and No Cents ($90,000,000.00) or, if less, the
aggregate unpaid principal amount of all loans made by the Banks to the
Borrowers hereunder, plus all accrued but unpaid interest and all other amounts
then due and payable, on the Termination Date as defined in the Credit Agreement
(as hereinafter defined), together with interest on unpaid balances payable
monthly in arrears on the first day of each calendar month and in accordance
with the Credit Agreement (as defined herein). Interest shall be calculated on
the basis of actual days elapsed and a 360-day year. If this Note is not paid
in full when due, interest on unpaid balances shall thereafter be payable on
demand at a fluctuating interest rate per annum equal to four percent (4%) above
the Prime Rate in effect from time to time.

All loans hereunder and all payments on account of principal and interest
hereof shall be recorded by the Agent and, prior to any transfer hereof,
endorsed on the attached grid which is part of this Note. The entries on the
records of the Banks (including any appearing on this Note) shall be prima facie
evidence of amounts outstanding hereunder.

This Note is issued pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between the Borrowers and the Banks dated as of
April 21, 1998, as amended from time to time, which is hereby incorporated
herein by reference, and is entitled to the benefits thereof.

The principal amount of this Note may be repaid by the Borrowers in whole or
in part and reborrowed from time to time, in each case subject to the terms and
provisions of the Credit Agreement Prepayments of principal and interest may be
subject to penalty or premium in accordance with the terms and provisions of the
Credit Agreement.

All principal and interest hereunder are payable in lawful money of the United
States of America at the office of the Agent at the address shown above in
immediately available funds.
<PAGE>

Any deposits or other sums at any time credited by or due from the holder to
the Borrowers and any securities or other property of the Borrowers at any time
in the possession of the holder shall at all times be held and treated as
collateral for the payment of this Note and any and all other liabilities
(direct or indirect, absolute or contingent, sole, joint or several, secured or
unsecured, due or to become due, now existing or hereafter arising) of the
Borrowers to the holder. Regardless of the adequacy of collateral, the holder
may apply or set off such deposits or other sums against such liabilities at any
time.

The Borrowers hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement hereof and consents that no indulgence, and no
substitution, release or surrender of collateral, and no discharge or release of
any other party primarily or secondarily liable hereon, shall discharge or
otherwise affect the liability of the Borrowers. No delay or omission on the
part of the holder in exercising any right hereunder shall operate as a waiver
of such right or of any other right hereunder, and a waiver of any such right on
any one occasion shall not be construed as a bar to or waiver of any such right
on any future occasion.

This Note is secured by the terms of a Security Agreement and Pledge Agreement
between the Banks and the Borrowers dated as of the date hereof and the Guaranty
and Security Agreement of the Borrowers' Subsidiaries (as defined in the Credit
Agreement) and any and all collateral at any time granted to the Banks to secure
any obligations of any maker hereof.

The Borrowers agree to pay on demand all reasonable costs and expenses
(including reasonable legal costs and attorneys' fees) incurred or paid by the
holder in enforcing this Note, including without limitation upon the occurrence
of an Event of Default under the Credit Agreement.

[Remainder of page intentionally left blank.]

2
<PAGE>

This Note shall take effect as a sealed instrument and shall be governed by
the laws of the Commonwealth of Massachusetts.

MAC-GRAY CORPORATION

By:
------------------------------------
Name:
Title:

MAC-GRAY SERVICES, INC.

By:
------------------------------------
Name:
Title:

INTIRION CORPORATION

By:
------------------------------------
Name:
Title:

3
<PAGE>

ADVANCES AND PAYMENTS OF PRINCIPAL
----------------------------------

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Date Amount of Loan Amount of Principal Outstanding Notation Made By
---- -------------- Paid Principal Balance ----------------
---- -----------------
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

- ----------------------------------------------------------------------------------------
</TABLE>

<PAGE>

EXHIBIT 10.7

PLEDGE AGREEMENT
MAC-GRAY SERVICES, INC.
-----------------------

PLEDGE AGREEMENT, dated as of April 23, 1998, made by the undersigned MAC-
GRAY SERVICES, INC., a Delaware corporation with its Principal Office at 22
Water Street, Cambridge, Massachusetts (the "Pledgor"), in favor of STATE STREET
BANK AND TRUST COMPANY for itself and as Agent for CORESTATES BANK, N.A. and
BANKBOSTON, N.A. (each a "Bank" and collectively the "Banks").

RECITALS
--------

Pursuant to the Credit Agreement between the Pledgor, certain other
borrowers, and the Banks dated April 23, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement"), the Banks have
agreed to make loans to the Pledgor and the other borrowers upon the terms and
subject to the conditions set forth therein, to be evidenced by the promissory
notes (the "Notes") issued by the Pledgor and the other borrowers thereunder.
The Pledgor is the legal and beneficial owner of the Pledged Securities (as
hereinafter defined). It is a covenant of the Pledgor under the Credit
Agreement that the Pledgor shall execute and deliver this Pledge Agreement to
the Banks.

NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees
with the Banks as follows:

1. Defined Terms. Unless otherwise defined herein, terms which are
-------------
defined in the Credit Agreement and used herein are so used as so defined, and
the following terms shall have the following meanings:

"Code" means the Uniform Commercial Code from time to time in effect in the
Commonwealth of Massachusetts.

"Collateral" means the Pledged Securities and all Proceeds.

"Obligations" means the unpaid principal of and interest on the Notes and
all other obligations and liabilities of the Pledgor to the Banks, whether
direct or indirect, absolute or

-1-
<PAGE>

contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit Agreement, the Notes
or this Pledge Agreement and any other document made, delivered or given in
connection therewith or herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all reasonable fees and disbursements of counsel to the
Banks) or otherwise.

"Pledge Agreement" means this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.

"Pledged Securities" means the shares of capital stock and other securities
listed on Schedule I hereto, together with all stock certificates, instruments,
----------
options or rights of any nature whatsoever which may be issued or granted to the
Pledgor in respect of the Pledged Securities, while this Pledge Agreement is in
effect.

"Proceeds" means all "proceeds" as such term is defined in Section 9-306(1)
of the Code and, in any event, shall include, without limitation, all dividends
or other income from the Pledged Securities, collections thereon or
distributions with respect thereto.

2. Pledge; Grant of Security Interest. The Pledgor hereby delivers to
----------------------------------
the Banks all the Pledged Securities and hereby grants to the Banks a first
security interest in the Collateral, as collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations.

3. Stock Powers. Concurrently with the delivery to the Banks of each
------------
certificate or instrument representing the Pledged Securities, the Pledgor shall
deliver an undated stock power or other transfer document covering such
certificate or instrument, duly executed in blank with, if the Banks so
requests, signature guaranteed.

4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
to the Banks that:

(a) the Pledgor is the record and beneficial owner of, and has good
and marketable title to, the Pledged Securities listed on Schedule I, free of
----------
any and all security interests, liens or options in favor of, or claims of, any
other person or entity, except for Permitted Liens; and

-2-
<PAGE>

(b) upon delivery to the Banks of the certificates and instruments
evidencing the Pledged Securities, the lien granted pursuant to this Pledge
Agreement will constitute a valid, perfected first priority lien on the Pledged
Securities enforceable as such against all creditors of the Pledgor and any
person or entities purporting to purchase any Collateral from the Pledgor.

5. Covenants. The Pledgor covenants and agrees with the Banks that, from
---------
and after the date of this Pledge Agreement until the Obligations are paid in
full:

(a) If the Pledgor shall, as a result of its ownership of the Pledged
Securities, become entitled to receive or shall receive any stock certificate or
other certificate or instrument (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate or
instrument issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in exchange
for any of the Pledged Securities or otherwise in respect thereof, the Pledgor
shall accept the same as the Banks' agent, hold the same in trust for the Banks
and deliver the same forthwith to the Banks in the exact form received, together
with an undated stock power or other transfer document covering such certificate
or instrument duly executed in blank and with, if the Banks so request,
signature guaranteed, to be held by the Banks hereunder as additional collateral
security for the Obligations. Any sums paid upon or in respect of the Pledged
Securities upon the liquidation or dissolution of the issuer thereof shall be
paid over to the Banks to be held by it hereunder as additional collateral
security for the Obligations, and in case any distribution of capital shall be
made on or in respect of the Pledged Securities or any property shall be
distributed upon or with respect to the Pledged Securities pursuant to the
recapitalization or reclassification of the capital of the issuer thereof or
pursuant to the reorganization thereof, the property so distributed shall be
delivered to the Banks to be held by it, subject to the terms hereof, as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Securities shall be
received by the Pledgor, the Pledgor shall, until such money or property is paid
or delivered to the Banks, hold such money or property in trust for the Banks,
segregated from other funds of the Pledgor, as additional collateral security
for the Obligations.

(b) Without the prior written consent of the Banks, the Pledgor will
not (i) sell, assign, transfer, exchange or otherwise dispose of, or grant any
option with respect to, the Collateral except in compliance with the provisions
of the Credit Agreement, or (ii) create, incur or permit to exist any lien or
option in favor of, or any claim of any person or entity with respect to, any of
the Collateral, or any interest therein, except for Permitted Liens. The
Pledgor will defend the right, title and interest of the Banks in and to the
Collateral against the claims and demands of all person or entities whomsoever.

-3-
<PAGE>

(c) At any time and from time to time, upon the written request of the
Banks, and at the sole expense of the Pledgor, the Pledgor will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Banks may reasonably request for the purposes of
obtaining or preserving the full benefits of this Pledge Agreement and of the
rights and powers herein granted. If any amount payable under or in connection
with any of the Collateral shall be or become evidenced by any promissory note,
other instrument or chattel paper, such note, instrument or chattel paper shall
be promptly delivered to the Banks, duly endorsed in a manner satisfactory to
the Banks, to be held as Collateral pursuant to this Pledge Agreement.

(d) The Pledgor agrees to pay, and to save the Banks harmless from,
any and all liabilities with respect to, or resulting from any delay in paying
any and all stamp, excise, sales or other taxes (exclusive of taxes based on
income, gross receipts, franchise rights and related items) which may be payable
or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Pledge Agreement.

6. Cash Dividends; Voting Rights. Notwithstanding the provisions of
-----------------------------
Section 5(a) hereof, unless an Event of Default shall have occurred, the Pledgor
shall be permitted to receive all cash dividends and other cash distributions
paid by the issuer of any of the Pledged Securities in respect of the Pledged
Securities and to exercise all voting and corporate rights with respect to the
Pledged Securities, provided, however, that after written notice from the Banks
-------- -------
to the Pledgor, no stockholder vote shall be cast or corporate right exercised
or other action taken by the Pledgor which, in the Banks' reasonable judgment,
would impair the Collateral or which would be inconsistent with or result in any
violation of any provision of the Credit Agreement, the Notes or this Pledge
Agreement, except if and to the extent that the Pledgor is obligated to effect
such vote, exercise or action pursuant to an agreement between the Pledgor and
one or more third parties.

7. Rights of the Banks. (a) If an Event of Default shall occur and be
-------------------
continuing: (i) the Banks shall have the right to receive any and all cash
dividends paid in respect of the Pledged Securities and make application thereof
to the Obligations in such order as it may determine, and (ii) all of the
Pledged Securities shall be registered in the name of the Banks or its nominee,
and the Banks or their nominee may thereafter exercise (A) all voting,
corporate, and other rights pertaining to the Pledged Securities at any meeting
or otherwise and (B) any and all rights of conversion, exchange, subscription
and any other rights, privileges or options pertaining to such Pledged
Securities as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the Pledged
Securities upon the merger, consolidation, reorganization, recapitalization of
other fundamental change in the corporate or

-4-
<PAGE>

partnership structure of the issuer thereof or upon the exercise by the Pledgor
or the Banks of any right, privilege or option pertaining to such Pledged
Securities and in connection therewith, the right to deposit and deliver any and
all of the Pledged Securities with any committee, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as it may
determine), all without liability except to account for property actually
received by it, but the Banks shall have no duty to exercise any such right,
privilege or option and shall not be responsible for any failure to do so or
delay in so doing.

(b) The rights of the Banks hereunder shall not be conditioned or
contingent upon the pursuit by the Banks of any right or remedy against the
Pledgor or against any other person or entity which may be or become liable in
respect of all or any part of the Obligations or against any other collateral
security therefor, guarantee thereof or right of offset with respect thereto.
The Banks shall not be liable for any failure to demand, collect or realize upon
all or any part of the Collateral or for any delay in doing so, nor shall it be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Pledgor or any other person or entity or to take any other action
whatsoever with regard to the Collateral or any part thereof.

8. Remedies. If an Event of Default shall occur and be continuing, the
--------
Banks may exercise, in addition to all other rights and remedies granted in this
Pledge Agreement and in any other instrument or agreement securing, evidencing
or relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, the Banks, without
demand of performance or other demand, presentment, protest, advertisement or
notice of any kind (except any notice required by law referred to below) to or
upon the Pledgor, any guarantor or any other person or entity (all and each of
which demands, defenses, advertisements and notices are hereby expressly
waived), may in such circumstances forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give option or options to purchase or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, in the over-the-counter
market, at any exchange, broker's board or office of the Banks or elsewhere upon
such terms and conditions as it may deem advisable and at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Banks shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Pledgor, which right or equity is hereby
expressly waived and released. The Banks shall apply any Proceeds from time to
time held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to

-5-
<PAGE>

the Collateral or the rights of the Banks hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as the Banks may elect, and
only after such application and after the payment by the Banks of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need the Banks account for the surplus, if any, to the
Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Banks arising out of the
exercise by the Banks of any of their rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least ten (10) days
before such sale or other disposition.

9. Amendments with Respect to the Obligations. The Pledgor shall remain
------------------------------------------
obligated hereunder, and the Collateral shall remain subject to the lien granted
hereby, notwithstanding that, without any reservation of rights against the
Pledgor, and without notice to or further assent by the Pledgor, any demand for
payment of any of the Obligations made by the Banks may be rescinded by the
Banks, and any of the Obligations continued, and the Obligations, or the
liability of the Pledgor upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Banks, and the
Credit Agreement, Notes and any other document in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the Banks
may deem advisable from time to time, and any right of offset or other
collateral at any time held by the Banks for the payment of the Obligations may
be sold, exchanged, waived, surrendered or released. The Banks shall have no
obligation to protect, secure, perfect or insure any other lien at any time held
by it as security for the Obligations or any property subject thereto. The
Pledgor hereby expressly waives any and all notice of the creation, renewal,
extension or accrual of any of the Obligations and notice of or proof of
reliance by the Banks upon this Pledge Agreement; the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or incurred
in reliance upon this Pledge Agreement; and all dealings between the Pledgor and
the Banks shall likewise be conclusively presumed to have been created or
consummated in reliance upon this Pledge Agreement. The Pledgor hereby
expressly waives diligence, presentment, protest, demand for payment and notice
of default or nonpayment to or upon the Pledgor with respect to the Obligations.

10. Limitation on Duties Regarding Collateral. The Banks' sole duty with
-----------------------------------------
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession, under Section 9-207 of the Code or otherwise, shall be to
deal with it in the same manner as the Banks deal with similar securities,
instruments and property for its own account. Neither the Banks nor

-6-
<PAGE>

any of their directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Pledgor or otherwise.

11. Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.

12. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

13. Section Headings. The paragraph headings used in this Pledge
----------------
Agreement are for convenience of reference only and are not to affect the
construction hereof or to be taken into consideration in the interpretation
hereof.

14. No Waiver; Cumulative Remedies. The Banks shall not by any act
------------------------------
(except by a written instrument pursuant to paragraph 15 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Banks, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Banks of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Banks would otherwise
have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.

15. Waivers and Amendments; Successors and Assigns; Governing Law. None
-------------------------------------------------------------
of the terms or provisions of this Pledge Agreement, may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Banks, provided that any provision of this Pledge Agreement
--------
may be waived in writing by the Banks in a letter or agreement executed by the
Banks or by telex or facsimile transmission from the Banks. This Pledge
Agreement shall be binding upon the successors and assigns of the Pledgor and
shall inure to the benefit of the Banks and its successors and assigns. This
Pledge Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth

-7-
<PAGE>

of Massachusetts, United States of America, without giving effect to the
principles of conflicts of law of such commonwealth.

16. Notices. Notices by either party hereto to the other shall be given
-------
as provided in the Credit Agreement.

17. Counterparts. This Pledge Agreement may be executed in several
------------
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one agreement.

[Remainder of page intentionally left blank.]

-8-
<PAGE>

IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be
duly executed and delivered as of the date first above.

THE PLEDGOR:

MAC-GRAY SERVICES, INC.

By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------

THE BANKS:

STATE STREET BANK AND TRUST COMPANY

By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------

CORESTATES BANK, N.A.

-9-
<PAGE>

By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------

BANKBOSTON, N.A.

By:
---------------------------------------
Name:
---------------------------------
Title:
---------------------------------

-10-
<PAGE>

SCHEDULE I
----------

PLEDGED SECURITIES
------------------

Number of
Name of Issuer Description of Securities Shares
- -------------- ------------------------- ---------

Mac-Gray Investments, Inc. [Common Stock] [#]

[TO BE PREPARED BY GP&H.]

-9-
<PAGE>

PLEDGE AGREEMENT
MAC-GRAY CORPORATION
--------------------

PLEDGE AGREEMENT, dated as of April 23, 1998, made by the undersigned MAC-
GRAY CORPORATION, a Delaware corporation with its Principal Office at 22 Water
Street, Cambridge, Massachusetts (the "Pledgor"), in favor of STATE STREET BANK
AND TRUST COMPANY for itself and as Agent for CORESTATES BANK, N.A. and
BANKBOSTON, N.A. (each a "Bank" and collectively the "Banks").

RECITALS
--------

NOW, THEREFORE, in consideration of the premises, the Pledgor hereby agrees
with the Banks as follows:

"Code" means the Uniform Commercial Code from time to time in effect in the
Commonwealth of Massachusetts.

"Collateral" means the Pledged Securities and all Proceeds.

"Obligations" means the unpaid principal of and interest on the Notes and
all other obligations and liabilities of the Pledgor to the Banks, whether
direct or indirect, absolute or

-1-
<PAGE>

"Pledge Agreement" means this Pledge Agreement, as amended, supplemented or
otherwise modified from time to time.

4. Representations and Warranties. The Pledgor represents and warrants
------------------------------
to the Banks that:

-2-
<PAGE>

5. Covenants. The Pledgor covenants and agrees with the Banks that, from
---------
and after the date of this Pledge Agreement until the Obligations are paid in
full:

-3-
<PAGE>

-4-
<PAGE>

-5-
<PAGE>

-6-
<PAGE>

-7-
<PAGE>

of Massachusetts, United States of America, without giving effect to the
principles of conflicts of law of such commonwealth.

16. Notices. Notices by either party hereto to the other shall be given
-------
as provided in the Credit Agreement.

[Remainder of page intentionally left blank.]

-8-
<PAGE>

IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be
duly executed and delivered as of the date first above.

THE PLEDGOR:

MAC-GRAY CORPORATION

By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------

THE BANKS:

STATE STREET BANK AND TRUST COMPANY

By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------

CORESTATES BANK, N.A.

-9-
<PAGE>

By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------

BANKBOSTON, N.A.

By:
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------

-10-
<PAGE>

SCHEDULE I
----------

PLEDGED SECURITIES
------------------

Number of
Name of Issuer Description of Securities Shares
- -------------- ------------------------- ---------

Mac-Gray Services, Inc. [Common Stock] [#]
Intirion Corporation [Common Stock] [#]

[TO BE PREPARED BY GP&H.]

-1-

<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 (No. 333-45899) of Mac-Gray Corporation 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 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

June 10, 1998

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,774 2,844
<SECURITIES> 0 343
<RECEIVABLES> 7,078 4,993
<ALLOWANCES> 508 372
<INVENTORY> 7,208 4,749
<CURRENT-ASSETS> 20,500 14,399
<PP&E> 93,163 79,196
<DEPRECIATION> 49,548 42,305
<TOTAL-ASSETS> 97,843 66,217
<CURRENT-LIABILITIES> 24,541 22,888
<BONDS> 5,886 23,666
12,304 4,187
0 0
<COMMON> 123 167
<OTHER-SE> 48,179 13,607
<TOTAL-LIABILITY-AND-EQUITY> 97,843 66,217
<SALES> 104,847 82,260
<TOTAL-REVENUES> 104,847 82,260
<CGS> 75,912 59,199
<TOTAL-COSTS> 93,769 73,639
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<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,056 5,666
<EPS-PRIMARY> .32 .72
<EPS-DILUTED> .31 .71

</TABLE>

<PAGE>

<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,898
<SECURITIES> 377
<RECEIVABLES> 2,779
<ALLOWANCES> 365
<INVENTORY> 5,030
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<PP&E> 65,812
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<TOTAL-ASSETS> 46,785
<CURRENT-LIABILITIES> 16,520
<BONDS> 12,304
3,947
0
<COMMON> 161
<OTHER-SE> 12,004
<TOTAL-LIABILITY-AND-EQUITY> 46,785
<SALES> 66,352
<TOTAL-REVENUES> 66,352
<CGS> 46,411
<TOTAL-COSTS> 59,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,328
<INCOME-PRETAX> 5,770
<INCOME-TAX> 400
<INCOME-CONTINUING> 5,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,370
<EPS-PRIMARY> .68
<EPS-DILUTED> .67

</TABLE>