<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
REGISTRATION STATEMENT NO. 333-45899
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
POST-EFFECTIVE AMENDMENT NO. 2
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MAC-GRAY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7215 04-3361982
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
22 WATER STREET
CAMBRIDGE, MASSACHUSETTS 02141
(617) 492-4040
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
STEWART GRAY MACDONALD, JR.
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MAC-GRAY CORPORATION
22 WATER STREET
CAMBRIDGE, MASSACHUSETTS 02141
(617) 492-4040
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
STUART M. CABLE, ESQ.
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
(617) 570-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the transactions described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, 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. [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 2 to the Registration Statement includes:
(i) a Prospectus/Proxy Statement Supplement that (a) provides information
relating to a proposed transaction between Mac-Gray Corporation and Amerivend
Corporation and Amerivend Southeast Corporation and (b) restates earnings per
share data to give effect to Staff Accounting Bulletin No. 98 ("SAB 98") and
(ii) the Prospectus/Proxy Statement first mailed to securityholders of
Intirion Corporation on or about February 19, 1998, as amended to give effect
to SAB 98.
<PAGE>
INTIRION CORPORATION
TEN WALPOLE PARK SOUTH
WALPOLE, MASSACHUSETTS 02081
(508) 660-9200
March 6, 1998
Dear Stockholder:
On February 19, 1998, Intirion Corporation ("Intirion") mailed to you a
Notice of Special Meeting of Stockholders and a Prospectus/Proxy Statement
relating to the Special Meeting of Stockholders of Intirion (the "Intirion
Special Meeting") scheduled for Thursday, March 12, 1998. At the Intirion
Special Meeting, you will be asked to consider and vote upon a proposal to
approve and adopt an Agreement and Plan of Merger, dated as of December 22,
1997 (the "Merger Agreement"), by and among Intirion, Mac-Gray Corporation, a
Delaware corporation ("Mac-Gray"), MI Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Mac-Gray ("Sub"), and Robert P.
Bennett, pursuant to which Sub will be merged with and into Intirion and
Intirion will become a wholly-owned subsidiary of Mac-Gray (the "Merger").
Upon the effectiveness of the Merger, holders of Intirion's Common Stock,
Series A Redeemable Convertible Preferred Stock and vested, unexercised
warrants and options to purchase Intirion Common Stock will receive shares of
Mac-Gray's common stock, par value $.01 per share ("Mac-Gray Common Stock"),
and holders of Intirion's Senior Redeemable Preferred Stock will receive a
combination of Mac-Gray Common Stock and cash.
On March 4, 1998, Mac-Gray entered into a Stock and Asset Purchase Agreement
(the "Stock and Asset Agreement"), pursuant to which Mac-Gray will acquire one
hundred percent of the outstanding capital stock of Amerivend Corporation and
the assets of Amerivend Southeast Corporation. We are enclosing a
Prospectus/Proxy Statement Supplement (the "Supplement") to provide you with
information regarding the Stock and Asset Agreement and the transactions
contemplated thereby that may be relevant to your vote at the Intirion Special
Meeting. In addition, the Supplement restates Mac-Gray's earnings per share
data for all periods presented to give effect to Staff Accounting Bulletin No.
98, which was recently issued by the Securities and Exchange Commission. We
urge you to read the Supplement in conjunction with the original
Prospectus/Proxy Statement.
The Board of Directors of Intirion continues to believe that the Merger
Agreement and the transactions contemplated thereby are fair to, and in the
best interests of, Intirion and its securityholders. Accordingly, the Board of
Directors of Intirion continues to recommend that you vote in favor of the
Merger Agreement and the transactions contemplated thereby at the Intirion
Special Meeting.
WE HAVE ENCLOSED A RED PROXY CARD WITH THE SUPPLEMENT. PROXIES THAT HAVE
BEEN PROPERLY COMPLETED, DATED, SIGNED AND RETURNED PRIOR TO THE DISTRIBUTION
OF THE ACCOMPANYING SUPPLEMENT WILL BE VOTED AS DIRECTED THEREON FOR OR
AGAINST OR TO ABSTAIN WITH RESPECT TO THE PROPOSAL DESCRIBED IN THE SUPPLEMENT
AND THE PROSPECTUS/PROXY STATEMENT. IF YOU HAVE NOT PREVIOUSLY VOTED, OR IF
YOU WISH TO REVOKE OR CHANGE YOUR VOTE, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED RED PROXY CARD. IF YOU HAVE PREVIOUSLY COMPLETED AND RETURNED A
PROXY CARD AND YOU DO NOT WISH TO REVOKE OR CHANGE YOUR VOTE, YOU DO NOT NEED
TO TAKE ANY ADDITIONAL ACTION.
If you have any questions concerning the Supplement or your vote, please
call Scott McDermott, Secretary of Intirion, at (781) 431-1700.
Thank you and I look forward to seeing you at the Intirion Special Meeting,
which will be held on Thursday, March 12, 1998 at 10:00 a.m., local time, at
Intirion's headquarters located at Ten Walpole Park South, Walpole,
Massachusetts.
Very truly yours,
Robert P. Bennett
Chairman of the Board,
Chief Executive Officer and
President
<PAGE>
MAC-GRAY CORPORATION
AND
INTIRION CORPORATION
PROSPECTUS/PROXY STATEMENT SUPPLEMENT
(TO PROSPECTUS/PROXY STATEMENT DATED FEBRUARY 19, 1998)
----------------
This Prospectus/Proxy Statement Supplement (the "Supplement") is being
furnished by Mac-Gray Corporation, a Delaware corporation ("Mac-Gray"), and
Intirion Corporation, a Delaware corporation ("Intirion"), to holders of
common stock, par value $.01 per share, of Intirion (the "Intirion Common
Stock"), holders of Series A Redeemable Convertible Preferred Stock, par value
$.01 per share, of Intirion (the "Intirion Series A Preferred Stock") and
holders of Senior Redeemable Preferred Stock, par value $.01 per share, of
Intirion (the "Intirion Senior Preferred Stock") in connection with the
solicitation of proxies by Intirion's Board of Directors for use at the
special meeting of stockholders that is scheduled to be held on Thursday,
March 12, 1998 (the "Intirion Special Meeting"), and at any and all
adjournments and postponements thereof. The Supplement is also being furnished
to holders of vested, unexercised warrants and options to purchase Intirion
Common Stock.
The Intirion Special Meeting is being held to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 22, 1997, by and among Intirion, Mac-Gray, MI Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Mac-Gray ("Sub"), and
Robert P. Bennett, pursuant to which Sub will be merged with and into Intirion
and Intirion will become a wholly-owned subsidiary of Mac-Gray (the "Merger").
It is currently anticipated that the closing date of the Merger will be March
12, 1998.
This Supplement is a supplement to and should be read in conjunction with
the Prospectus/Proxy Statement (the "Prospectus/Proxy Statement"), which was
initially mailed to Intirion securityholders on or about February 19, 1998.
Any statement contained in the Prospectus/Proxy Statement will be deemed to be
modified and superseded to the extent that a statement set forth in this
Supplement modifies or supersedes such statement. Capitalized terms used in
this Supplement without definition have the meanings ascribed to them in the
Prospectus/Proxy Statement. This Supplement and the accompanying proxy card
are first being mailed on or about March 6, 1998.
RECENT DEVELOPMENTS
On March 4, 1998, Mac-Gray entered into a Stock and Asset Purchase
Agreement, pursuant to which Mac-Gray will acquire one hundred percent of the
outstanding capital stock of Amerivend Corporation and the assets of Amerivend
Southeast Corporation (together, "Amerivend"). In addition to being the
largest provider of card and coin-operated laundry equipment in Florida,
Amerivend adds to Mac-Gray's route business in the Atlanta market. Amerivend
is also the principal distributor of Maytag commercial laundry products in
Alabama, Georgia and Florida. Founded in 1959, Amerivend had 1997 revenues of
$18.6 million and has offices in Miami, Orlando, Tampa and Atlanta. The
purchase price, which is subject to certain adjustments, will be approximately
$33.5 million in cash, including the payment of certain debt. The purchase
price will be funded by Mac-Gray by drawing on its existing credit facility.
The transaction is subject to customary closing conditions, including
regulatory filings and is expected to close within thirty days.
RECENT ACCOUNTING PRONOUNCEMENTS
The Securities and Exchange Commission (the "SEC") recently issued Staff
Accounting Bulletin No. 98 ("SAB 98"). The financial information set forth
below gives effect to SAB 98 by amending and restating the earnings per share
data for Mac-Gray for all periods presented.
<PAGE>
Mac-Gray 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 in the
Prospectus/Proxy Statement. The selected consolidated financial data set forth
below supersede the selected consolidated financial data set forth on page 9
of the Prospectus/Proxy Statement and should be read in conjunction with, and
are qualified by reference to, "Mac-Gray's 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
in the Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996 1997(1)
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue......................... $44,942 $48,031 $50,710 $ 64,427 $ 81,370
Cost of revenue:
Commissions.................... 17,762 19,168 20,471 25,760 31,717
Laundry route expenditures..... 7,458 7,889 8,251 10,955 12,232
Depreciation and amortization.. 4,377 4,756 4,899 6,216 8,635
Cost of equipment sales........ 1,700 2,673 2,938 5,189 8,187
------- ------- ------- -------- --------
Total cost of revenue.......... 31,297 34,486 36,559 48,120 60,771
Operating expenses:
General and administration..... 3,383 3,085 3,901 3,952 4,699
Sales and marketing............ 2,445 2,501 2,531 3,803 5,165
Depreciation................... 421 442 455 517 503
------- ------- ------- -------- --------
Total operating expenses....... 6,249 6,028 6,887 8,272 10,367
------- ------- ------- -------- --------
Income from operations.......... 7,396 7,517 7,264 8,035 10,232
Interest expense............... (1,437) (1,217) (1,175) (1,956) (2,521)
Other income (expense), net.... 71 70 55 (87) 181
------- ------- ------- -------- --------
Income before provision for in-
come taxes..................... 6,030 6,370 6,144 5,992 7,892
Provision for income taxes(2).. (330) (388) (374) (465) (5,206)
------- ------- ------- -------- --------
Net income...................... $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 2,686
======= ======= ======= ======== ========
Net income per common share(4).. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.37
======= ======= ======= ======== ========
Weighted average common shares
outstanding(4)................. 6,368 6,368 6,368 6,368 7,263
======= ======= ======= ======== ========
Net income per common share--as-
suming dilution(4)............. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.36
======= ======= ======= ======== ========
Weighted average common shares
outstanding--assuming dilu-
tion(4)........................ 6,368 6,368 6,368 6,368 7,391
======= ======= ======= ======== ========
TAX ADJUSTED EARNINGS PER SHARE
DATA(3):
Pro forma net income........... $ 3,595 $ 4,735
======== ========
Pro forma net income per common
share(4)...................... $ 0.56 $ 0.65
======== ========
Pro forma net income per common
share--assuming dilution(4)... $ 0.56 $ 0.64
======== ========
OTHER FINANCIAL DATA:
EBITDA(5)...................... $12,265 $12,785 $12,673 $ 14,681 $ 19,551
Depreciation and amortization.. 4,798 5,198 5,354 6,733 9,138
Capital expenditures........... 5,407 5,679 4,421 7,635 8,681
Cash flows from operating ac-
tivities...................... 9,405 10,650 10,417 13,650 10,942
Cash flows used in investing
activities.................... (5,689) (5,613) (5,105) (22,070) (20,544)
Cash flows provided by (used
in) financing activities...... (3,744) (6,128) (3,549) 7,382 10,532
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $(3,437) $(4,181) $(2,237) $ (6,069) $ (885)
Total assets................... 32,713 33,292 36,754 54,108 84,374
Long-term debt, net of current
portion....................... 15,718 13,544 11,843 23,325 5,395
Redeemable common stock(6)..... -- -- -- -- 7,797
Stockholders' equity........... 6,783 9,439 12,850 14,683 49,161
</TABLE>
s-ii
<PAGE>
- --------
(1) The financial data for the year ended December 31, 1997 includes the
results of the Sun Services Acquisition subsequent to the acquisition date
of April 17, 1997.
(2) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(3) Tax adjusted earnings per share data have been adjusted to give effect to
Mac-Gray's operations as if Mac-Gray were subject to federal and state
income taxes on a corporate level (at an estimated income tax of 40%)
during the periods presented.
(4) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, Mac-Gray
has complied with SAB 98 recently issued by the SEC. Accordingly, earnings
per share data have been restated for all periods presented to give effect
to both pronouncements. Earnings per share data are reflective of the Mac-
Gray Combination for all periods presented.
(5) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA
should not be considered as an alternative to net income as a measure of
operating results or as an alternative to cash flows as a measure of
liquidity and it is not a measure of performance or financial condition
under generally accepted accounting principles. EBITDA is presented
because Mac-Gray's management believes that certain investors may find it
to be a useful tool for measuring Mac-Gray's ability to meet its future
debt service obligations, make capital expenditures and satisfy working
capital requirements.
(6) Shares of Mac-Gray Common Stock issued in connection with the Sun Services
Acquisition are redeemable pursuant to a contractual arrangement.
s-iii
<PAGE>
Unaudited Selected Pro Forma Combined Financial Data
The following unaudited selected pro forma combined financial data give
effect to the Merger as a pooling of interests. The unaudited selected pro
forma combined statement of income data combine Mac-Gray's historical results
for the three years ended December 31, 1997 with Intirion's historical results
for the three years ended June 30, 1997, giving effect to the Merger as if it
had occurred on January 1, 1995. The unaudited selected pro forma combined
balance sheet data combine Mac-Gray's and Intirion's consolidated balance
sheets as of December 31, 1997, giving effect to the Merger as if it had
occurred on that date.
The pro forma financial data do not purport to represent what Mac-Gray's
financial position or results of operations would have actually been had the
Merger occurred at the beginning of the earliest period presented or to
project Mac-Gray's financial position or results of operations for any future
date or period. They do not include any one-time, non-recurring Merger-related
costs, estimated to be $600,000 in the aggregate, nor do they incorporate any
benefits from any potential cost savings or synergies following the Merger.
The unaudited selected pro forma combined financial data assume the exchange
of all of the outstanding Intirion Exchangeable Securities for Mac-Gray Common
Stock and approximately $1 million in cash consideration. The unaudited
selected pro forma financial data set forth below supersede the unaudited
selected pro forma financial data set forth on page 12 of the Prospectus/Proxy
Statement and should be read in conjunction with each of Mac-Gray's and
Intirion's Management's Discussion and Analysis of Financial Condition and
Results of Operations and the historical financial statements and notes
thereto of Mac-Gray and Intirion included in the Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997(1)
----------- ------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
UNAUDITED SELECTED PRO FORMA COM-
BINED STATEMENT OF OPERATIONS DA-
TA:
Revenue............................ $ 66,352 $ 82,260 $ 106,879
Cost of revenue.................... 46,411 59,199 77,411
----------- ------------ ------------
Gross profit....................... 19,941 23,061 29,468
Operating expenses................. 12,898 14,440 18,148
----------- ------------ ------------
Income from operations............. 7,043 8,621 11,320
Other income (expense), net........ (1,273) (2,441) (2,883)
----------- ------------ ------------
Income before taxes................ 5,770 6,180 8,437
Income tax provision(2)............ (400) (514) (5,228)
----------- ------------ ------------
Net income......................... $ 5,370 $ 5,666 $ 3,209
=========== ============ ============
Net income per common share(4)..... $ 0.67 $ 0.71 $ 0.36
=========== ============ ============
Weighted average common shares out-
standing(4)....................... 7,961 7,961 8,856
=========== ============ ============
Net income per common share--assum-
ing dilution(4)................... $ 0.67 $ 0.71 $ 0.36
=========== ============ ============
Weighted average common shares out-
standing--assuming dilution(4).... 7,961 7,961 8,984
=========== ============ ============
Pro forma tax adjusted net
income(3)......................... $ 3,286 $ 3,734 $ 5,197
=========== ============ ============
Pro forma tax adjusted net income
per share(4)...................... $ 0.41 $ 0.47 $ 0.59
=========== ============ ============
Pro forma tax adjusted net income
per share--assuming dilution(4)... $ 0.41 $ 0.47 $ 0.58
=========== ============ ============
UNAUDITED SELECTED PRO FORMA COM-
BINED OTHER FINANCIAL DATA(5):
EBITDA(6).......................... $ 13,192 $ 16,346 $ 22,343
Depreciation and amortization...... 6,094 7,812 10,842
Capital expenditures............... 8,121 10,010 11,599
Cash flows from operating activi-
ties.............................. 10,574 15,925 11,518
Cash flows used in investing activ-
ities............................. (9,162) (24,445) (23,727)
Cash flows provided by (used in)
financing activities.............. (589) 7,466 13,139
<CAPTION>
DECEMBER 31,
1997
-----------------
<S> <C> <C> <C>
UNAUDITED SELECTED PRO FORMA
COMBINED BALANCE SHEET DATA:
Working capital.................... $ (6,969)
Total assets....................... 99,336
Total long term debt, net of
current portion................... 5,395
Redeemable common stock............ 7,797
Stockholders' equity............... 51,498
</TABLE>
s-iv
<PAGE>
- --------
(1) Includes the results of operations of Sun Services as if the Sun Services
Acquisition had occurred on January 1, 1997. The historical results of Sun
Services for the period from April 1, 1997 to April 17, 1997 (the
acquisition date) have not been included and are not material to the
Company.
(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) 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.
(4) Earnings per share data are based on the weighted average number of common
stock and common stock equivalents outstanding of Mac-Gray and Intirion
for each period assuming that 1,317,837 shares of Mac-Gray Common Stock
were issued in exchange for all of the issued and outstanding shares of
Intirion Series A Preferred Stock, Intirion Common Stock, $12.50 Warrants,
$5.00 Warrants, and Miscellaneous Warrants and Intirion Options and
assuming that 275,224 shares of Mac-Gray Common Stock and approximately $1
million were issued in exchange for all of the issued and outstanding
shares of Intirion Senior Preferred Stock.
(5) Unaudited selected pro forma combined financial data were accumulated
based on the historical balances reported by each entity and do not
include any pro forma adjustments.
(6) "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 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.
s-v
<PAGE>
Comparative Per Share Data
The following table sets forth certain historical per share data of Mac-Gray
and Intirion and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis assuming that
1,317,837 shares of Mac-Gray Common Stock were issued in exchange for all of
the issued and outstanding Intirion Exchangeable Securities other than shares
of Intirion Senior Preferred Stock and assuming that 275,224 shares of Mac-
Gray Common Stock and approximately $1 million in cash were issued in exchange
for all of the issued and outstanding shares of Intirion Senior Preferred
Stock. The selected pro forma combined comparative per share data of Mac-Gray
and Intirion are derived from pro forma unaudited condensed combined financial
information, supersede the information set forth on page 14 of the
Prospectus/Proxy Statement and should be read in conjunction with the selected
historical audited and unaudited financial data and the historical audited and
unaudited financial statements of Mac-Gray and Intirion and the notes thereto
that are included elsewhere in this Supplement and in the Prospectus/Proxy
Statement. The unaudited pro forma per share data are presented for
illustrative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had Mac-Gray and Intirion been a single
entity during the periods presented. Neither Mac-Gray nor Intirion paid any
cash dividends for the periods presented, other than in the case of
distributions to S corporation stockholders or preferred stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1995 1996 1997 DECEMBER 31, 1997
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
MAC-GRAY
Net income per share:
Historical...................... $ 0.91 $ 0.87 $ 0.37 --
Combined(b)..................... $ 0.67 $ 0.71 $ 0.36 --
Net income per share--assuming
dilution:
Historical...................... $ 0.91 $ 0.87 $ 0.36 --
Combined(b)..................... $ 0.67 $ 0.71 $ 0.36 --
Pro forma tax adjusted net income
per share(a):
Historical...................... $ 0.58 $ 0.56 $ 0.65 --
Combined(b)..................... $ 0.41 $ 0.47 $ 0.59 --
Pro forma tax adjusted net income
per share--assuming dilution(a):
Historical...................... $ 0.58 $ 0.56 $ 0.64 --
Combined(b)..................... $ 0.41 $ 0.47 $ 0.58 --
INTIRION
Net income (loss) per share:
Historical(c)................... $ (1.31) $ (0.48) $ (0.30) $(0.19)
Pro forma combined, adjusted for
ratio of exchange(d)........... $ 0.74 $ 0.78 $ 0.40 --
Pro forma tax adjusted combined,
adjusted for ratio of
exchange(a)(d)................. $ 0.45 $ 0.52 $ 0.65 --
Net income (loss) per share--
assuming dilution:
Historical(c)................... $ (1.31) $ (0.48) $ (0.30) $(0.19)
Pro forma combined, adjusted for
ratio of exchange(d)........... $ 0.74 $ 0.78 $ 0.40 --
Pro forma tax adjusted combined,
adjusted for ratio of
exchange(a)(d)................. $ 0.45 $ 0.52 $ 0.64 --
</TABLE>
- --------
(a) Pro forma tax adjusted net income per share 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 of
40%) during the periods presented.
(b) Pro forma combined net income per share data for 1997 includes the results
of Sun Services as if the Sun Services Acquisition had occurred on January
1, 1997.
(c) Historical per share data for Intirion are for the years ended June 30,
1995, 1996, and 1997, respectively.
(d) Pro forma net income per share amounts for Intirion have been calculated
using an exchange ratio of 1.10 shares of Mac-Gray Common Stock for each
share of Intirion Common (and common equivalent) Stock exchanged. See Note
1 to the Pro Forma Unaudited Condensed Combined Financial Information.
On December 31, 1997, the book value of Mac-Gray Common Stock was $4.48 per
share and the book value of the Intirion Common Stock was ($0.72) per share.
On June 30, 1997 the book value of Intirion Common Stock was ($0.69) per
share. Historical book value per share for Intirion has been calculated
assuming conversion of all Intirion Common Stock equivalents using the
treasury stock method. The pro forma book value per share for the Mac-Gray
Common Stock as of December 31, 1997 after giving effect to the proposed
Merger would be $4.10. The pro forma book value of Intirion Common Stock at
such date after the Merger would be $4.51 per share based upon the issuance of
1,317,837 shares of Mac-Gray Common Stock for all of the issued and
outstanding shares of Intirion Exchangeable Securities (other than shares of
Intirion Senior Preferred Stock) and the issuance of 275,224 shares of Mac-
Gray Common Stock and approximately $1 million in cash for approximately
100,000 shares of Intirion Senior Preferred Stock.
s-vi
<PAGE>
THE SECURITIES OFFERED HEREBY 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 THE PROSPECTUS/PROXY STATEMENT OR THIS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS SUPPLEMENT OR THE PROSPECTUS/PROXY
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
THIS SUPPLEMENT AND THE PROSPECTUS/PROXY STATEMENT DO NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS SUPPLEMENT OR THE PROSPECTUS/PROXY STATEMENT, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS SUPPLEMENT OR
THE PROSPECTUS/PROXY STATEMENT NOR THE ISSUANCE OR SALE OF ANY SECURITIES
HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR THEREIN
SINCE THE DATE HEREOF.
The date of this Prospectus/Proxy Statement Supplement is March 6, 1998
S-vii
<PAGE>
INTIRION CORPORATION
TEN WALPOLE PARK SOUTH
WALPOLE, MASSACHUSETTS 02081
(508) 660-9200
February 19, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Intirion Special Meeting") of Intirion Corporation ("Intirion") to be held on
Thursday, March 12, 1998 at 10:00 a.m., local time, at Intirion's headquarters
located at Ten Walpole Park South, Walpole, Massachusetts.
At the Intirion Special Meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Agreement and Plan of Merger, dated as of
December 22, 1997 (the "Merger Agreement"), by and among Intirion, Mac-Gray
Corporation, a Delaware corporation ("Mac-Gray"), MI Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Mac-Gray ("Sub"), and
Robert P. Bennett, pursuant to which Sub will be merged with and into Intirion
and Intirion will become a wholly-owned subsidiary of Mac-Gray (the "Merger").
Upon the effectiveness of the Merger, holders of Intirion's Common Stock,
Series A Redeemable Convertible Preferred Stock and vested, unexercised
warrants and options to purchase Intirion Common Stock, will receive shares of
Mac-Gray's common stock, par value $.01 per share ("Mac-Gray Common Stock"),
and holders of Intirion's Senior Redeemable Preferred Stock will receive a
combination of Mac-Gray Common Stock and cash. Additional information about
Mac-Gray, Intirion and the proposed Merger is included in the attached
Prospectus/Proxy Statement (the "Prospectus/Proxy Statement"), which I urge
you to read carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AGREEMENT AND BELIEVES THAT THE MERGER IS FAIR TO
INTIRION AND IN THE BEST INTERESTS OF ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD
OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE IN
FAVOR OF THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
You should read carefully the accompanying Notice of Special Meeting of
Stockholders and the Prospectus/Proxy Statement for details of the Merger and
additional related information.
Whether or not you expect to attend the Intirion Special Meeting, it is very
important that your shares be represented. Please complete, sign and date the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope. If you attend the Intirion Special Meeting, you may vote in person
if you wish, even though you previously have returned your proxy card.
Thank you and I look forward to seeing you at the Intirion Special Meeting.
Very truly yours,
Robert P. Bennett
Chairman of the Board, Chief
Executive Officer and President
<PAGE>
INTIRION CORPORATION
TEN WALPOLE PARK SOUTH
WALPOLE, MASSACHUSETTS 02081
(508) 660-9200
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 12, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Intirion
Special Meeting") of Intirion Corporation ("Intirion") will be held on
Thursday, March 12, 1998 at 10:00 a.m., local time, at Intirion's headquarters
located at Ten Walpole Park South, Walpole, Massachusetts, for the purpose of
considering and voting upon the following proposals:
(1) A proposal to approve and adopt an Agreement and Plan of Merger,
dated as of December 22, 1997 (the "Merger Agreement"), by and among Mac-
Gray Corporation, a Delaware corporation ("Mac-Gray"), MI Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Mac-Gray
("Sub"), Intirion and Robert P. Bennett pursuant to which Sub will be
merged with and into Intirion and Intirion will become a wholly-owned
subsidiary of Mac-Gray (the "Merger"). A copy of the Merger Agreement is
attached as Appendix A to the Prospectus/Proxy Statement accompanying this
Notice.
(2) Such other business as may properly come before the Intirion Special
Meeting or any adjournments or postponements thereof.
The Intirion Board of Directors has fixed the close of business on Tuesday,
February 17, 1998 as the record date for the determination of stockholders
entitled to notice of and to vote at the Intirion Special Meeting and any
adjournments or postponements thereof. Only holders of record of Intirion's
Common Stock, Senior Redeemable Preferred Stock and Series A Redeemable
Convertible Preferred Stock at the close of business on such date are entitled
to notice of and to vote at the Intirion Special Meeting. A list of such
stockholders will be available at the time and place of the Intirion Special
Meeting and, during the ten days prior to the meeting, at the office of the
Secretary of Intirion at the above address.
Your vote is important regardless of the number of shares you own. Each
stockholder, even though he or she now plans to attend the Intirion Special
Meeting, is requested to promptly sign, date and return the enclosed proxy
card in the enclosed postage-paid return envelope. You may revoke your proxy
at any time prior to its exercise. Any stockholder present at the Intirion
Special Meeting or at any adjournments or postponements thereof may revoke his
or her proxy and vote personally on each matter brought before the Intirion
Special Meeting.
WHETHER OR NOT YOU EXPECT TO ATTEND THE INTIRION SPECIAL MEETING, WE URGE
YOU TO SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE
PROVIDED.
By Order of the Board of Directors,
Scott F. McDermott, Secretary
February 19, 1998
<PAGE>
PROSPECTUS AND PROXY STATEMENT
----------------
MAC-GRAY CORPORATION INTIRION CORPORATION
22 WATER STREET TEN WALPOLE PARK SOUTH
CAMBRIDGE, MASSACHUSETTS 02141 WALPOLE, MASSACHUSETTS 02081
(617) 492-4040 (508) 660-9200
PROSPECTUS PROXY STATEMENT
COMMON STOCK, $.01 PAR VALUE FOR SPECIAL MEETING OF STOCKHOLDERS TO
BE HELD ON MARCH 12, 1998
This Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") relates
to the proposed acquisition of Intirion Corporation, a Delaware corporation
("Intirion"), by Mac-Gray Corporation, a Delaware corporation ("Mac-Gray"),
pursuant to the terms of an Agreement and Plan of Merger, dated as of December
22, 1997 (the "Merger Agreement"), by and among Mac-Gray, MI Acquisition
Corp., a Delaware corporation and a wholly-owned subsidiary of Mac-Gray
("Sub"), Intirion and Robert P. Bennett ("Bennett"). This Prospectus/Proxy
Statement is being furnished to stockholders of Intirion in connection with
the solicitation of proxies by the Board of Directors of Intirion (the
"Intirion Board") for the special meeting of stockholders of Intirion to be
held on Thursday, March 12, 1998 at 10:00 a.m., local time, at Intirion's
headquarters located at Ten Walpole Park South, Walpole, Massachusetts and any
adjournments or postponements thereof (the "Intirion Special Meeting"). Only
Intirion stockholders of record at the close of business on Tuesday, February
17, 1998 (the "Record Date") will be entitled to vote at the Intirion Special
Meeting.
At the Intirion Special Meeting, Intirion will present a proposal to adopt
the Merger Agreement. If the Merger Agreement is adopted and the other
conditions set forth in the Merger Agreement are satisfied, Sub will be merged
with and into Intirion, with Intirion continuing as the surviving corporation
(the "Surviving Corporation") and a wholly-owned subsidiary of Mac-Gray (the
"Merger"). As provided in the Merger Agreement and described herein, all
issued and outstanding shares of Intirion's common stock, $.01 par value per
share ("Intirion Common Stock"), Series A Redeemable Convertible Preferred
Stock, $.01 par value per share ("Intirion Series A Preferred Stock"), and
vested, unexercised warrants and options to purchase Intirion Common Stock
will be converted into an aggregate of 1,317,837 shares of common stock, $.01
par value per share, of Mac-Gray ("Mac-Gray Common Stock"), and all issued and
outstanding shares of Intirion's Senior Redeemable Preferred Stock, $.01 par
value per share ("Intirion Senior Preferred Stock"), will be converted into a
combination of Mac-Gray Common Stock and cash with an aggregate value not to
exceed $5,160,450. See "Summary of Prospectus/Proxy Statement--Terms of
Merger--Merger Consideration" and "The Merger--Merger Consideration." Ten
percent of the number of shares of Mac-Gray Common Stock issued in connection
with the Merger shall be deposited with an escrow agent for the purpose of
satisfying certain claims for which Mac-Gray is indemnified under the Merger
Agreement. The shares deposited in escrow shall be deducted pro rata from the
shares allocable to each former holder of Intirion Common Stock, Intirion
Senior Preferred Stock, Intirion Series A Preferred Stock and vested,
unexercised warrants and options to purchase Intirion Common Stock
(collectively, the "Intirion Exchangeable Securities"). See "Summary of
Prospectus/Proxy Statement--Terms of Merger--Indemnification" and "The
Merger--Indemnification."
Shares of Intirion Common Stock, Intirion Senior Preferred Stock and
Intirion Series A Preferred Stock (collectively, the "Intirion Voting Stock")
are the only securities of Intirion whose holders are entitled to vote upon
the Merger Agreement and any other proposals to be presented at the Intirion
Special Meeting. See "The Intirion Special Meeting--Record Date; Quorum;
Required Vote." The presence in person or by proxy of shares representing one-
third of the shares of the Intirion Voting Stock, one-third of the shares of
the Intirion Senior Preferred Stock and a majority of the shares of the
Intirion Series A Preferred Stock, in each case issued and outstanding as of
the Record Date, is required to constitute a quorum for the transaction of
business at the Intirion Special Meeting. The Merger Agreement must be
approved and adopted by holders of (i) shares representing a majority of the
voting power of the issued and outstanding shares of Intirion Voting Stock and
(ii) two-thirds of the issued and outstanding shares of each of the Intirion
Senior Preferred Stock and Intirion Series A Preferred Stock, in each case
entitled to vote at the Intirion Special Meeting. The directors and executive
officers of Intirion (and their affiliates) hold approximately 66% of the
combined voting power of the Intirion Voting Stock and 100% of the voting
power of each of the Intirion Series A Preferred Stock and the Intirion Senior
Preferred Stock. In
<PAGE>
addition, certain principal stockholders of Intirion, namely, Bennett, Gelco
Corporation, Eastech II Limited Partnership and Eastech III Limited
Partnership (collectively, the "Intirion Principal Stockholders"), have
entered into voting agreements with Mac-Gray, each dated as of December 22,
1997 (collectively, the "Voting Agreements"), pursuant to which, among other
things, they have agreed to vote their shares of Intirion Voting Stock in
favor of the Merger. See "Ancillary Agreements--Voting Agreements." As the
Intirion Principal Stockholders hold approximately 65% of the combined voting
power of the Intirion Voting Stock and 100% of the issued and outstanding
shares of each of the Intirion Series A Preferred Stock and the Intirion
Senior Preferred Stock, the approval of the Merger Agreement is assured.
This Prospectus/Proxy Statement is also the Prospectus of Mac-Gray filed as
part of a registration statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with the
Securities and Exchange Commission (the "Commission") covering the shares of
Mac-Gray Common Stock to be issued pursuant to the Merger Agreement.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY HOLDERS OF INTIRION EXCHANGEABLE
SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THESECURITIES 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 ADEQUACYOF 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/PROXY STATEMENT 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 OR INTIRION SINCE THE DATE HEREOF.
THE INFORMATION SET FORTH HEREIN CONCERNING MAC-GRAY HAS BEEN FURNISHED BY
MAC-GRAY. THE INFORMATION SET FORTH HEREIN CONCERNING INTIRION HAS BEEN
FURNISHED BY INTIRION. THE PRO FORMA INFORMATION CONTAINED HEREIN RELATING TO
MAC-GRAY HAS BEEN PREPARED BY MAC-GRAY AND INCLUDES HISTORICAL FINANCIAL
INFORMATION RELATING TO INTIRION THAT WAS FURNISHED TO MAC-GRAY BY INTIRION.
MAC-GRAY DOES NOT HAVE INDEPENDENT KNOWLEDGE OF THE MATTERS SET FORTH HEREIN
CONCERNING INTIRION. INTIRION DOES NOT HAVE INDEPENDENT KNOWLEDGE OF THE
MATTERS SET FORTH HEREIN CONCERNING MAC-GRAY.
THE AUTHORITY GRANTED BY AN EXECUTED PROXY MAY BE REVOKED AT ANY TIME BEFORE
ITS EXERCISE BY FILING WITH THE SECRETARY OF INTIRION A WRITTEN REVOCATION OR
A DULY EXECUTED PROXY BEARING A LATER DATE OR BY VOTING IN PERSON AT THE
INTIRION SPECIAL MEETING. SHARES REPRESENTED BY VALID PROXIES WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS IN THE PROXIES. IF NO SPECIFICATIONS ARE
MADE, THE PROXIES WILL BE VOTED TO APPROVE THE PROPOSALS SET FORTH IN THE
PROXY.
The date of this Prospectus/Proxy Statement is February 19, 1998 and it is
first being mailed or delivered to Intirion stockholders on or about that
date.
(ii)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
SUMMARY OF PROSPECTUS/PROXY STATEMENT..................................... 2
The Parties............................................................. 2
The Intirion Special Meeting............................................ 2
Terms of the Merger..................................................... 3
Recommendation of the Intirion Board of Directors....................... 6
Mac-Gray's Board Approval of the Merger................................. 6
Certain Federal Income Tax Consequences................................. 6
Accounting Treatment.................................................... 7
Stock Exchange Listing.................................................. 7
Comparative Rights of Stockholders...................................... 7
Interests of Certain Persons............................................ 7
Regulatory Requirements................................................. 7
Rights of Dissenting Stockholders....................................... 8
Comparative Per Share Market Price Information.......................... 8
Mac-Gray Selected Historical Financial Data............................. 8
Intirion Selected Historical Financial Data............................. 10
Unaudited Selected Pro Forma Combined Financial Data.................... 12
Comparative Per Share Data.............................................. 14
RISK FACTORS.............................................................. 15
Risk Factors Related to Mac-Gray Common Stock........................... 15
Risk Factors Related to the Merger...................................... 18
THE INTIRION SPECIAL MEETING.............................................. 20
Record Date; Quorum; Required Vote...................................... 20
Solicitation and Voting of Proxies...................................... 21
Ownership of Intirion Voting Stock...................................... 22
BACKGROUND OF THE MERGER.................................................. 23
General Background of the Merger........................................ 23
Recommendation of the Intirion Board; Intirion's Reasons for the Merger. 24
Mac-Gray's Reasons for the Merger....................................... 25
THE MERGER................................................................ 26
General................................................................. 26
Effective Time.......................................................... 26
Merger Consideration.................................................... 26
Conversion of Intirion Exchangeable Securities; Exchange Procedures..... 28
Representations and Warranties.......................................... 29
Certain Covenants and Agreements........................................ 30
Conditions to the Merger................................................ 34
Termination............................................................. 37
Indemnification......................................................... 37
Fees and Expenses....................................................... 38
Amendment; Waiver....................................................... 38
Accounting Treatment.................................................... 38
Certain Federal Income Tax Consequences................................. 38
Resale of Mac-Gray Common Stock......................................... 39
</TABLE>
(iii)
<PAGE>
<TABLE>
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<S> <C>
ANCILLARY AGREEMENTS..................................................... 40
Voting Agreements...................................................... 40
Escrow Agreement....................................................... 40
Registration Rights Agreement.......................................... 41
Non-Competition Agreement.............................................. 42
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................ 43
DESCRIPTION OF MAC-GRAY.................................................. 45
Introduction........................................................... 45
Financial Characteristics of Mac-Gray's Business....................... 45
Industry Overview...................................................... 46
Company Strategy....................................................... 47
Internal Growth........................................................ 47
Strategic Acquisitions................................................. 48
Card and Coin-Operated Laundry Route Business.......................... 49
Technology............................................................. 51
Competition............................................................ 52
Laundry Equipment Sales, Leasing and Service........................... 53
Employees.............................................................. 53
Properties............................................................. 53
Legal Proceedings...................................................... 54
MAC-GRAY'S SELECTED HISTORICAL FINANCIAL DATA............................ 55
MAC-GRAY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 56
Overview............................................................... 56
Proposed Merger........................................................ 56
Results of Operations.................................................. 56
Seasonality............................................................ 58
Liquidity and Capital Resources........................................ 59
Inflation.............................................................. 60
Recently Issued Accounting Pronouncements.............................. 60
MANAGEMENT OF MAC-GRAY................................................... 61
Directors and Executive Officers....................................... 61
Board of Directors..................................................... 62
Executive Compensation................................................. 63
1997 Stock Option and Incentive Plan................................... 65
Stock Appreciation Rights.............................................. 68
Employment Agreements with Executive Officers.......................... 68
Compensation Committee Interlocks and Insider Participation............ 68
Certain Relationships and Related Transactions......................... 68
PRINCIPAL STOCKHOLDERS OF MAC-GRAY....................................... 70
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL INFORMATION............. 73
MARKET PRICES AND DIVIDEND DATA.......................................... 81
</TABLE>
(iv)
<PAGE>
<TABLE>
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<S> <C>
DESCRIPTION OF MAC-GRAY CAPITAL STOCK.................................... 81
Authorized and Outstanding Capital Stock............................... 81
Certain Provisions of the Mac-Gray Charter and the Mac-Gray By-laws.... 82
Statutory Business Combination Provision............................... 83
Transfer Agent and Registrar........................................... 84
DESCRIPTION OF INTIRION.................................................. 84
History................................................................ 84
Markets and Customers.................................................. 84
Employees.............................................................. 85
Competition............................................................ 85
Properties............................................................. 85
Intellectual Property.................................................. 85
Suppliers.............................................................. 85
Products and Customer Service.......................................... 86
Legal Proceedings...................................................... 86
INTIRION'S SELECTED HISTORICAL FINANCIAL DATA............................ 87
INTIRION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................... 88
Overview............................................................... 88
Proposed Merger........................................................ 88
Results of Operations.................................................. 88
Seasonality............................................................ 90
Liquidity and Capital Resources........................................ 90
Inflation.............................................................. 90
COMPARISON OF RIGHTS OF STOCKHOLDERS OF MAC-GRAY AND INTIRION............ 91
Charter Amendments..................................................... 91
By-Law Amendments...................................................... 91
Voting Rights.......................................................... 92
Conversion Rights...................................................... 92
Preemptive Rights...................................................... 93
Special Meetings....................................................... 93
Corporate Action Without a Meeting..................................... 93
Dividends.............................................................. 93
Liquidation............................................................ 94
Provisions Relating To Directors and Officers.......................... 95
Stockholder Nominations to Elect Directors............................. 95
Removal of Directors................................................... 96
Indemnification of Directors, Officers and Others...................... 96
RIGHTS OF DISSENTING STOCKHOLDERS........................................ 97
RESALES OF SECURITIES.................................................... 98
LEGAL MATTERS............................................................ 100
REGULATORY APPROVALS REQUIRED............................................ 100
EXPERTS.................................................................. 100
SHAREHOLDER PROPOSALS.................................................... 101
</TABLE>
(v)
<PAGE>
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<C> <S> <C>
APPENDICES
Appendix A-- Agreement and Plan of Merger, dated as of December 22,
1997, by and among Mac-Gray Corporation, Intirion Corpo-
ration, MI Acquisition Corp. and Robert P. Bennett and
Exhibits thereto......................................... A-1
Appendix B-- Section 262 of the Delaware General Corporation Law (Ap-
praisal Rights).......................................... B-1
</TABLE>
(vi)
<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
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
New York Stock Exchange (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/Proxy Statement, which also constitutes the Prospectus of
Mac-Gray filed as part of the Registration Statement, 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/Proxy
Statement 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 or Intirion is incorporated herein by
reference.
<PAGE>
SUMMARY OF PROSPECTUS/PROXY STATEMENT
The following is a brief summary, which is necessarily incomplete, of certain
information contained elsewhere in this Prospectus/Proxy Statement. 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/Proxy Statement gives effect to: (i) the reorganization (the "Mac-
Gray Combination") of Mac-Gray Services, Inc., a Delaware corporation, that was
formerly known as Mac-Gray Co., Inc. ("Mac-Gray Co."), and Mac-Gray, L.P., a
Delaware limited partnership (the "Limited Partnership") and (ii) the
acquisition (the "Sun Services Acquisition") of Sun Services of America, Inc.,
a Florida corporation ("SSA"), and R. Bodden Coin-Op-Laundry, Inc., a Florida
corporation ("RBCO" and, together with SSA, "Sun Services"), both of which
occurred on April 17, 1997. Unless the context requires otherwise, all
references to Mac-Gray shall mean Mac-Gray Corporation and its subsidiaries and
predecessors, including Mac-Gray Co. and the Limited Partnership, and
businesses that it has acquired from their respective dates of acquisition,
including Sun Services. See "Description of Mac-Gray."
Certain of the information contained in this Prospectus/Proxy Statement may
constitute forward-looking statements, including statements as to the benefits
and synergies expected to be realized as a result of the Merger and as to
future financial performance. 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/Proxy Statement under the heading "Risk Factors."
THE PARTIES
Mac-Gray Corporation. Mac-Gray, founded in 1927, is among North America's
largest suppliers of card and coin-operated laundry services in multiple
housing facilities such as apartment buildings, colleges and universities and
public housing complexes, and, based upon Mac-Gray's survey of colleges and
universities, is North America's largest supplier of such services to the
college and university market. Mac-Gray owns and operates approximately 120,000
card and coin-operated washers and dryers in more than 17,000 multiple housing
laundry rooms located in 22 states in the Northeast, Midwest and Southeast
regions of the United States. In addition, Mac-Gray believes that it is the
largest operator of commercial laundry equipment manufactured by The Maytag
Corporation ("Maytag"). 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.
Intirion Corporation. Intirion was incorporated in 1987 and 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. Intirion's principal offices are located at Ten
Walpole Park South, Walpole, Massachusetts 02081, and its telephone number at
that location is (508) 660-9200.
THE INTIRION SPECIAL MEETING
The Intirion Special Meeting will be held at Intirion's headquarters located
at Ten Walpole Park South, Walpole, Massachusetts on Thursday, March 12, 1998,
beginning at 10:00 a.m., local time. The purpose of the Intirion Special
Meeting is to consider and vote upon the Merger Agreement. See "The Intirion
Special Meeting."
The Record Date for the Intirion Special Meeting is Tuesday, February 17,
1998. Accordingly, holders of record of Intirion Voting Stock as of the Record
Date will be entitled to notice of, and to vote at, the Intirion Special
Meeting. The presence in person or by proxy of shares representing one-third of
the shares of the Intirion Voting Stock, one-third of the shares of the
Intirion Senior Preferred Stock and a majority of the shares of the Intirion
Series A Preferred Stock, in each case issued and outstanding as of the Record
Date, is required to constitute a quorum for the transaction of business at the
Intirion Special Meeting. The Merger Agreement must be approved and adopted by
holders of (i) shares representing a majority of the voting power of the issued
and outstanding shares of Intirion Voting Stock and (ii) two-thirds of the
issued and outstanding shares of each of the Intirion Senior Preferred Stock
and Intirion Series A Preferred Stock, in each case entitled to vote at the
Intirion
2
<PAGE>
Special Meeting. The directors and executive officers of Intirion (and their
affiliates) hold approximately 66% of the combined voting power of the Intirion
Voting Stock and 100% of the voting power of each of the Intirion Series A
Preferred Stock and the Intirion Senior Preferred Stock. In addition, pursuant
to the terms of the Voting Agreements, the Intirion Principal Stockholders have
agreed to vote their shares of Intirion Voting Stock in favor of the Merger. As
the Intirion Principal Stockholders possess approximately 65% of the combined
voting power of the Intirion Voting Stock and 100% of the issued and
outstanding shares of each of the Intirion Senior Preferred Stock and the
Intirion Series A Preferred Stock, approval of the Merger Agreement is assured.
See "Ancillary Agreements--Voting Agreements."
TERMS OF THE MERGER
General. Mac-Gray's acquisition of Intirion will be structured as a merger of
Sub with and into Intirion. Following the Merger, Intirion will be the
surviving corporation and will operate as a wholly-owned subsidiary of Mac-
Gray. The Merger will become effective after the conditions specified in the
Merger Agreement have been met. Mac-Gray and Intirion have targeted early 1998
for completion of the Merger.
Merger Consideration. At the time the Merger becomes effective (the
"Effective Time"), Mac-Gray shall issue to the holders of Intirion Exchangeable
Securities shares of Mac-Gray Common Stock and cash (the "Merger
Consideration") pursuant to the allocations described below. See "The Merger--
Merger Consideration."
Intirion Senior Preferred Stock. The holders of Intirion Senior Preferred
Stock shall receive a combination of shares of Mac-Gray Common Stock (based
on a value per share equal to $15.00) and cash that together shall have an
aggregate value equal to the product of (i) $51.6045 multiplied by (ii) the
aggregate number of shares of Intirion Senior Preferred Stock issued and
outstanding immediately prior to the Effective Time, provided that such
value shall not exceed $5,160,450. The amount of cash to be paid to the
holders of Intirion Senior Preferred Stock shall be the lesser of (x)
$1,032,090 or (y) 68,806 multiplied by the per share closing price of Mac-
Gray Common Stock on the NYSE on the trading day immediately preceding the
date on which the Merger is consummated (such consummation date, the
"Closing Date") as reported in The Wall Street Journal (the "Senior Cash
Consideration"), and the number of shares of Mac-Gray Common Stock to be
issued to the holders of Intirion Senior Preferred Stock shall be equal to
the remainder of 344,030 less the quotient that is obtained when the Senior
Cash Consideration is divided by 15 (the "Senior Stock Consideration").
Intirion Series A Preferred Stock. The number of shares of Mac-Gray
Common Stock allocated to the Intirion Series A Preferred Stock shall be
1,317,837 multiplied by a fraction, the numerator of which is the number of
shares of Intirion Common Stock into which the shares of Intirion Series A
Preferred Stock issued and outstanding immediately prior to or at the
Effective Time are convertible multiplied by 16.4806 (such numerator, the
"Series A Stock Value") and the denominator of which is the Total Intirion
Common Equivalent Value (as defined below) (the "Series A Consideration").
"Total Intirion Common Equivalent Value" means the sum of the following:
(i) the Series A Stock Value, (ii) the Common Stock Value (as defined
below), (iii) the $12.50 Warrant Value (as defined below), (iv) the $5.00
Warrant Value (as defined below) and (v) the Total Option/Warrant Value (as
defined below) immediately prior to the Effective Time.
Intirion Common Stock. The number of shares of Mac-Gray Common Stock
allocated to the Intirion Common Stock shall be 1,317,837 multiplied by a
fraction, the numerator of which is the number of shares of Intirion Common
Stock issued and outstanding immediately prior to the Effective Time
multiplied by 16.4806 (such numerator, the "Common Stock Value") and the
denominator of which is the Total Intirion Common Equivalent Value (the
"Common Stock Consideration").
$12.50 Warrants. The number of shares of Mac-Gray Common Stock allocated
to the warrants to purchase one or more shares of Intirion Common Stock at
a price of $12.50 per share (the "$12.50 Warrants") shall be 1,317,837
multiplied by a fraction, the numerator of which is 3.9806 multiplied by
the
3
<PAGE>
number of shares of Intirion Common Stock into which the $12.50 Warrants
issued and outstanding immediately prior to or at the Effective Time are
convertible (such numerator, the "$12.50 Warrant Value") and the
denominator of which is the Total Intirion Common Equivalent Value (the
"$12.50 Warrant Consideration").
$5.00 Warrants. The number of shares of Mac-Gray Common Stock allocated
to the warrants to purchase one or more shares of Intirion Common Stock at
a price of $5.00 per share (the "$5.00 Warrants") shall be 1,317,837
multiplied by a fraction, the numerator of which is 11.4806 multiplied by
the number of shares of Intirion Common Stock into which the $5.00 Warrants
issued and outstanding immediately prior to or at the Effective Time are
convertible (such numerator, the "$5.00 Warrant Value") and the denominator
of which is the Total Intirion Common Equivalent Value (the "$5.00 Warrant
Consideration").
Miscellaneous Warrants and Options. The number of shares of Mac-Gray
Common Stock allocated to the outstanding warrants, other than the $12.50
Warrants and the $5.00 Warrants (the "Miscellaneous Warrants"), and options
(the "Intirion Options") that are convertible or exercisable, as the case
may be, into one or more shares of Intirion Common Stock immediately prior
to or at the Effective Time shall be 1,317,837 multiplied by a fraction,
the numerator of which is the Total Option/Warrant Value (as defined below)
and the denominator of which is the Total Intirion Common Equivalent Value
(the "Option/Warrant Consideration"). "Total Option/Warrant Value" means an
amount equal to the sum of all of the Individual Option/Warrant Values (as
defined in the next sentence). "Individual Option/Warrant Value" means,
with respect to each Miscellaneous Warrant and Intirion Option that is
convertible or exercisable, as the case may be, into one or more shares of
Intirion Common Stock immediately prior to or at the Effective Time, an
amount equal to the product of (i) the remainder of 16.4806 minus the
conversion or exercise price per share, as the case may be, of such
Miscellaneous Warrant or Intirion Option multiplied by (ii) the number of
shares of Intirion Common Stock for which such Miscellaneous Warrant or
Intirion Option is then convertible or exercisable, as the case may be.
HOLDERS OF INTIRION EXCHANGEABLE SECURITIES SHOULD BE AWARE THAT, ON THE
CLOSING DATE, TEN PERCENT (10%) OF THE NUMBER OF SHARES OF MAC-GRAY COMMON
STOCK TO WHICH EACH HOLDER OF INTIRION EXCHANGEABLE SECURITIES IS ENTITLED
SHALL BE PLACED IN ESCROW FOR THE PURPOSE OF SATISFYING CERTAIN CLAIMS FOR
WHICH MAC-GRAY IS INDEMNIFIED UNDER THE MERGER AGREEMENT. SEE "--TERMS OF THE
MERGER--INDEMNIFICATION" AND "ANCILLARY AGREEMENTS--ESCROW AGREEMENT."
Exchange of Certificates. As soon as practicable after the Effective Time,
State Street Bank and Trust Company ("State Street Bank"), as exchange agent
for the Merger (the "Exchange Agent"), will send a transmittal letter to each
holder of Intirion Exchangeable Securities. The transmittal letter will contain
instructions with respect to the surrender of certificates representing
Intirion Exchangeable Securities to be exchanged for Mac-Gray Common Stock. See
"The Merger--Conversion of Intirion Exchangeable Securities; Exchange
Procedures."
INTIRION SECURITYHOLDERS SHOULD NOT FORWARD CERTIFICATES FOR INTIRION
EXCHANGEABLE SECURITIES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED
TRANSMITTAL LETTERS. INTIRION SECURITYHOLDERS SHOULD NOT RETURN CERTIFICATES
FOR INTIRION EXCHANGEABLE SECURITIES WITH THE ENCLOSED PROXY.
Conditions to the Merger. The obligations of Mac-Gray and Intirion to
consummate the Merger are subject to the satisfaction of certain conditions,
including but not limited to obtaining the approval of Intirion's stockholders,
obtaining requisite regulatory approvals, the continuing accuracy as of the
Effective Time of the representations and warranties made by Mac-Gray and
Intirion in the Merger Agreement and the receipt of the accountant's letter
with respect to the qualification of the Merger as a pooling of interests
transaction. Each party has the right to waive each of the closing conditions
referred to above. See "The Merger--Conditions of Merger," and "--Accounting
Treatment."
4
<PAGE>
Certain Covenants and Agreements. Intirion has made certain covenants and
agreements in the Merger Agreement relating to, among other things, the conduct
of its business pending the consummation of the Merger, including actions taken
in relation to issuing shares of stock, employment and compensation, payment of
dividends, acquisition transactions and other matters. Intirion and Bennett
have agreed that they will not solicit offers from third parties regarding a
potential acquisition of Intirion, and will notify Mac-Gray of any such offer
received by them. Mac-Gray has agreed, among other things, that each full-time
employee of Intirion immediately prior to or at the Effective Time who
continues his or her full-time employment with the Surviving Corporation after
the Effective Time will receive prior service credit under (i) Mac-Gray's
vacation benefits program, (ii) Mac-Gray's sick day policy, (iii) Mac-Gray's
401(k) plan and (iv) each other benefit program of Mac-Gray in which such
employee is eligible to participate and which has a prior service requirement,
in each case equal to the amount of time such employee was a full-time employee
of Intirion prior to the Effective Time. See "The Merger--Certain Covenants and
Agreements."
Termination. The Merger Agreement is subject to termination by (a) the mutual
written consent of Mac-Gray and Intirion; or (b) by Intirion, provided that
neither Intirion nor Bennett is in material breach of the Merger Agreement, (i)
if Mac-Gray is in material breach of the Merger Agreement and such breach
remains uncured for a period of ten (10) business days after Intirion has given
written notice of such breach to Mac-Gray, or (ii) if Mac-Gray has explicitly
or by conduct repudiated the Merger Agreement and such repudiation remains
uncured for a period of ten (10) business days after Intirion has given written
notice thereof to Mac-Gray, or (iii) if by April 30, 1998, any of the
conditions precedent to Intirion's obligation to consummate the Merger have not
been satisfied, complied with or performed in all material respects (unless
such failure of satisfaction, noncompliance or nonperformance is the result
directly or indirectly of any action or failure to act on the part of Intirion
or Bennett) and Intirion has not waived such failure of satisfaction,
noncompliance or nonperformance; or (c) by Mac-Gray, provided that Mac-Gray is
not in material breach of the Merger Agreement, (x) if Intirion or Bennett is
in material breach of the Merger Agreement and such breach remains uncured for
a period of ten (10) business days after Mac-Gray has given written notice of
such breach to Intirion and, if applicable, Bennett, (y) if Intirion or Bennett
has explicitly or by conduct repudiated the Merger Agreement and such
repudiation remains uncured for a period of ten (10) business days after Mac-
Gray has given written notice thereof to Intirion and, if applicable, Bennett,
or (z) if by April 30, 1998, any of the conditions precedent to Mac-Gray's
obligation to consummate the Merger have not been satisfied, complied with or
performed in all material respects (unless such failure of satisfaction,
noncompliance or nonperformance is the result directly or indirectly of any
action or failure to act on the part of Mac-Gray) and Mac-Gray has not waived
such failure of satisfaction, noncompliance or nonperformance. See "The
Merger--Termination."
Indemnification. Intirion and Bennett have agreed, and, if the Merger
Agreement is approved by Intirion's stockholders, such stockholders will agree
thereby, that ten percent (10%) of the number of shares of Mac-Gray Common
Stock issued in connection with the Merger (the "Escrowed Shares") will be
deducted pro rata from the shares allocable to each former holder of Intirion
Exchangeable Securities and held in escrow, pursuant to the terms of the escrow
agreement (the "Escrow Agreement") to be executed by Mac-Gray, Intirion,
Michael Shanahan, as agent for Intirion's stockholders (other than Gelco
Corporation), Gelco Corporation, State Street Bank, as escrow agent (the
"Escrow Agent"), and each holder of Intirion Exchangeable Securities, for the
purpose of satisfying certain claims for which Mac-Gray is indemnified under
the Merger Agreement arising out of or otherwise in respect of: (a) any breach
of any representation, warranty or covenant of Intirion or Bennett under the
Merger Agreement or in any certificate, schedule or exhibit delivered pursuant
thereto, or by reason of any claim, action or proceeding asserted or instituted
growing out of any matter or thing constituting a breach of such
representations, warranties or covenants and (b) any liability or obligation of
or loss by Intirion for or with respect to (i) social security taxes for the
year ended December 31, 1994; (ii) Pennsylvania state taxes in excess of $2,000
in the aggregate for the years ended December 31, 1989, 1990, 1991, 1992 and
1993 and (iii) the failure of Intirion to file any Annual Reports on Form 5500
with respect to any Employee Program (as defined in the Merger Agreement). No
indemnification shall be payable with respect to claims asserted pursuant to
clause (a) above unless and until the amount of all claims for indemnification
under such clause exceeds $300,000 in
5
<PAGE>
the aggregate (the "Threshold"), whereupon the full amount of such claims shall
be recoverable. No indemnification shall be payable with respect to claims
asserted pursuant to clause (a) or (b) above after the earlier of (x) the first
anniversary of the Closing Date or (y) the date of issuance of the first
audited financial statements of Mac-Gray for the fiscal year ending December
31, 1998 (such earlier date, the "Expiration Date"); provided, however, that if
on or prior to the Expiration Date a specific state of facts shall have become
known which may, in the good faith judgment of Mac-Gray, give rise to a claim
for indemnification under clause (a) or (b) above and Mac-Gray shall have given
written notice to the Escrow Agent of such facts known by Mac-Gray at such
time, then the right to indemnification with respect to such claim shall remain
in effect without regard to when such matter shall be finally determined and
disposed of. All indemnification claims asserted under clause (a) or (b) above
shall be satisfied solely from the Escrowed Shares, provided that claims
asserted under clause (a) above that involve a fraudulent or intentional
misrepresentation made by Intirion to Mac-Gray or an intentional breach of the
Merger Agreement by Intirion or Bennett may also be satisfied from Bennett, and
provided further that the Threshold and the Expiration Date shall not apply in
the case of a fraudulent or intentional misrepresentation made by Intirion to
Mac-Gray or an intentional breach of the Merger Agreement by Intirion or
Bennett, and the Threshold shall not apply in the case of claims asserted under
clause (b) above. See "Ancillary Agreements-- Escrow Agreement" for a
description of the terms and conditions of the Escrow Agreement.
RECOMMENDATION OF THE INTIRION BOARD OF DIRECTORS
The Intirion Board has unanimously approved the Merger Agreement and
determined that the Merger is fair to and in the best interests of Intirion and
its stockholders. THE INTIRION BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
INTIRION VOTING STOCK VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER. For a discussion of the factors considered by the Intirion Board in
reaching its decision to approve the Merger Agreement and the Merger, see
"Background of the Merger--Recommendation of the Intirion Board; Intirion's
Reasons for the Merger."
MAC-GRAY'S BOARD APPROVAL OF THE MERGER
Mac-Gray's Board of Directors (the "Mac-Gray Board") has determined that the
Merger Agreement and the transactions contemplated thereby are in the best
interests of Mac-Gray and, therefore, has unanimously approved the Merger
Agreement. In making this determination, the Mac-Gray Board and management
reviewed information about Intirion made available to them by Intirion's
management and other sources and assessed Intirion's financial condition. After
considering this information, the Mac-Gray Board concluded that the anticipated
business advantages of the Merger favored adoption of the Merger Agreement and
consummation of the Merger. See "Background of the Merger--Mac-Gray's Reasons
for the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Assuming the Merger is so treated for federal income tax purposes, the Merger
will not result in the recognition of gain or loss to Mac-Gray, Intirion, Sub
or the holders of Intirion Voting Stock except with respect to cash received in
the Merger, including in lieu of fractional shares, or pursuant to the exercise
of appraisal rights. The tax basis of Mac-Gray Common Stock received will
generally be the same as the tax basis of the Intirion Voting Stock surrendered
in the Merger, and the holding period of the Mac-Gray Common Stock received
will include the holding period of the Intirion Voting Stock surrendered if the
Intirion Voting Stock was held as a capital asset. Similar treatment should
apply to holders of the $12.50 Warrants and the $5.00 Warrants, and any
Miscellaneous Warrant or Intirion Option that is not a compensatory option
subject to special tax rules. The exchange of compensatory stock options (both
incentive stock options and non-qualified stock options) for Mac-Gray Common
Stock will be a taxable exchange; consequently holders of such options will
generally recognize ordinary income equal to the fair market value of the Mac-
Gray Common Stock received in exchange for such options. See "Certain Federal
Income Tax Considerations."
6
<PAGE>
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Mac-Gray has received a letter from Price
Waterhouse LLP as of the date of the Merger Agreement to the effect that the
Merger is expected to qualify for pooling of interests accounting treatment.
See "The Merger--Accounting Treatment."
STOCK EXCHANGE LISTING
Prior to the consummation of the Merger, the shares of Mac-Gray Common Stock
to be issued in connection with the Merger will be authorized for listing
and/or trading on the NYSE, subject to official notice of issuance. Mac-Gray
Common Stock is currently traded on the NYSE under the symbol "TUC."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of stockholders of Intirion currently are governed by Delaware
law, Intirion's Certificate of Incorporation (the "Intirion Charter") and
Intirion's By-laws (the "Intirion By-laws"). Upon consummation of the Merger,
securityholders of Intirion will become stockholders of Mac-Gray, which is also
a Delaware corporation, and their rights as stockholders of Mac-Gray will be
governed by Delaware law, Mac-Gray's Amended and Restated Certificate of
Incorporation (the "Mac-Gray Charter") and Mac-Gray's By-laws (the "Mac-Gray
By-laws"). For a discussion of various differences between the rights of
stockholders of Intirion and the rights of stockholders of Mac-Gray, see
"Comparison of Rights of Stockholders of Mac-Gray and Intirion."
INTERESTS OF CERTAIN PERSONS
In considering the recommendation of the Intirion Board with respect to the
Merger, stockholders of Intirion should be aware that certain members of
Intirion's management and the Intirion Board have certain interests in the
Merger that may present them with actual or potential conflicts of interest.
Consummation of the Merger will result in the accelerated vesting of options
under the 1989 Microfridge, Inc. Stock Option Plan to purchase 5,700 shares of
Intirion Common Stock held by Robert P. Bennett, Chairman of the Board,
President and Chief Executive Officer of Intirion, 20,000 shares of Intirion
Common Stock held by David Wilcox, Chief Financial Officer of Intirion, 10,000
shares of Intirion Common Stock held by Karen Fleming, Vice President of New
Business of Intirion, 5,300 shares of Intirion Common Stock held by Rosellen
Sullivan, Vice President of Academic Living Sales of Intirion, 400 shares of
Intirion Common Stock held by G. Bickley Stevens II, Director of Intirion,
7,200 shares of Intirion Common Stock held by Robert E. Ray, Director of
Intirion, and 6,800 shares of Intirion Common Stock held by John Fletcher,
Director of Intirion. Upon the consummation of the Merger, such vested options
will be exchanged for shares of Mac-Gray Common Stock in accordance with the
terms of the Merger Agreement. See "--Terms of the Merger--Merger
Consideration--Miscellaneous Warrants and Options" and "The Merger--Merger
Consideration--Miscellaneous Warrants and Options." Bennett will be appointed
Senior Vice President, Sales of Mac-Gray as of the Effective Time and will
receive, under Mac-Gray's 1997 Stock Option and Incentive Plan (the "1997 Stock
Plan"), options to purchase up to 90,000 shares of Mac-Gray Common Stock at an
exercise price equal to the closing sale price of Mac-Gray Common Stock on the
NYSE on the date of grant. Pursuant to the Merger Agreement, Mac-Gray has
agreed to enter into a registration rights agreement (the "Registration Rights
Agreement") with each of the Intirion Principal Stockholders, pursuant to which
such stockholders are entitled to certain registration rights with respect to
the resale of shares of Mac-Gray Common Stock received by them in the Merger.
The resale of such shares is covered by the Registration Statement of which
this Prospectus/Proxy Statement forms a part. See "Ancillary Agreements--
Registration Rights Agreement" and "Resales of Securities."
REGULATORY REQUIREMENTS
Currently, neither Mac-Gray nor Intirion is required to make any filings with
the Federal Trade Commission (the "FTC") or the Antitrust Division of the
Department of Justice (the "Antitrust Division") pursuant to the
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<PAGE>
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "Hart-
Scott Rodino Act"), in connection with the Merger. No assurances can be given,
however, that such filings will not be required prior to the Effective Time.
See "Regulatory Approvals Required." Mac-Gray and Intirion do not believe that
any other material governmental approvals, actions or filings, other than the
filing of a certificate of merger (together with any required related
certificates, the "Certificate of Merger") with the Secretary of State of the
State of Delaware, are or will be required for the consummation of the Merger.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to the Delaware General Corporation Law (the "DGCL"), any holder of
Intirion Voting Stock entitled to vote at the Intirion Special Meeting (i) who
files a demand for appraisal in writing prior to the vote taken at the Intirion
Special Meeting, (ii) whose shares are not voted in favor of the Merger
Agreement and (iii) who follows certain other procedural requirements, if the
Merger is consummated, shall be entitled to appraisal rights under Section 262
of the DGCL ("Section 262"). See "Rights of Dissenting Stockholders" and
Appendix B. The Intirion Principal Stockholders, by entering into the Voting
Agreements and agreeing to vote in favor of the Merger Agreement, have
effectively forfeited their appraisal rights with respect to their shares of
Intirion Voting Stock.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
On December 22, 1997, the trading day prior to the announcement of the
Merger, the closing sales price of Mac-Gray Common Stock, as reported on the
NYSE, was $15.875 per share. On February 17, 1998, the closing sales price of
Mac-Gray Common Stock, as reported on the NYSE, was $15.5625 per share. As of
February 17, 1998, there were 11,581,126 shares of Mac-Gray Common Stock
outstanding held by 39 holders of record. See "Market Prices and Dividend Data"
for information regarding the lack of dividends on Mac-Gray Common Stock.
Holders of Intirion Voting Stock are urged to obtain current market
quotations for Mac-Gray Common Stock prior to making any decisions with respect
to the Merger.
No established public trading market exists for the Intirion Common Stock
and, accordingly, no price information is available with respect thereto. In
August and September of 1997, however, Intirion repurchased an aggregate of
6,485 shares of Intirion Common Stock from two former employees at a price per
share of $12.50. In addition, Intirion Options granted since April 1997 have
had exercise prices of $12.50 per share, which the Intirion Board determined to
be the fair market value per share of Intirion Common Stock at the time of such
grants. As of February 17, 1998, there were 759,688 shares of Intirion Common
Stock outstanding held by 71 holders of record, 100,000 shares of Intirion
Senior Preferred Stock outstanding held by one holder of record, and 40,000
shares of Intirion Series A Preferred Stock (each convertible into six shares
of Intirion Common Stock) outstanding held by two holders of record. Intirion
has never paid cash dividends on the Intirion Common Stock. See "Market Prices
and Dividend Data."
MAC-GRAY 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/Proxy Statement. The selected consolidated financial data set forth
below should be read in conjunction with, and are qualified by reference to,
"Mac-Gray's 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/Proxy
Statement.
8
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1993 1994 1995 1996 1997(1)
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue......................... $44,942 $48,031 $50,710 $ 64,427 $ 81,370
Cost of revenue:
Commissions.................... 17,762 19,168 20,471 25,760 31,717
Laundry route expenditures..... 7,458 7,889 8,251 10,955 12,232
Depreciation and amortization.. 4,377 4,756 4,899 6,216 8,635
Cost of equipment sales........ 1,700 2,673 2,938 5,189 8,187
------- ------- ------- -------- --------
Total cost of revenue.......... 31,297 34,486 36,559 48,120 60,771
Operating expenses:
General and administration..... 3,383 3,085 3,901 3,952 4,699
Sales and marketing............ 2,445 2,501 2,531 3,803 5,165
Depreciation................... 421 442 455 517 503
------- ------- ------- -------- --------
Total operating expenses....... 6,249 6,028 6,887 8,272 10,367
------- ------- ------- -------- --------
Income from operations.......... 7,396 7,517 7,264 8,035 10,232
Interest expense............... (1,437) (1,217) (1,175) (1,956) (2,521)
Other income (expense), net.... 71 70 55 (87) 181
------- ------- ------- -------- --------
Income before provision for in-
come taxes..................... 6,030 6,370 6,144 5,992 7,892
Provision for income taxes(2).. (330) (388) (374) (465) (5,206)
------- ------- ------- -------- --------
Net income...................... $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 2,686
======= ======= ======= ======== ========
Net income per common share(4).. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.37
======= ======= ======= ======== ========
Weighted average common shares
outstanding(4)................. 6,368 6,368 6,368 6,368 7,263
======= ======= ======= ======== ========
Net income per common share--as-
suming dilution(4)............. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.36
======= ======= ======= ======== ========
Weighted average common shares
outstanding--assuming dilu-
tion(4)........................ 6,368 6,368 6,368 6,368 7,391
======= ======= ======= ======== ========
TAX ADJUSTED EARNINGS PER SHARE
DATA(3):
Pro forma net income........... $ 3,595 $ 4,735
======== ========
Pro forma net income per common
share(4)...................... $ 0.56 $ 0.65
======== ========
Pro forma net income per common
share--assuming dilution(4)... $ 0.56 $ 0.64
======== ========
OTHER FINANCIAL DATA:
EBITDA(5)...................... $12,265 $12,785 $12,673 $ 14,681 $ 19,551
Depreciation and amortization.. 4,798 5,198 5,354 6,733 9,138
Capital expenditures........... 5,407 5,679 4,421 7,635 8,681
Cash flows from operating ac-
tivities...................... 9,405 10,650 10,417 13,650 10,942
Cash flows used in investing
activities.................... (5,689) (5,613) (5,105) (22,070) (20,544)
Cash flows provided by (used
in) financing activities...... (3,744) (6,128) (3,549) 7,382 10,532
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $(3,437) $(4,181) $(2,237) $ (6,069) $ (885)
Total assets................... 32,713 33,292 36,754 54,108 84,374
Long-term debt, net of current
portion....................... 15,718 13,544 11,843 23,325 5,395
Redeemable common stock(6)..... -- -- -- -- 7,797
Stockholders' equity........... 6,783 9,439 12,850 14,683 49,161
</TABLE>
- --------
(1) The financial data for the year ended December 31, 1997 includes the
results of the Sun Services Acquisition subsequent to the acquisition date
of April 17, 1997.
(2) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(3) Tax adjusted earnings per share data have been adjusted to give effect to
Mac-Gray's operations as if Mac-Gray were subject to federal and state
income taxes on a corporate level (at an estimated income tax of 40%)
during the periods presented.
(4) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, Mac-Gray
has complied with Staff Accounting Bulletin No. 98 (SAB 98) recently issued
by the SEC. Accordingly, earnings per share data have been restated for all
periods presented to give effect to both pronouncements. Earnings per share
data are reflective of the Mac-Gray Combination for all periods presented.
(5) "EBITDA" is defined herein as income before provision for income taxes,
plus depreciation and amortization expense and interest expense. EBITDA
should not be considered as an alternative to net income as a measure of
operating results or as an alternative to cash flows as a measure of
liquidity and it is not a measure of performance or financial condition
under generally accepted accounting principles. EBITDA is presented because
Mac-Gray's management believes that certain investors may find it to be a
useful tool for measuring Mac-Gray's ability to meet its future debt
service obligations, make capital expenditures and satisfy working capital
requirements.
(6) Shares of Mac-Gray Common Stock issued in connection with the Sun Services
Acquisition are redeemable pursuant to a contractual arrangement.
9
<PAGE>
INTIRION SELECTED HISTORICAL FINANCIAL DATA
Set forth below are historical financial data of Intirion as of and for the
dates and for the periods indicated. The selected historical financial data
have been derived from audited and unaudited consolidated financial statements.
The unaudited information reflects all adjustments (consisting only of normal,
recurring adjustments) necessary for the fair presentation of the financial
condition as of these dates and the results of operations for those unaudited
interim periods for Intirion. The results of operations for those interim
periods are not necessarily indicative of the results to be expected for any
other period.
The selected historical financial data below should be read in conjunction
with, and are qualified by reference to, "Intirion's Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical financial statements and notes thereto of Intirion included
elsewhere in this Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31,
--------------- ---------- ------------------------- ----------------
1992 1993 1994(1) 1995 1996 1997 1996 1997
------ ------- ---------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $9,422 $12,602 $4,329 $15,642 $17,833 $23,477 $14,022 $13,355
Cost of revenues........ 6,491 8,503 3,023 9,852 11,079 15,141 9,254 8,471
------ ------- ------ ------- ------- ------- ------- -------
Gross profit............ 2,931 4,099 1,306 5,790 6,754 8,336 4,768 4,884
Operating expenses...... 2,790 3,677 2,064 6,011 6,168 7,490 3,938 4,272
------ ------- ------ ------- ------- ------- ------- -------
Income (loss) from
operations............. 141 422 (758) (221) 586 846 830 612
Interest expense, net... 89 83 34 153 398 454 200 314
------ ------- ------ ------- ------- ------- ------- -------
Income (loss) before
taxes.................. 52 339 (792) (374) 188 392 630 298
Provision (benefit) for
taxes.................. -- (117) 6 26 49 22 19 9
------ ------- ------ ------- ------- ------- ------- -------
Net income (loss)....... 52 456 (798) (400) 139 370 611 289
------ ------- ------ ------- ------- ------- ------- -------
Accretion and dividends
accrued on redeemable
stock.................. (190) (191) (140) (456) (486) (602) (301) (437)
------ ------- ------ ------- ------- ------- ------- -------
Income (loss) available
to common
stockholders........... $ (138) $ 265 $ (938) $ (856) $ (347) $ (232) $ 310 $ (148)
====== ======= ====== ======= ======= ======= ======= =======
Basic income (loss) per
share(2)............... $(0.22) $ 0.41 $(1.46) $ (1.31) $ (0.48) $ (0.30) $ 0.40 $ (0.19)
====== ======= ====== ======= ======= ======= ======= =======
Weighted average common
shares outstanding(2).. 634 644 644 654 726 778 778 778
====== ======= ====== ======= ======= ======= ======= =======
Dilutive income (loss)
per share(3)........... $(0.22) $ 0.26 $(1.46) $ (1.31) $ (0.48) $ (0.30) $ 0.34 $ (0.19)
====== ======= ====== ======= ======= ======= ======= =======
Weighted average common
shares outstanding--
plus assumed
conversions(3)......... 634 1,016 644 654 726 778 908 778
====== ======= ====== ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(4)............... $ 224 $ 547 $ (669) $ 519 $ 1,665 $ 2,189 $ 1,614 $ 1,389
Depreciation and amorti-
zation................. 83 125 89 740 1,079 1,343 784 777
Capital expenditures.... 448 411 38 3,700 2,375 2,903 2,644 2,433
Cash flows provided by
(used in) operating ac-
tivities............... 160 456 (1,675) 157 2,275 187 509 1,669
Cash flows used in in-
vesting activities..... (448) (411) (254) (4,057) (2,375) (2,903) (2,644) (2,433)
Cash flows provided by
(used in) financing
activities............. 291 (39) 2,874 2,960 84 2,716 2,135 764
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital......... $ (273) $ 455 $2,624 $(1,074) $(2,420) $(3,156) $(3,351) $(4,484)
Total assets............ 2,383 2,892 6,149 10,031 12,239 13,599 13,031 15,962
Long term debt, net of
current portion........ -- 375 404 282 148 -- 167 --
Redeemable stock and
warrants............... 880 1,209 5,054 5,510 5,924 6,526 6,174 6,963
Stockholders' deficit... (550) (458) (1,393) (2,248) (2,617) (2,849) (2,254) (3,026)
</TABLE>
10
<PAGE>
- --------
(1) In 1994, Intirion changed its year end from December 31 to June 30
beginning with the period ended June 30, 1994.
(2) Based on the weighted average number of common shares outstanding and
calculated in accordance with SFAS 128. See Note 14 of Notes to the
Consolidated Financial Statements.
(3) Based on the weighted average number of common shares and common share
equivalents outstanding and calculated in accordance with SFAS 128. Common
share equivalents outstanding at December 31, 1992, June 30, 1994, 1995,
1996 and 1997 and December 31, 1997 were not included in the computation of
dilutive income (loss) per common share because the effect of such
inclusion would be anti-dilutive. See Note 14 of Notes to the Consolidated
Financial Statements.
(4) "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
Intirion's management believes that certain investors may find it to be a
useful tool for measuring Intirion's ability to meet its future debt
service obligations, make capital expenditures and satisfy working capital
requirements.
11
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited selected pro forma combined financial data give
effect to the Merger as a pooling of interests. The unaudited selected pro
forma combined statement of income data combine Mac-Gray's historical results
for the three years ended December 31, 1997 with Intirion's historical results
for the three years ended June 30, 1997, giving effect to the Merger as if it
had occurred on January 1, 1995. The unaudited selected pro forma combined
balance sheet data combine Mac-Gray's and Intirion's consolidated balance
sheets as of December 31, 1997, giving effect to the Merger as if it had
occurred on that date.
The pro forma financial data do not purport to represent what Mac-Gray's
financial position or results of operations would have actually been had the
Merger occurred at the beginning of the earliest period presented or to project
Mac-Gray's financial position or results of operations for any future date or
period. They do not include any one-time, non-recurring Merger-related costs,
estimated to be $600,000 in the aggregate, nor do they incorporate any benefits
from any potential cost savings or synergies following the Merger. The
unaudited selected pro forma combined financial data assume the exchange of all
of the outstanding Intirion Exchangeable Securities for Mac-Gray Common Stock
and approximately $1 million in cash consideration. The unaudited selected pro
forma financial data should be read in conjunction with each of Mac-Gray's and
Intirion's Management's Discussion and Analysis of Financial Condition and
Results of Operations and the historical financial statements and notes thereto
of Mac-Gray and Intirion included elsewhere in this Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997(1)
----------- ------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
UNAUDITED SELECTED PRO FORMA COM-
BINED STATEMENT OF OPERATIONS DA-
TA:
Revenue............................ $ 66,352 $ 82,260 $ 106,879
Cost of revenue.................... 46,411 59,199 77,411
----------- ------------ ------------
Gross profit....................... 19,941 23,061 29,468
Operating expenses................. 12,898 14,440 18,148
----------- ------------ ------------
Income from operations............. 7,043 8,621 11,320
Other income (expense), net........ (1,273) (2,441) (2,883)
----------- ------------ ------------
Income before taxes................ 5,770 6,180 8,437
Income tax provision(2)............ (400) (514) (5,228)
----------- ------------ ------------
Net income......................... $ 5,370 $ 5,666 $ 3,209
=========== ============ ============
Net income per common share(4)..... $ 0.67 $ 0.71 $ 0.36
=========== ============ ============
Weighted average common shares out-
standing(4)....................... 7,961 7,961 8,856
=========== ============ ============
Net income per common share--assum-
ing dilution(4)................... $ 0.67 $ 0.71 $ 0.36
=========== ============ ============
Weighted average common shares out-
standing--assuming dilution(4).... 7,961 7,961 8,984
=========== ============ ============
Pro forma tax adjusted net
income(3)......................... $ 3,286 $ 3,734 $ 5,197
=========== ============ ============
Pro forma tax adjusted net income
per share(4)...................... $ 0.41 $ 0.47 $ 0.59
=========== ============ ============
Pro forma tax adjusted net income
per share--assuming dilution(4)... $ 0.41 $ 0.47 $ 0.58
=========== ============ ============
UNAUDITED SELECTED PRO FORMA COM-
BINED OTHER FINANCIAL DATA(5):
EBITDA(6).......................... $ 13,192 $ 16,346 $ 22,343
Depreciation and amortization...... 6,094 7,812 10,842
Capital expenditures............... 8,121 10,010 11,599
Cash flows from operating activi-
ties.............................. 10,574 15,925 11,518
Cash flows used in investing activ-
ities............................. (9,162) (24,445) (23,727)
Cash flows provided by (used in)
financing activities.............. (589) 7,466 13,139
<CAPTION>
DECEMBER 31,
1997
-----------------
<S> <C> <C> <C>
UNAUDITED SELECTED PRO FORMA
COMBINED BALANCE SHEET DATA:
Working capital.................... $ (6,969)
Total assets....................... 99,336
Total long term debt, net of
current portion................... 5,395
Redeemable common stock............ 7,797
Stockholders' equity............... 51,498
</TABLE>
12
<PAGE>
- --------
(1) Includes the results of operations of Sun Services as if the Sun Services
Acquisition had occurred on January 1, 1997. The historical results of Sun
Services for the period from April 1, 1997 to April 17, 1997 (the
acquisition date) have not been included and are not material to the
Company.
(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) 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.
(4) Earnings per share data are based on the weighted average number of common
stock and common stock equivalents outstanding of Mac-Gray and Intirion for
each period assuming that 1,317,837 shares of Mac-Gray Common Stock were
issued in exchange for all of the issued and outstanding shares of Intirion
Series A Preferred Stock, Intirion Common Stock, $12.50 Warrants, $5.00
Warrants, and Miscellaneous Warrants and Intirion Options and assuming that
275,224 shares of Mac-Gray Common Stock and approximately $1 million were
issued in exchange for all of the issued and outstanding shares of Intirion
Senior Preferred Stock.
(5) Unaudited selected pro forma combined financial data were accumulated
based on the historical balances reported by each entity and do not
include any pro forma adjustments.
(6) "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 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.
13
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Mac-Gray
and Intirion and combined per share data on an unaudited pro forma basis after
giving effect to the Merger on a pooling of interests basis assuming that
1,317,837 shares of Mac-Gray Common Stock were issued in exchange for all of
the issued and outstanding Intirion Exchangeable Securities other than shares
of Intirion Senior Preferred Stock and assuming that 275,224 shares of Mac-Gray
Common Stock and approximately $1 million in cash were issued in exchange for
all of the issued and outstanding shares of Intirion Senior Preferred Stock.
The selected pro forma combined comparative per share data of Mac-Gray and
Intirion are derived from pro forma unaudited condensed combined financial
information and should be read in conjunction with the selected historical
audited and unaudited financial data and the historical audited and unaudited
financial statements of Mac-Gray and Intirion and the notes thereto that are
included elsewhere in this Prospectus/Proxy Statement. The unaudited pro forma
per share data are presented for illustrative purposes only and are not
necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have been
realized had Mac-Gray and Intirion been a single entity during the periods
presented. Neither Mac-Gray nor Intirion paid any cash dividends for the
periods presented, other than in the case of distributions to S corporation
stockholders or preferred stockholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------- ENDED
1995 1996 1997 DECEMBER 31, 1997
------- ------- ------- -----------------
<S> <C> <C> <C> <C>
MAC-GRAY
Net income per share:
Historical...................... $ 0.91 $ 0.87 $ 0.37 --
Combined(b)..................... $ 0.67 $ 0.71 $ 0.36 --
Net income per share--assuming
dilution:
Historical...................... $ 0.91 $ 0.87 $ 0.36 --
Combined(b)..................... $ 0.67 $ 0.71 $ 0.36 --
Pro forma tax adjusted net income
per share(a):
Historical...................... $ 0.58 $ 0.56 $ 0.65 --
Combined(b)..................... $ 0.41 $ 0.47 $ 0.59 --
Pro forma tax adjusted net income
per share--assuming dilution(a):
Historical...................... $ 0.58 $ 0.56 $ 0.64 --
Combined(b)..................... $ 0.41 $ 0.47 $ 0.58 --
INTIRION
Net income (loss) per share:
Historical(c)................... $ (1.31) $ (0.48) $ (0.30) $(0.19)
Pro forma combined, adjusted for
ratio of exchange(d)........... $ 0.74 $ 0.78 $ 0.40 --
Pro forma tax adjusted combined,
adjusted for ratio of
exchange(a)(d)................. $ 0.45 $ 0.52 $ 0.65 --
Net income (loss) per share--
assuming dilution:
Historical(c)................... $ (1.31) $ (0.48) $ (0.30) $(0.19)
Pro forma combined, adjusted for
ratio of exchange(d)........... $ 0.74 $ 0.78 $ 0.40 --
Pro forma tax adjusted combined,
adjusted for ratio of
exchange(a)(d)................. $ 0.45 $ 0.52 $ 0.64 --
</TABLE>
- --------
(a) Pro forma tax adjusted net income per share 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 of 40%)
during the periods presented.
(b) Pro forma combined net income per share data for 1997 includes the results
of Sun Services as if the Sun Services Acquisition had occurred on January
1, 1997.
(c) Historical per share data for Intirion are for the years ended June 30,
1995, 1996, and 1997, respectively.
(d) Pro forma net income per share amounts for Intirion have been calculated
using an exchange ratio of 1.10 shares of Mac-Gray Common Stock for each
share of Intirion Common (and common equivalent) Stock exchanged. See Note
1 to the Pro Forma Unaudited Condensed Combined Financial Information.
On December 31, 1997, the book value of Mac-Gray Common Stock was $4.48 per
share and the book value of the Intirion Common Stock was ($0.72) per share. On
June 30, 1997 the book value of Intirion Common Stock was ($0.69) per share.
Historical book value per share for Intirion has been calculated assuming
conversion of all Intirion Common Stock equivalents using the treasury stock
method. The pro forma book value per share for the Mac-Gray Common Stock as of
December 31, 1997 after giving effect to the proposed Merger would be $4.10.
The pro forma book value of Intirion Common Stock at such date after the Merger
would be $4.51 per share based upon the issuance of 1,317,837 shares of Mac-
Gray Common Stock for all of the issued and outstanding shares of Intirion
Exchangeable Securities (other than shares of Intirion Senior Preferred Stock)
and the issuance of 275,224 shares of Mac-Gray Common Stock and approximately
$1 million in cash for approximately 100,000 shares of Intirion Senior
Preferred Stock.
14
<PAGE>
RISK FACTORS
Intirion's stockholders should carefully consider the following risk
factors, in addition to the other information contained in this
Prospectus/Proxy Statement, in connection with their decisions to approve the
Merger Agreement and thereby become holders of Mac-Gray Common Stock.
RISK FACTORS RELATED TO MAC-GRAY COMMON STOCK
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, such as photocopying, vending machines and telephones, to Mac-Gray's
customer base and target market. 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. In addition, Mac-Gray is currently
restricted in its ability to acquire or operate laundry rooms in multi-housing
facilities in the District of Columbia, Maryland, Tennessee, Virginia and West
Virginia pursuant to a non-competition agreement entered into in connection
with a transaction consummated in 1990. This restriction on Mac-Gray's
activities, which limits Mac-Gray's access to a geographic segment of the
market, terminates pursuant to the terms of such agreement upon certain
changes in Mac-Gray's ownership and will otherwise expire in September 2000.
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 "Mac-
Gray's Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources" and "Description of Mac-Gray--
Company Strategy."
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
larger companies
15
<PAGE>
participating in the industry consolidation, two of which have 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 "Description of Mac-
Gray-- Competition."
Dependence Upon Senior Executives. Mac-Gray is currently dependent to a
significant degree upon the ability and experience of four senior executives:
Stewart Gray MacDonald, Jr., John S. Olbrych, Neil F. MacLellan, III and
Patrick A. Flanagan. 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 of Mac-Gray."
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 newly available
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 "Mac-Gray's Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Mac-Gray--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 "Description of Mac-Gray--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 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 "Description of
Mac-Gray--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
16
<PAGE>
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 the future, Mac-Gray may choose to continue to rely
substantially on the Schlumberger technology and its relationship with
Schlumberger in general. A termination of, or substantial revision of the
terms of, the contractual arrangements or business relationships with Maytag
or Schlumberger could have a material adverse effect on Mac-Gray's business,
results of operations, financial condition and prospects. See "Description of
Mac-Gray--Technology" and "--Laundry Equipment Sales, Leasing and Service."
Restrictions Imposed by Mac-Gray's Indebtedness. Mac-Gray has a credit
agreement with State Street Bank and CoreStates Bank, which provides Mac-Gray
with a $50.0 million revolving credit facility (the "Credit Facility"). 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 "Mac-Gray's Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Voting Control by Principal Stockholders, Directors and Executive
Officers. After giving effect to the Merger, the principal stockholders,
directors and executive officers of Mac-Gray and their affiliates will
beneficially own in the aggregate approximately 53% of the outstanding shares
of Mac-Gray Common Stock. This percentage ownership does not include options
to purchase 428,315 shares of Mac-Gray Common Stock (options to acquire 80,330
shares of Mac-Gray Common Stock are currently exercisable) held by certain of
these persons, which, if exercised in whole or in part, will further
concentrate ownership of Mac-Gray Common Stock. As a result, the above-
referenced stockholders will retain 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 the Mac-Gray Charter and the Mac-Gray By-
laws and certain sections of 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 of Mac-Gray--Directors and Executive Officers" and "Principal
Stockholders of Mac-Gray."
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
"Mac-Gray's Management's
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Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Management of Mac-Gray--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 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 of Mac-Gray Capital Stock--Certain Provisions of the Mac-Gray
Charter and the Mac-Gray By-laws" and "--Statutory Business Combination
Provision."
Potential Volatility of Stock Price. The trading price of Mac-Gray Common
Stock may be subject to fluctuations in response to quarter-to-quarter
variations in operating results, changes in earnings estimates by investment
analysts or changes in business or regulatory conditions affecting Mac-Gray,
its customers or its competitors. The stock market historically has
experienced volatility which sometimes has been unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the price of Mac-Gray Common Stock.
Absence of Dividends. Mac-Gray intends to retain earnings to finance the
growth and development of its business and does not anticipate paying cash
dividends in the foreseeable future. Declaration of dividends will in the
future depend upon, among other things, Mac-Gray's results of operations,
financial condition, acquisitions, capital requirements and general business
condition. The Credit Facility also restricts dividend payments in certain
limited circumstances. See "Mac-Gray's 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 Mac-Gray's acquisition of Sun Services, 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 of Mac-Gray--Certain
Relationships and Related Transactions."
RISK FACTORS RELATED TO THE MERGER
Fixed Exchange Ratio Despite Potential Changes in Stock Price. The
consideration being paid by Mac-Gray to acquire Intirion is fixed and will not
be adjusted in the event of any increase or decrease in the price of Mac-Gray
Common Stock. The price of Mac-Gray Common Stock at the Effective Time may
vary from its price at the date of this Prospectus/Proxy Statement and at the
date of the Intirion Special Meeting. Such variations may be the result of
changes in the business, operations or prospects of Mac-Gray, market
assessments of the likelihood that the Merger will be consummated, the timing
thereof, the prospects of the Merger and post-Merger operations, regulatory
considerations, general market and economic conditions and other factors.
Because the
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<PAGE>
Effective Time may occur at a date later than the Intirion Special Meeting,
there can be no assurance that the price of Mac-Gray Common Stock on the date
of the Intirion Special Meeting will be indicative of its price at the
Effective Time. The Merger Agreement provides that the Closing Date will occur
on the third business day following the satisfaction or waiver of the
conditions to closing set forth in the Merger Agreement. Stockholders of
Intirion are urged to obtain current market quotations for Mac-Gray Common
Stock.
Nonrealization of Synergies. The Merger involves the integration of two
companies that have previously operated independently. No assurance can be
given that Mac-Gray will integrate the respective operations of Mac-Gray and
Intirion without encountering difficulties or experiencing the loss of key
Intirion personnel or that the benefits expected from such integration will be
realized. In addition, there can be no assurance that Mac-Gray will realize
anticipated synergies from the Merger.
Restrictions on Transfer of Mac-Gray Common Stock. Ten percent (10%) of the
shares of Mac-Gray Common Stock issued in connection with the Merger will be
withheld ratably from the stock component of the Merger Consideration payable
to holders of Intirion Exchangeable Securities and held in escrow to indemnify
Mac-Gray in respect of certain claims under the Merger Agreement. The escrow
will expire on the earlier of (a) the first (lst) anniversary of the Closing
Date and (b) the date of issuance of the first audited financial statements of
Mac-Gray for the fiscal year ending December 31, 1998, provided that the
escrow may be extended in certain circumstances until unresolved claims are
resolved. During the escrow period, the shares of Mac-Gray Common Stock
subject to the escrow may not be transferred by stockholders. See "Ancillary
Agreements-- Escrow Agreement." Neither Mac-Gray nor Intirion can predict the
price at which shares of Mac-Gray Common Stock will be trading at the end of
the escrow period.
Interests of Certain Persons in the Transactions. In considering the
recommendation of the Intirion Board with respect to the Merger, stockholders
of Intirion should be aware that certain members of Intirion's management and
the Intirion Board have certain interests in the Merger that may present them
with actual or potential conflicts of interest. Consummation of the Merger
will result in the accelerated vesting of options under the 1989 Microfridge,
Inc. Stock Option Plan to purchase 5,700 shares of Intirion Common Stock held
by Robert P. Bennett, Chairman, President and Chief Executive Officer of
Intirion, 20,000 shares of Intirion Common Stock held by David Wilcox, Chief
Financial Officer of Intirion, 10,000 shares of Intirion Common Stock held by
Karen Fleming, Vice President of New Business of Intirion, 5,300 shares of
Intirion Common Stock held by Rosellen Sullivan, Vice President of Academic
Living Sales of Intirion, 400 shares of Intirion Common Stock held by G.
Bickley Stevens II, Director of Intirion, 7,200 shares of Intirion Common
Stock held by Robert E. Ray, Director of Intirion, and 6,800 shares of
Intirion Common Stock held by John Fletcher, Director of Intirion. Upon the
consummation of the Merger, such vested options will be exchanged for shares
of Mac-Gray Common Stock in accordance with the terms of the Merger Agreement.
See "The Merger--Merger Consideration--Miscellaneous Warrants and Options."
Bennett will be appointed Senior Vice President, Sales of Mac-Gray as of the
Effective Time and will receive under the 1997 Stock Plan options to purchase
up to 90,000 shares of Mac-Gray Common Stock at an exercise price equal to the
closing sale price of Mac-Gray Common Stock on the NYSE on the date of grant.
Pursuant to the Merger Agreement, Mac-Gray has agreed to enter into the
Registration Rights Agreement with each of the Intirion Principal
Stockholders, pursuant to which such stockholders are entitled to certain
registration rights with respect to the resale of shares of Mac-Gray Common
Stock received by them in the Merger. The resale of such shares is covered by
the Registration Statement of which this Prospectus/Proxy Statement forms a
part. See "Ancillary Agreements--Registration Rights Agreement" and "Resales
of Securities."
Lack of a Fairness Opinion. Securityholders of Intirion should be aware that
Intirion did not retain a financial advisor to assist it in its negotiations
with Mac-Gray (including, without limitation, rendering a fairness opinion)
and its consideration of other alternative transactions available to Intirion.
In reaching its conclusion not to retain a financial advisor, the Intirion
Board considered the expertise and experience of the non-employee members of
the Intirion Board, which include: (i) the President of a venture capital firm
currently undertaking investment banking engagements; (ii) a former Vice
President of the Gillette Company currently serving as an investor,
independent director and business advisor to emerging business enterprises;
(iii) a management consultant specializing in strategic development of growth
companies; and (iv) an officer in General Electric
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<PAGE>
Capital's Equity Capital Group who formerly served as an executive of a
private equity investment firm. As a result, the Intirion Board was confident
that it possessed the sophistication and expertise to evaluate the fairness of
the Merger and to recommend it to Intirion's securityholders consistent with
its fiduciary duties without incurring the expense of retaining a financial
advisor.
Federal Income Tax Consequences. Securityholders of Intirion should be aware
that Intirion did not and will not obtain either a private letter ruling from
the Internal Revenue Service (the "Service") or a tax opinion with respect to
the federal income tax consequences of the Merger. It is possible that the
Service will assert that the Merger should not be treated as a
"reorganization" under the Code and that the tax consequences to
securityholders will be materially different from those set forth under
"Certain Federal Income Tax Considerations." One of the several requirements
for the Merger to be treated as a reorganization is that, as of the Effective
Time, the former holders of Intirion Voting Stock, as a group, must have no
plan or intention to dispose of a number of shares of Mac-Gray Common Stock
received by them in the Merger that represents a significant percentage
(approximately 50%) by value of the total outstanding Intirion Voting Stock as
of the Effective Time. There can be no assurance that the former Intirion
shareholders will not choose to dispose of their shares of Mac-Gray Common
Stock after the Merger, and the Service could assert that any such
dispositions were pursuant to a plan in existence at the Effective Time and
that such dispositions therefore affected the requirements for tax-free
treatment.
THE INTIRION SPECIAL MEETING
At the Intirion Special Meeting or any adjournments or postponements
thereof, holders of Intirion Voting Stock will be asked to approve and adopt
the Merger Agreement.
THE INTIRION BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, BELIEVES
THAT APPROVAL AND ADOPTION OF THE MERGER AGREEMENT IS IN THE BEST INTERESTS OF
INTIRION AND ITS SECURITYHOLDERS AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
INTIRION VOTING STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
RECORD DATE; QUORUM; REQUIRED VOTE
The Record Date for the determination of holders of Intirion Voting Stock
entitled to notice of, and to vote at, the Intirion Special Meeting is
Tuesday, February 17, 1998. Only holders of record of shares of Intirion
Voting Stock at the close of business on the Record Date will be entitled to
notice of, and to vote at, the Intirion Special Meeting or any adjournments or
postponements thereof. As of the Record Date, there were issued and
outstanding 759,688 shares of Intirion Common Stock held by 71 holders of
record, 100,000 shares of Intirion Senior Preferred Stock held by one holder
of record and 40,000 shares of Intirion Series A Preferred Stock held by two
holders of record. The holders of Intirion Common Stock are entitled to one
vote per share, the holders of Intirion Series A Preferred Stock are entitled
to six votes per share (one vote for each share of Intirion Common Stock into
which they are convertible) and the holders of Intirion Senior Preferred Stock
are entitled to one vote for each share of Intirion Common Stock for which
such holder's warrant is then exercisable. The presence in person or by proxy
of shares representing one-third of the shares of the Intirion Voting Stock,
one-third of the shares of the Intirion Senior Preferred Stock and a majority
of the shares of the Intirion Series A Preferred Stock, in each case issued
and outstanding as of the Record Date, is required to constitute a quorum for
the transaction of business at the Intirion Special Meeting. The Merger
Agreement must be approved and adopted by holders of (i) shares representing a
majority of the voting power of the issued and outstanding shares of Intirion
Voting Stock and (ii) two-thirds of the issued and outstanding shares of each
of the Intirion Senior Preferred Stock and Intirion Series A Preferred Stock,
in each case entitled to vote at the Intirion Special Meeting. Abstentions and
broker non-votes are considered present for purposes of determining a quorum
and will have the same effect as a vote against the Merger Agreement.
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<PAGE>
In connection with the execution of the Merger Agreement, the Intirion
Principal Stockholders (who control approximately 65% of the combined voting
power of the Intirion Voting Stock and hold 100% of the issued and outstanding
shares of each of the Intirion Senior Preferred Stock and the Intirion Series
A Preferred Stock) entered into the Voting Agreements pursuant to which they
agreed, among other things, to vote all of the shares of Intirion Voting Stock
controlled by them in favor of the Merger and the Merger Agreement and against
other business combinations and actions which could interfere with the Merger.
See "Ancillary Agreements--Voting Agreements."
SOLICITATION AND VOTING OF PROXIES
Holders of Intirion Voting Stock on the Record Date are entitled to cast
their votes, in person or by properly executed proxy, at the Intirion Special
Meeting. All shares represented at the Intirion Special Meeting by properly
executed proxies received prior to or at the Intirion Special Meeting and not
properly revoked will be voted at the Intirion Special Meeting in accordance
with the instructions indicated in such proxies. If no instructions are
indicated, such proxies will be voted FOR approval of the Merger Agreement.
The Intirion Board does not know of any matters, other than the Merger
Agreement, that will come before the Intirion Special Meeting.
If a quorum is not present at the time the Intirion Special Meeting is
convened, or if for any other reason Intirion believes that additional time
should be allowed for the solicitation of proxies or for the satisfaction of
the conditions to the Merger or the transactions contemplated thereby,
Intirion may adjourn the Intirion Special Meeting with a vote of the holders
of shares representing a majority of the voting power of the Intirion Voting
Stock present at such meeting. If Intirion proposes to adjourn the Intirion
Special Meeting, the persons named in the enclosed proxy card will vote only
those shares for which they have authority to vote in favor of the Merger
Agreement in favor of such adjournment. The persons named in the enclosed
proxy card will not vote any shares which have voted against the Merger
Agreement in favor of such adjournment.
Any proxy given pursuant to this solicitation may be revoked in the
following manner by the person giving it at any time before it is voted.
Proxies may be revoked by (i) filing with the Secretary of Intirion, at or
before the Intirion Special Meeting, a written notice of revocation bearing a
date later than the date of the proxy, (ii) duly executing a subsequent proxy
relating to the same shares and delivering it to the Secretary of Intirion at
or before the Intirion Special Meeting or (iii) attending the Intirion Special
Meeting and voting in person (although attendance at the Intirion Special
Meeting will not in and of itself constitute revocation of a proxy). Any
written notice revoking a proxy should be sent to Intirion, Ten Walpole Park
South, Walpole, Massachusetts 02081, Attention: Scott F. McDermott, Secretary.
Proxies are being solicited by and on behalf of the Intirion Board. All
expenses of this solicitation, including the cost of preparing and mailing
this Prospectus/Proxy Statement, will be borne by Intirion. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and employees of Intirion in person or by telephone, telegram or
other means of communications. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for out-of-pocket expenses
in connection with such solicitation. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
materials to beneficial owners of Intirion Voting Stock held of record by such
persons, and Intirion may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith.
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<PAGE>
OWNERSHIP OF INTIRION VOTING STOCK
The following table provides information as of February 17, 1998 with
respect to the shares of Intirion Voting Stock beneficially owned by (i) each
person known by Intirion to own more than 5% of the voting power of the
Intirion Voting Stock, (ii) each director of Intirion, (iii) each executive
officer of Intirion and (iv) all directors and executive officers of Intirion
as a group. The number of shares beneficially owned by each person is
determined according to the rules of the Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose.
Under such rules, beneficial ownership includes any shares as to which the
individual or entity has sole or shared voting power or investment power and
also any shares which the individual or entity has the right to acquire within
60 days of February 17, 1998 (or upon consummation of the Merger) through the
exercise of an option, conversion feature or similar right. The amount of
beneficial ownership of Mac-Gray Common Stock after the Merger assumes
1,593,061 shares will be issued in the Merger and 13,174,187 shares of Mac-
Gray Common Stock will be issued and outstanding as of the Effective Time.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
AMOUNT OF BENEFICIAL OWNERSHIP OWNERSHIP OF MAC-GRAY
OF INTIRION VOTING STOCK COMMON STOCK
BEFORE THE MERGER AFTER THE MERGER
---------------------------------- ------------------------
PERCENT % VOTING PERCENT
NAME CLASS SHARES OWNED(1) POWER(2) SHARES OWNED
---- ----------- ----------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Bennett(3).... Common 245,068 31.5% 18.0% 259,191 2.0%
David Wilcox(4)......... Common 20,000 2.6% * 5,307 *
Karen Fleming(5)........ Common 15,000 1.9% * 6,481 *
Rosellen Sullivan(6).... Common 7,500 1.0% * 2,907 *
G. Bickley Stevens(7)... Common 92,000 12.1% 7.1% 100,014 *
Ser. A Pfd. 40,000 100.0% 18.9% 263,689 2.0%
Robert E. Ray(8)........ Common 38,500 4.9% * 31,567 *
John Fletcher(9)........ Common 8,000 1.0% * 3,123 *
William R. Kraus(10).... Common 267,284 26.0% 21.1% 70,930 *
Senior Pfd. 100,000 100.0% 21.1% 275,224 2.1%
Edward Ward............. Common 82,271 10.8% 6.5% 90,392 *
Eastech II Ltd.
Pshp.(7)(11)........... Common 36,000 4.7% 2.8% 39,553 *
Ser. A Pfd. 16,000 40.0% 7.6% 105,476 *
Eastech III Ltd.
Pshp.(7)(11)........... Common 54,000 7.1% 4.3% 59,330 *
Ser. A Pfd. 24,000 60.0% 11.4% 158,213 1.2%
Gelco Corporation(10)... Common 267,284 26.0% 21.1% 70,930 *
Senior Pfd. 100,000 100.0% 21.1% 275,224 2.1%
All directors and execu-
tive officers as group
(8 persons)(12)........ Common 693,352 61.7% 47.1% 479,520 3.6%
Ser. A Pfd. 40,000 100.0% 18.9% 263,689 2.0%
Senior Pfd. 100,000 100.0% 21.1% 275,224 2.1%
</TABLE>
- --------
*less than 1%
(1) Percentage of the specified class of stock that is beneficially owned.
(2) Percentage of the combined voting power of Intirion Voting Stock.
(3) Consists of 227,568 shares of Intirion Common Stock as to which Mr.
Bennett has sole voting power and investment power, and 17,500 shares of
Intirion Common Stock which Mr. Bennett has the right to acquire within
60 days of the date of this Prospectus/Proxy Statement (or upon
consummation of the Merger) through the exercise of an Intirion Option.
(4) Consists of 20,000 shares of Intirion Common Stock which Mr. Wilcox has
the right to acquire within 60 days of the date of this Prospectus/Proxy
Statement (or upon consummation of the Merger) through the exercise of an
Intirion Option.
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(5) Consists of 15,000 shares of Intirion Common Stock which Ms. Fleming has
the right to acquire within 60 days of the date of this Prospectus/Proxy
Statement (or upon consummation of the Merger) through the exercise of an
Intirion Option.
(6) Consists of 7,500 shares of Intirion Common Stock which Ms. Sullivan has
the right to acquire within 60 days of the date of this Prospectus/Proxy
Statement (or upon consummation of the Merger) through the exercise of an
Intirion Option.
(7) Consists of 90,000 shares of Intirion Common Stock and 40,000 shares of
Intirion Series A Preferred Stock owned by Eastech II Limited Partnership
and Eastech III Limited Partnership as to which Mr. Stevens has shared
voting and investment power, and 2,000 shares of Intirion Common Stock
which Mr. Stevens has the right to acquire within 60 days of the date of
this Prospectus/Proxy Statement (or upon consummation of the Merger)
through the exercise of an Intirion Option. Does not include 240,000
shares of Intirion Common Stock into which the 40,000 shares of Intirion
Series A Preferred Stock listed hereunder are convertible.
(8) Consists of 11,500 shares of Intirion Common Stock as to which Mr. Ray
has sole investment and voting power, and 27,000 shares of Intirion
Common Stock which Mr. Ray has the right to acquire within 60 days of the
date of this Prospectus/Proxy Statement (or upon consummation of the
Merger) through the exercise of an Intirion Option.
(9) Consists of 8,000 shares of Intirion Common Stock which Mr. Fletcher has
the right to acquire within 60 days of the date of this Prospectus/Proxy
Statement (or upon consummation of the Merger) through the exercise of an
Intirion Option.
(10) Consists of 100,000 shares of Intirion Senior Preferred Stock as to which
Mr. Kraus and Gelco Corporation have shared voting and investment power,
and 267,284 shares of Intirion Common Stock which Gelco Corporation has
the right to acquire within 60 days of the date of this Prospectus/Proxy
Statement (or upon consummation of the Merger) through the exercise of a
warrant.
(11) Does not include the 96,000 and 144,000 shares, respectively, of Intirion
Common Stock into which the shares of the Intirion Series A Preferred
Stock owned by Eastech II Limited Partnership and Eastech III Limited
Partnership are convertible.
(12) Consists of 329,068 shares of Intirion Common Stock owned by the
executive officers and directors (or their affiliates) and 364,284 shares
of Intirion Common Stock which the executive officers and directors (or
their affiliates) have the right to acquire within 60 days of the date of
this Prospectus/Proxy Statement (or upon consummation of the Merger)
through the exercise of options or warrants.
BACKGROUND OF THE MERGER
GENERAL BACKGROUND OF THE MERGER
Intirion and Mac-Gray had preliminary discussions regarding an acquisition
of Intirion by Mac-Gray in April 1997. Stewart G. MacDonald, Jr., Chairman of
the Board and Chief Executive Officer of Mac-Gray, Robert P. Bennett, Chairman
of the Board, President and Chief Executive Officer of Intirion, as well as
other members of Mac-Gray and Intirion management, had two meetings in April
1997. The parties signed a confidentiality agreement and Intirion provided
financial information to Mac-Gray. In May 1997, Mac-Gray and Intirion each
proposed valuations of Intirion which were substantially apart. As a result,
all discussions were terminated in May 1997.
In August 1997, Mac-Gray again approached Intirion with respect to a
possible merger transaction and the parties met to discuss Intirion's fiscal
1997 results. In late August and early September 1997, Mac-Gray and Intirion
conducted preliminary due diligence investigations of each other and discussed
valuations of Intirion. Mac-Gray made an offer to Intirion by a term sheet
dated September 10, 1997 proposing an acquisition of Intirion for a fixed
number of 2.3 million shares of Mac-Gray Common Stock. The Mac-Gray offer was
contingent on, among other things, satisfactory completion of Mac-Gray's due
diligence.
Though negotiations regarding pricing terms were not final, a draft merger
agreement was distributed to all parties in mid-September 1997. For several
days the parties discussed pricing and other economic terms of the
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<PAGE>
proposed merger, but did not commence negotiation of the draft merger
agreement. The parties then met to discuss Intirion's projected results for
fiscal year 1998. Because Mac-Gray was not satisfied with the projected
results, on September 22, 1997 all discussions between the parties were
terminated.
During the period of August through October 1997, Intirion considered a
possible intial public offering of its equity securities and engaged in
discussions with several investment banking firms.
In November 1997, Mac-Gray contacted Intirion to inquire whether Intirion
might still be interested in pursuing discussions with respect to a merger. On
November 11, 1997, members of Mac-Gray and Intirion management met to discuss
Intirion's recent financial results and pricing. During that meeting, Mac-Gray
made an offer, subject to due diligence, for a fixed number of approximately
1.9 million shares of Mac-Gray Common Stock. On November 19, 1997, Mac-Gray
formalized the offer in a term sheet to Intirion.
A draft of the Merger Agreement was distributed to the parties in late
November. In early December, members of Mac-Gray management met with Intirion
executives to discuss financial diligence matters and, a few days after such
meeting, Mac-Gray proposed a reduced offer for Intirion consisting of a fixed
number of approximately 1.7 million shares of Mac-Gray Common Stock. The
parties continued negotiations of the Merger Agreement through December.
During this period, Mac-Gray also proposed the Voting Agreements pursuant to
which the Intirion Principal Stockholders would contractually agree, among
other things, to vote in favor of the Merger Agreement. On December 12, 1997,
via a conference call with five of the six directors participating, the Mac-
Gray Board had its first formal discussion of the Intirion transaction. On
December 16, 1997, via a conference call with all of the directors
participating, the Mac-Gray Board considered and voted on the Intirion
transaction, unanimously approving the transaction.
A special meeting of the Intirion Board was convened on December 16, 1997,
via a conference call and with all the directors participating, to consider
the proposed transaction. After considerable deliberation regarding the merger
proposal, including consideration of its nominal value, likelihood of closing,
certainty that the indicated nominal value would be the actual value received
by Intirion stockholders, the long-term prospects of Mac-Gray and the relative
marketability of Mac-Gray Common Stock, the Intirion Board (i) determined that
the terms of the Merger Agreement are fair to, and in the best interests of,
Intirion and its stockholders, (ii) unanimously approved the Merger Agreement,
and (iii) resolved to recommend that the Intirion stockholders vote for
approval and adoption of the Merger Agreement.
Accordingly, on December 22, 1997, officers of Intirion, Mac-Gray and Sub
and Bennett executed the Merger Agreement, and Mac-Gray, Gelco Corporation,
Eastech II Limited Partnership, Eastech III Limited Partnership and Bennett
executed the Voting Agreements. The parties issued a press release on December
23, 1997 announcing the execution of the Merger Agreement.
RECOMMENDATION OF THE INTIRION BOARD; INTIRION'S REASONS FOR THE MERGER
The Intirion Board believes that the Merger Agreement and the transactions
contemplated thereby are fair to, and in the best interests of, Intirion's
stockholders. The Intirion Board recommends that the holders of Intirion
Voting Stock vote FOR the approval of the Merger Agreement and the
transactions contemplated thereby. The Intirion Board, in reaching its
determinations, considered the factors described below, which represent all
material factors considered and all of which were considered as a whole and
not separately.
The Purchase Price Offered for Intirion. An integral part of the
determination by the Intirion Board that the Merger was in the best interests
of, and fair to, the Intirion stockholders was a determination that the price
that Mac-Gray was willing to pay for Intirion was fair. Management felt, and
presented to the Intirion Board its view, that the aggregate purchase price of
approximately $25 million that Mac-Gray offered for Intirion compared
favorably to the valuation estimates that were presented to the Intirion Board
by investment bankers when the Intirion Board and management were considering
an initial public offering of equity. The Intirion Board concluded that it was
unlikely that another buyer would offer Intirion stockholders a more favorable
combination of price, certainty of closing, liquidity, tax deferral, and long
term-investment prospects than what Mac-Gray had offered. Based on the
foregoing, the Intirion Board concluded that the Merger was fair, from a
financial point of view, to the stockholders of Intirion.
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Choice of Liquidity or Continued Investment for Intirion Stockholders. The
Intirion Board viewed as favorable the structure of the Merger that affords
Intirion stockholders a choice of whether to seek complete or increased
liquidity after the Merger through a sale of Mac-Gray Common Stock on the open
market or to continue their investment in Intirion, through Mac-Gray, a
larger, better-capitalized, well-situated company.
The Strategic Aspects of the Merger. By receiving Mac-Gray Common Stock, the
Intirion stockholders will have an investment in a larger company, which the
Intirion Board believes offers greater financial resources and flexibility,
competitive strength and business opportunities than would be possible for
Intirion alone. Thus, the Intirion Board has concluded that the Merger
provides Intirion stockholders with better long-term prospects and liquidity
than if they continued to hold their Intirion Exchangeable Securities.
The Intirion Board's Review of the Business and Prospects of Mac-Gray. In
choosing Mac-Gray as its merger partner, the Intirion Board considered and
viewed favorably the high quality and reputation of Mac-Gray's management, the
leadership that Mac-Gray has achieved in the highly fragmented laundry
services industry, its commitment to and evidence of sustained and accelerated
growth, both through acquisitions and internally, and its plans for financing
such growth.
Other Possible Transactions Available to Intirion. During the period of
August through October 1997, the Intirion Board considered an initial public
offering of equity securities of Intirion. Considering the various factors
necessary to complete a successful initial public offering, the Intirion Board
concluded that Intirion could not reasonably anticipate completing such a
transaction for at least six months. Furthermore, there could be no assurances
that the market would be amenable to a public offering by Intirion at that
time or that a favorable price could be achieved.
The Tax Aspects of the Merger Agreement. The Intirion Board reviewed with
its counsel and with management the provisions of the Merger Agreement and
determined that its terms permitted Intirion to achieve the tax-free
disposition of its business for marketable securities in a manner that is fair
to the Intirion stockholders.
Based upon the foregoing, the Intirion Board concluded at its December 16,
1997 meeting that the Merger represents the best strategic alternative
currently available to maximize the return to Intirion stockholders. In view
of the wide variety of factors considered in connection with the evaluation of
the Merger, the Intirion Board did not find it practicable to, nor did it
attempt to, quantify or otherwise assign relative weights to the specific
factors it considered in reaching its determination.
THE INTIRION BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF INTIRION VOTING
STOCK VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
MAC-GRAY'S REASONS FOR THE MERGER
The Mac-Gray Board believes that the consummation of the Merger will
constitute an important step in the implementation of one of Mac-Gray's
strategies of broadening the services offered to its existing customers and
further penetrating its markets. Intirion is an attractive merger partner to
Mac-Gray because it is a superior provider that shares Mac-Gray's commitment
to customer service. As a result of the Merger, Mac-Gray will benefit from
Intirion's strong staff and customer base. In addition, the Merger will
significantly enhance Mac-Gray's competitive position by providing Mac-Gray
with a broader product offering.
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THE MERGER
The following is a brief summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Prospectus/Proxy
Statement and is incorporated by reference herein. This summary is qualified
in its entirety by reference to the full and complete text of the Merger
Agreement.
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approval of the holders of Intirion Voting Stock required therefor is obtained
and all other conditions to the Merger are satisfied or waived. Upon
consummation of the Merger, Sub will be merged with and into Intirion, the
separate corporate existence of Sub shall cease, and Intirion shall continue
as the surviving corporation and a wholly-owned subsidiary of Mac-Gray.
EFFECTIVE TIME
Consummation of the Merger will occur upon the filing of the Certificate of
Merger. The Merger Agreement provides that the filing of the Certificate of
Merger will occur as promptly as practicable (and in any event within three
business days) after the satisfaction or waiver of all conditions to the
closing of the Merger. The Merger Agreement may be terminated by either party
if the Merger shall not have been consummated on or before April 30, 1998
(provided that such right to terminate the Merger Agreement shall not be
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date). The Merger Agreement may also be
terminated under certain other circumstances. See "--Conditions to the Merger"
and "--Termination."
MERGER CONSIDERATION
At the Effective Time, Mac-Gray shall issue the Merger Consideration
pursuant to the allocations described below. See "Summary of Prospectus/Proxy
Statement--Terms of the Merger--Merger Consideration" for definitions of
certain capitalized terms used in this section.
Intirion Senior Preferred Stock. The holders of Intirion Senior Preferred
Stock shall receive a combination of shares of Mac-Gray Common Stock (based on
a value per share equal to $15.00) and cash that together shall have an
aggregate value equal to the product of (i) $51.6045 multiplied by (ii) the
aggregate number of shares of Intirion Senior Preferred Stock issued and
outstanding immediately prior to the Effective Time, provided that such value
shall not exceed $5,160,450. The amount of cash to be paid to the holders of
Intirion Senior Preferred Stock shall be the lesser of (x) $1,032,090 or (y)
68,806 multiplied by the per share closing price of Mac-Gray Common Stock on
the NYSE on the trading day immediately preceding the date on which the Merger
is consummated as reported in The Wall Street Journal, and the number of
shares of Mac-Gray Common Stock to be issued to the holders of Intirion Senior
Preferred Stock shall be equal to the remainder of 344,030 less the quotient
that is obtained when the Senior Cash Consideration is divided by 15. Each
share of Intirion Senior Preferred Stock issued and outstanding immediately
prior to the Effective Time shall, by virtue of the Merger, be canceled and be
converted automatically into and represent solely the right to receive (I)
that fraction of Mac-Gray Common Stock the numerator of which is the Senior
Stock Consideration and the denominator of which equals the aggregate number
of shares of Intirion Senior Preferred Stock issued and outstanding
immediately prior to the Effective Time and (II) an amount in cash equal to
Senior Cash Consideration divided by the aggregate number of shares of
Intirion Senior Preferred Stock issued and outstanding immediately prior to
the Effective Time.
Intirion Series A Preferred Stock. The number of shares of Mac-Gray Common
Stock allocated to the Intirion Series A Preferred Stock shall be 1,317,837
multiplied by a fraction, the numerator of which is the
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number of shares of Intirion Common Stock into which the shares of Intirion
Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time are convertible multiplied by 16.4806 and the denominator of
which is the Total Intirion Common Equivalent Value. Each share of Intirion
Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger, be canceled and be converted
automatically into and represent solely the right to receive that fraction of
Mac-Gray Common Stock the numerator of which equals the Series A Consideration
and the denominator of which equals the aggregate number of shares of Intirion
Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time.
Intirion Common Stock. The number of shares of Mac-Gray Common Stock
allocated to the Intirion Common Stock shall be 1,317,837 multiplied by a
fraction, the numerator of which is the number of shares of Intirion Common
Stock issued and outstanding immediately prior to the Effective Time
multiplied by 16.4806 and the denominator of which is the Total Intirion
Common Equivalent Value. Each share of Intirion Common Stock issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger, be canceled and be converted automatically into and represent solely
the right to receive that fraction of Mac-Gray Common Stock the numerator of
which equals the Common Stock Consideration and the denominator of which
equals the aggregate number of shares of Intirion Common Stock issued and
outstanding immediately prior to the Effective Time.
$12.50 Warrants. The number of shares of Mac-Gray Common Stock allocated to
the $12.50 Warrants shall be 1,317,837 multiplied by a fraction, the numerator
of which is 3.9806 multiplied by the number of shares of Intirion Common Stock
into which the $12.50 Warrants issued and outstanding immediately prior to the
Effective Time are convertible and the denominator of which is the Total
Intirion Common Equivalent Value. Each $12.50 Warrant issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
canceled and be converted automatically into and represent solely the right to
receive that number of shares of Mac-Gray Common Stock equal to the $12.50
Warrant Consideration multiplied by a fraction, the numerator of which is the
total number of shares of Intirion Common Stock for which such $12.50 Warrant
is exercisable, and the denominator of which is equal to the aggregate number
of shares of Intirion Common Stock for which all of the $12.50 Warrants are
exercisable, in each case immediately prior to the Effective Time.
$5.00 Warrants. The number of shares of Mac-Gray Common Stock allocated to
the $5.00 Warrants shall be 1,317,837 multiplied by a fraction, the numerator
of which is 11.4806 multiplied by the number of shares of Intirion Common
Stock into which the $5.00 Warrants issued and outstanding immediately prior
to the Effective Time are convertible and the denominator of which is the
Total Intirion Common Equivalent Value. Each $5.00 Warrant issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger, be canceled and be converted automatically into and represent the
right to receive that number of shares of Mac-Gray Common Stock equal to the
$5.00 Warrant Consideration multiplied by a fraction, the numerator of which
is the total number of shares of Intirion Common Stock for which such $5.00
Warrant is exercisable and the denominator of which is equal to the aggregate
number of shares of Intirion Common Stock for which all of the $5.00 Warrants
are exercisable, in each case immediately prior to the Effective Time.
Miscellaneous Warrants and Options. The number of shares of Mac-Gray Common
Stock allocated to the Miscellaneous Warrants and the Intirion Options shall
be 1,317,837 multiplied by a fraction, the numerator of which is the Total
Option/Warrant Value and the denominator of which is the Total Intirion Common
Equivalent Value. Each outstanding Miscellaneous Warrant and Intirion Option
that is convertible or exercisable, as the case may be, into one or more
shares of Intirion Common Stock immediately prior to or at the Effective Time
shall, by virtue of the Merger, be canceled and be converted automatically
into and represent solely the right to receive that number of shares of Mac-
Gray Common Stock equal to the Option/Warrant Consideration multiplied by a
fraction, the numerator of which is the Individual Option/Warrant Value of
such Intirion Option or Miscellaneous Warrant, as the case may be, and the
denominator of which is the Total Option/Warrant Value, in each case
immediately prior to or at the Effective Time.
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HOLDERS OF INTIRION EXCHANGEABLE SECURITIES SHOULD BE AWARE THAT, ON THE
CLOSING DATE, TEN PERCENT (10%) OF THE NUMBER OF SHARES OF MAC-GRAY COMMON
STOCK TO WHICH EACH HOLDER OF INTIRION EXCHANGEABLE SECURITIES IS ENTITLED
SHALL BE PLACED IN ESCROW FOR THE PURPOSE OF SATISFYING CERTAIN CLAIMS FOR
WHICH MAC-GRAY IS INDEMNIFIED UNDER THE MERGER AGREEMENT. SEE "--
INDEMNIFICATION" AND "ANCILLARY AGREEMENTS--ESCROW AGREEMENT."
CONVERSION OF INTIRION EXCHANGEABLE SECURITIES; EXCHANGE PROCEDURES
The conversion of Intirion Exchangeable Securities into the right to receive
the Merger Consideration will occur automatically at the Effective Time.
As soon as reasonably practicable after the Effective Time, a transmittal
letter and instructions will be mailed by the Exchange Agent to each holder of
Intirion Exchangeable Securities informing such holder of the procedures to
follow in forwarding certificates representing Intirion Exchangeable
Securities to the Exchange Agent. Upon receipt of such certificates together
with such transmittal letter, duly executed, and such other customary
documents as may be required pursuant to such instructions, the Exchange Agent
will deliver to such holder of Intirion Exchangeable Securities full shares of
Mac-Gray Common Stock, cash in lieu of fractional shares and, in the case of
Intirion Senior Preferred Stock, cash, pursuant to the terms of the Merger
Agreement and in accordance with the transmittal letter.
If any issuance of shares of Mac-Gray Common Stock in exchange for Intirion
Exchangeable Securities is to be made to a person other than the holder of
Intirion Exchangeable Securities in whose name the certificate is registered
at the Effective Time, it will be a condition of such exchange that the
certificate so surrendered be properly endorsed or otherwise in proper form
for transfer and that the holder of Intirion Exchangeable Securities
requesting such issuance either pay any transfer or other tax required or
establish to the satisfaction of Mac-Gray that such tax has been paid or is
not payable.
After the Effective Time, there will be no further transfers of Intirion
Exchangeable Securities on the stock transfer books of Intirion. If a
certificate representing Intirion Exchangeable Securities is presented for
transfer, it will be canceled and a certificate representing the appropriate
number of full shares of Mac-Gray Common Stock, cash in lieu of fractional
shares and, in the case of Intirion Senior Preferred Stock, cash will be
issued in exchange therefor.
At any time following nine months after the Effective Time, Mac-Gray shall
be entitled to require the Exchange Agent to deliver to Mac-Gray any Merger
Consideration which has been made available to the Exchange Agent by or on
behalf of Mac-Gray and which has not been disbursed to holders of certificates
representing Intirion Exchangeable Securities, and thereafter such holders
shall be entitled to look to Mac-Gray only as a general creditor thereof with
respect to the Merger Consideration payable upon due surrender of such
certificates. Notwithstanding the foregoing, none of Mac-Gray, Sub and
Intirion will be liable to any holder of Intirion Exchangeable Securities for
any Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
In the event any certificates representing Intirion Exchangeable Securities
have been lost, stolen or destroyed, the Exchange Agent will issue shares of
Mac-Gray Common Stock and, if applicable, cash in exchange for such lost,
stolen or destroyed certificates upon the making of an affidavit of that fact
by the owner of such certificates and delivery of a bond in a reasonable sum
as indemnity against any claim that may be made against Mac-Gray or the
Exchange Agent with respect to the certificates alleged to have been lost,
stolen or destroyed.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
HOLDERS OF INTIRION EXCHANGEABLE SECURITIES PROMPTLY FOLLOWING THE EFFECTIVE
TIME AS TO THE METHOD OF EXCHANGING CERTIFICATES FORMERLY REPRESENTING
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INTIRION EXCHANGEABLE SECURITIES. HOLDERS OF INTIRION EXCHANGEABLE SECURITIES
SHOULD NOT SEND CERTIFICATES REPRESENTING THEIR INTIRION EXCHANGEABLE
SECURITIES TO THE EXCHANGE AGENT, MAC-GRAY OR INTIRION PRIOR TO RECEIPT OF THE
TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties made by
Intirion in favor of Mac-Gray and Sub, and made by Mac-Gray in favor of
Intirion and Bennett.
Representations and Warranties Made by Intirion. The representations and
warranties made by Intirion relate, among other things, to the following
matters (which representations and warranties are subject, in certain cases,
to specified exceptions): (i) corporate organization, standing, qualification
and similar corporate matters, except where failure to be so qualified to do
business as a foreign corporation does not constitute a Material Adverse
Effect (as defined below); (ii) capitalization; (iii) the authorization,
execution, delivery and enforceability of the Merger Agreement; (iv) the
absence of conflict of the Merger Agreement with charter documents, laws or
agreements (other than, with respect to agreements, conflicts that would not
have a Material Adverse Effect); (v) the absence of conflict with or violation
of laws, and the holding of permits necessary for the conduct of business, and
the compliance with such permits; (vi) conduct of business in the ordinary
course and the absence of certain changes or events since June 30, 1997; (vii)
the absence of pending litigation or known threatened litigation that
constitutes a Material Adverse Effect; (viii) compliance with laws applicable
to employee benefit plans; (ix) labor matters and no claims that might have a
Material Adverse Effect; (x) the absence of any material default in certain
specified contracts, commitments, plans, agreements and licenses; (xi) valid
real property leases and no material default under any such lease; (xii)
payment of all material taxes and certain other tax matters; (xiii) compliance
with environmental laws; (xiv) ownership and rights to use material
intellectual property, and absence of certain restrictions with respect to
intellectual property; (xv) relationships or transactions with interested
persons; (xvi) maintenance of insurance; (xvii) the absence of actions that
are reasonably likely to adversely affect the ability of Mac-Gray to account
for the business combination to be effected by the Merger as a pooling of
interests; (xviii) no change in ownership of Intirion that would limit Mac-
Gray's ability to utilize Intirion's net operating losses; and (xix) the
ability to continue to bid for and enter into government contracts following
the Merger.
"Material Adverse Effect" means any change, effect or circumstance that is
or is reasonably likely to be materially adverse to the business, assets,
properties or results of operations or condition (financial or otherwise) of
Intirion or Mac-Gray, as the case may be.
Representations and Warranties Made by Mac-Gray. The representations and
warranties made by Mac-Gray relate, among other things, to the following
matters (which representations and warranties are subject, in certain cases,
to specified exceptions): (i) corporate organization, standing, qualification
and similar corporate matters, except where failure to be so qualified to do
business as a foreign corporation does not constitute a Material Adverse
Effect; (ii) capitalization; (iii) the authorization, execution, delivery and
enforceability of the Merger Agreement; (iv) the absence of conflict of the
Merger Agreement with charter documents, laws or agreements (other than, with
respect to agreements, conflicts that would not have a Material Adverse
Effect); (v) the absence of actions that are reasonably likely to adversely
affect the ability of Mac-Gray to account for the business combination to be
effected by the Merger as a pooling of interests; (vi) the absence of certain
changes or events since December 31, 1996; (vii) the absence of pending
litigation or known threatened litigation that constitutes a Material Adverse
Effect; and (viii) the material compliance of Mac-Gray's registration
statement on Form S-1 and quarterly report on Form 10-Q for the period ended
September 30, 1997 with applicable requirements of the Commission, and the
absence of material misstatements or omissions in the information contained
therein.
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CERTAIN COVENANTS AND AGREEMENTS
The Merger Agreement contains the covenants and agreements of Intirion,
Bennett and Mac-Gray described below.
Intirion's Covenants.
Conduct of Business. Pursuant to the Merger Agreement, prior to the
Closing Date, Intirion has agreed to:
(i) conduct its business only in the ordinary course and refrain from
changing or introducing any method of management or operations except in
the ordinary course of business and consistent with prior practices;
(ii) refrain from making any purchase, sale, lease or disposition of any
product, asset or property other than in the ordinary course of business,
from purchasing any capital asset costing more than $25,000 and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of
its properties or assets other than in the ordinary course of business;
(iii) refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(iv) refrain from making any change or incurring any obligation to make a
change in the Intirion Charter or the Intirion By-laws or authorized or
issued capital stock;
(v) refrain from declaring, setting aside or paying any dividend, making
any other distribution in respect of its capital stock or making any direct
or indirect redemption, purchase or other acquisition of its stock other
than the payment of accrued dividends in the amount of $72,000 to Eastech
II Limited Partnership and Eastech III Limited Partnership as holders of
the Intirion Series A Preferred Stock;
(vi) refrain from making any change in the compensation payable or to
become payable to any of its officers, employees, agents or independent
contractors other than increases in the ordinary course of business
consistent with past practices, provided that no compensation payable to
any of Intirion's officers, employees, agents, or independent contractors
shall be increased by more than 5% of the compensation received by such
person for the calendar year ending December 31, 1997;
(vii) refrain from prepaying any loans (if any) from its stockholders,
officers or directors or making any change in its borrowing arrangements;
(viii) use commercially reasonable efforts to prevent any change with
respect to its management and supervisory personnel and banking
arrangements;
(ix) use commercially reasonable efforts to keep intact its business
organization, to keep available its present officers and employees and to
preserve the goodwill of all suppliers, customers, independent contractors
and others having business relations with it;
(x) maintain its existing insurance coverage;
(xi) furnish Mac-Gray with unaudited monthly balance sheets and
statements of income and retained earnings and cash flows of Intirion on a
consolidated basis within ten (10) business days after each month end for
each month ending more than ten (10) days before the Closing Date; and
(xii) permit Mac-Gray and its authorized representatives to have full
access to all of Intirion's properties, assets, records, tax returns,
contracts and documents and furnish to Mac-Gray or its authorized
representatives such financial and other information with respect to its
business or properties as Parent may from time to time reasonably request.
Authorization from Others. Prior to the Closing Date, Bennett and
Intirion have agreed to use their respective best efforts to obtain all
authorizations, consents and permits of others required to permit the
consummation by Bennett and Intirion of the Merger.
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Notice of Default. Promptly upon the occurrence of, or promptly upon
Intirion or Bennett becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach or
default, or would have caused or constituted a breach or default had such
event occurred or been known to Intirion or Bennett prior to the date of
the Merger Agreement, of any of the representations, warranties or
covenants of Intirion or Bennett contained in or referred to in the Merger
Agreement, Intirion or Bennett shall give detailed written notice thereof
to Mac-Gray and Intirion and Bennett shall use their best efforts to
prevent or promptly remedy the same.
Consummation of the Merger. Intirion and Bennett shall use their
respective best efforts to perform and fulfill all conditions and
obligations on their parts to be performed and fulfilled under the Merger
Agreement, to the end that the Merger shall be consummated. To this end,
Intirion will obtain prior to the Closing Date all necessary authorizations
or approvals of its stockholders and the Intirion Board.
Cooperation of Intirion and Bennett. Intirion and Bennett shall cooperate
with all reasonable requests of Mac-Gray and Mac-Gray's counsel in
connection with the consummation of the Merger.
No Solicitation of Other Offers. Unless and until the Merger Agreement
shall have been terminated, neither Intirion nor Bennett shall, nor shall
Intirion permit any of its directors, officers, employees or agents to,
directly or indirectly, (i) take any action to solicit, initiate the
submission of or encourage, proposals or offers from any person relating to
any acquisition or purchase of all or (other than in the ordinary course of
business) a portion of the assets of, or any equity interest in, Intirion,
any merger or business combination with Intirion or any public or private
offering of interests in Intirion (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition
Proposal with any person or entity other than Mac-Gray and its
representatives, (iii) furnish any information or afford access to the
properties, books or records of Intirion to any person or entity that may
consider making or has made an offer with respect to an Acquisition
Proposal other than Mac-Gray and its representatives, or (iv) otherwise
cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person to do any of the
foregoing. Intirion will promptly notify Mac-Gray upon receipt of any offer
or indication that any person is considering making an offer with respect
to an Acquisition Proposal or any request for information relative to
Intirion or for access to the properties, books and records of Intirion,
and will promptly reject any such offer or request.
Confidentiality. Intirion and Bennett have agreed that, unless and until
the Merger has been consummated, each of Intirion, Bennett and Intirion's
officers, directors, agents and representatives will hold in strict
confidence, and will not use, any confidential or proprietary data or
information obtained from Mac-Gray with respect to its business or
financial condition except for the purpose of evaluating, negotiating and
completing the Merger. Information generally known in Mac-Gray's industry
or which has been disclosed to Intirion or Bennett by third parties which
have a right to do so shall not be deemed confidential or proprietary
information. If the Merger is not consummated, Intirion and Bennett will
return to Mac-Gray (or certify that they have destroyed) all copies of such
data and information, including but not limited to financial information,
customer lists, business and corporate records, worksheets, test reports,
tax returns, lists, memoranda, and other documents prepared by or made
available to Intirion or Bennett in connection with the Merger.
Intirion Special Meeting. Intirion has agreed that it shall, in
accordance with applicable law, the Intirion Charter and the Intirion By-
laws:
(i) duly hold the Intirion Special Meeting as soon as practicable after
the effective date of the Registration Statement of which this
Prospectus/Proxy Statement is a part for the purpose of considering and
acting on the Merger Agreement and the Merger;
(ii) include in this Prospectus/Proxy Statement the recommendation of the
Intirion Board that the holders of Intirion Voting Stock vote in favor of
the adoption of the Merger Agreement and the Merger; and
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(iii) obtain and furnish the information required to be included by it in
this Prospectus/Proxy Statement, cooperate with Mac-Gray in responding
promptly to any comments made by the Commission with respect to this
Prospectus/Proxy Statement or any preliminary version hereof, cause this
Prospectus/Proxy Statement to be mailed to the holders of Intirion
Exchangeable Securities so as to ensure that the Intirion Special Meeting
will be held at the earliest practicable time after the effective date of
the Registration Statement and obtain the necessary approvals by the
holders of Intirion Voting Stock of the Merger Agreement and the Merger.
Tax-Free Treatment. Neither Intirion nor Bennett shall intentionally take
or cause to be taken any action, whether before or after the Closing Date,
which would disqualify the Merger as being tax-free under the Code as to
Intirion, Mac-Gray, Sub and each holder of Intirion Voting Stock.
Tax Returns. Intirion and Bennett shall cooperate with Mac-Gray to permit
Intirion in accordance with applicable law to promptly prepare and file on
or before the due date or any extension thereof all federal, state and
local tax returns required to be filed by Intirion with respect to taxable
periods ending on or before the Closing Date.
Filing Cooperation. In connection with any filings to be made by Mac-Gray
under the Securities Act or the Exchange Act (i) provide for inclusion
therein or filing therewith the financial, business and other information
and documents reasonably requested for inclusion therein by Mac-Gray, (ii)
consider promptly Mac-Gray's reasonable requests for any additional
information or documents and use commercially reasonable efforts to make
such available, (iii) use its best efforts to cause Price Waterhouse LLP,
its independent public accountants, to deliver such consents, reports and
comfort letters in connection therewith as Mac-Gray may reasonably request,
and (iv) generally cooperate with Mac-Gray and its representatives and
agents in connection therewith.
Mac-Gray's Covenants.
Public Announcements and Confidentiality. Mac-Gray has agreed that,
unless and until the Merger has been consummated, Mac-Gray and its
officers, directors, agents and representatives will hold in strict
confidence, and will not use any confidential or proprietary data or
information obtained from Intirion or Bennett with respect to the business
or financial condition of Intirion except for the purpose of evaluating,
negotiating and completing the Merger and except in the preparation of this
Prospectus/Proxy Statement. Information generally known in Intirion's
industries or which has been disclosed to Mac-Gray by third parties which
have a right to do so shall not be deemed confidential or proprietary
information. If the Merger is not consummated, Mac-Gray will return to
Intirion (or certify that it has destroyed) all copies of such data and
information, including but not limited to financial information, customer
lists, business and corporate records, worksheets, test reports, tax
returns, lists, memoranda, and other documents prepared by or made
available to Mac-Gray in connection with the Merger. Notwithstanding the
foregoing, Mac-Gray is permitted, without the prior consent of the other
parties to the Merger Agreement, to issue such press release or make such
public disclosure about Intirion, its stockholders and the Merger as may,
upon the advice of outside counsel, be required by law or the rules and
regulations of the NYSE.
Tax-Free Treatment. Neither Mac-Gray nor Sub shall intentionally take or
cause to be taken any action, whether before or after the Closing Date,
which would disqualify the Merger as being tax-free under the Code as to
Mac-Gray, Sub, Intirion and each holder of Intirion Voting Stock.
Authorization from Others. Prior to the Closing Date, Mac-Gray will use
its best efforts to obtain all authorizations, consents and permits of
others required to permit the consummation by Mac-Gray of the Merger.
Notice of Default. Promptly upon the occurrence of, or promptly upon Mac-
Gray becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach or default, or would have caused
or constituted a breach or default had such event occurred or been known to
Mac-Gray prior to the date of the Merger Agreement, of any of the
representations, warranties or covenants of
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Mac-Gray contained in or referred to in the Merger Agreement, Mac-Gray
shall give detailed written notice thereof to Intirion and Bennett and
shall use its best efforts to prevent or promptly remedy the same.
Consummation of Merger. Mac-Gray shall use its best efforts to perform
and fulfill all conditions and obligations on its part to be performed and
fulfilled under the Merger Agreement, to the end that the Merger shall be
consummated. To this end, Mac-Gray will obtain prior to the Closing Date
all necessary authorizations or approvals of the Mac-Gray Board.
Cooperation of Mac-Gray. Mac-Gray shall cooperate with all reasonable
requests of Intirion and Intirion's counsel in connection with the
consummation of the Merger.
Prior Service Credit. Each full-time employee of Intirion immediately
prior to the Effective Time who continues his or her full-time employment
with the Surviving Corporation after the Effective Time will receive prior
service credit under (i) Mac-Gray's vacation benefits program, (ii) Mac-
Gray's sick day policy, (iii) Mac-Gray's 401(k) plan and (iv) each other
benefit program of Mac-Gray in which such employee is eligible to
participate and which has a prior service requirement, in each case equal
to the amount of time such employee was a full-time employee of Intirion
prior to the Effective Time.
Other Agreements.
Prospectus/Proxy Statement. Mac-Gray, Intirion and Bennett agreed to
cooperate in the preparation and filing with the Commission of the
Registration Statement as soon as practicable after the date of the Merger
Agreement with respect to Mac-Gray Common Stock to be issued in the Merger
and to use all reasonable efforts to have the Registration Statement
declared effective by the Commission as promptly as practicable and to mail
the Prospectus/Proxy Statement to the holders of Intirion Exchangeable
Securities promptly thereafter. Mac-Gray agreed to consult with Intirion
prior to responding to any comment from the Commission regarding the
Prospectus/Proxy Statement. Prior to the Effective Time, Mac-Gray shall use
all reasonable efforts to qualify the shares of Mac-Gray Common Stock to be
issued in the Merger under the securities or "blue sky" laws of any state
of the United States in which a holder of Intirion Exchangeable Securities
resides; provided, however, that Mac-Gray shall not be obligated to qualify
such shares in any state with respect to which counsel for Mac-Gray has
determined that such qualification is not required under the securities or
"blue sky" laws of such state, and in no event shall Mac-Gray be obligated
to qualify as a foreign corporation or to execute a general consent to
service of process in any state in which it has not previously so qualified
or has not previously so consented.
Affiliate Letters. Intirion has agreed to cause each of its affiliates,
within the meaning of Rule 145 under the Securities Act, to deliver a
letter (an "Affiliate Letter") providing that (i) such affiliate will not
transfer any Mac-Gray Common Stock received in the Merger except in
compliance with the Securities Act and (ii) for a period commencing 30 days
immediately preceding the Effective Time and ending at such time as results
covering at least 30 days of combined operations of Intirion and Mac-Gray
have been published by Mac-Gray, such affiliate will not transfer any
securities of Mac-Gray. Mac-Gray has agreed to use commercially reasonable
efforts to publish no later than forty-five (45) days after the end of the
first calendar month after the Effective Time in which there are at least
thirty (30) days of post-Merger combined operations (which calendar month
may be the calendar month in which the Effective Time occurs) combined
sales and net income figures as contemplated by and in accordance with the
terms of SEC Accounting Series Release No.135. See Exhibit C to Appendix A.
Registration Rights Agreements. Mac-Gray has agreed to enter into the
Registration Rights Agreement with each of the Intirion Principal
Stockholders. See "Ancillary Agreements--Registration Rights Agreement" and
Exhibit D to Appendix A.
Voting Agreements. Each of the Intirion Principal Stockholders, pursuant
to the Merger Agreement, has executed and delivered to Mac-Gray as of the
date of the Merger Agreement the Voting Agreements. See "Ancillary
Agreements--Voting Agreements" and Exhibits E-1 and E-2 to Appendix A.
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Filings Under Hart-Scott-Rodino Act. As soon as practicable, each of Mac-
Gray and Intirion shall, if required, file with the FTC and the Antitrust
Division a premerger notification form and any supplemental information
(other than privileged information) which may be requested in connection
therewith pursuant to the Hart-Scott-Rodino Act, which filings and
supplemental information will comply in all material respects with the
requirements of the Hart-Scott-Rodino Act. Each of Mac-Gray and Intirion
shall cooperate fully with the other in connection with the preparation of
any such filings and shall use their respective best efforts to respond to
any requests for supplemental information from the FTC or the Antitrust
Division and to obtain early termination of any waiting period applicable
to the Merger under the Hart-Scott-Rodino Act. Any and all filing fees
required to be paid in connection with the premerger notification pursuant
to the Hart-Scott-Rodino Act shall be borne and paid one half by Mac-Gray
and one half by Intirion. Currently, neither Mac-Gray nor Intirion is
required to make any filings with the FTC or the Antitrust Division
pursuant to the Hart-Scott-Rodino Act in connection with the Merger. No
assurances can be given, however, that such filings will not be required
prior to the Effective Time. See "Regulatory Approvals Required."
Pooling Accounting Treatment. Each of Mac-Gray and Intirion has agreed
not to take any action that to its knowledge could reasonably be expected
to adversely affect the ability of Mac-Gray to treat the Merger as a
pooling of interests, and each of Mac-Gray and Intirion has agreed to take
such action as may be reasonably required to negate the impact of any past
actions which to its knowledge could reasonably be expected to adversely
impact the ability of Mac-Gray to treat the Merger as a pooling of
interests. See "--Accounting Treatment."
CONDITIONS TO THE MERGER
Conditions to Obligations of Each Party. The respective obligations of each
of Mac-Gray and Intirion to effect the Merger are subject to the
fulfillment, prior to or at the Effective Time, of the following
conditions:
Stockholder Approval. The Merger Agreement and the Merger shall have been
approved and adopted by the affirmative vote of at least such percentage of
Intirion's outstanding shares of Intirion Voting Stock (including any class
vote) as is required by law and by the Intirion Charter.
No Injunctions or Restraints; Illegality. No statute, rule, regulation,
executive order, decree, ruling, temporary restraining order, preliminary
or permanent injunction or other order shall have been enacted, entered,
promulgated, enforced or issued by any court or governmental authority of
competent jurisdiction or shall otherwise be in effect that prohibits,
restrains, enjoins or restricts the consummation of the Merger.
Hart-Scott-Rodino. All required filings under the Hart-Scott-Rodino Act
shall have been completed and all applicable time limitations under the
Hart-Scott-Rodino Act shall have expired without a request for further
information by the relevant federal authorities under the Hart-Scott-Rodino
Act, or in the event of such a request for further information, the
expiration of all applicable time limitations under the Hart-Scott-Rodino
Act shall have occurred without the objection of such federal authorities.
Currently, neither Mac-Gray nor Intirion is required to make any filings
with the FTC or the Antitrust Division pursuant to the Hart-Scott-Rodino
Act in connection with the Merger. No assurances can be given, however,
that such filings will not be required prior to the Effective Time. See
"Regulatory Approvals Required."
Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the
Commission.
Listing of Mac-Gray Common Stock. The shares of Mac-Gray Common Stock
which shall be issued to the holders of Intirion Exchangeable Securities
upon the consummation of the Merger shall have been authorized for listing
and/or trading on the NYSE, subject to official notice of issuance.
Escrow Agreement. The Escrow Agreement shall have been executed and
delivered by the parties thereto. See "Ancillary Agreements--Escrow
Agreement" and Exhibit B to Appendix A.
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Conditions to Obligations of Mac-Gray and Sub. The obligation of Mac-Gray
and Sub to effect the Merger is subject to the fulfillment, prior to or at the
Effective Time, of the following conditions:
Representations; Warranties; Covenants. Each of the representations and
warranties of Intirion contained in the Merger Agreement shall be true and
correct in all material respects (except for such representations and
warranties that are qualified by their terms as to materiality, which
representations and warranties as so qualified shall be true in all
respects) as of the date of the Merger Agreement and as of the Closing Date
as though made on and as of the Closing Date; and Intirion and Bennett
shall, on or before the Closing Date, have performed in all material
respects all of their obligations under the Merger Agreement which by the
terms thereof are to be performed on or before the Closing Date.
No Material Change. There shall have been no material adverse change in
the financial condition, properties, assets, liabilities, business or
operations of Intirion since the date of the Merger Agreement, whether or
not in the ordinary course of business.
Certificate from Officers. Intirion shall have delivered to Mac-Gray a
certificate of Intirion's President and Chief Financial Officer, dated as
of the Closing Date, to the effect that the conditions described in the
previous two paragraphs have been satisfied.
Approval of Mac-Gray's Counsel. All actions, proceedings, instruments and
documents required to carry out the Merger and all related legal matters
contemplated by the Merger Agreement shall have been approved by Goodwin,
Procter & Hoar llp as counsel for Mac-Gray, and such counsel shall have
received on behalf of Mac-Gray such other certificates, opinions and
documents in form satisfactory to such counsel as Mac-Gray may reasonably
require from Intirion and Bennett to evidence compliance with the terms and
conditions of the Merger Agreement as of the Closing Date.
Opinion of Counsel. On the Closing Date, Mac-Gray shall have received
from White & McDermott, P.C., counsel for Intirion and Bennett, an opinion
in substantially the form attached to the Merger Agreement. See Exhibit F
to Appendix A.
Pooling of Interests. Mac-Gray shall have received a letter, in form and
substance satisfactory to it, from Price Waterhouse LLP addressed to Mac-
Gray, to the effect that the Merger is expected to qualify for pooling of
interests accounting treatment. See "--Accounting Treatment."
Consents. Intirion and its securityholders shall have made all filings
with and notifications of governmental authorities, regulatory agencies and
other entities required to be made by Intirion and its securityholders in
connection with the Merger and the continued operation of the business of
Intirion by Mac-Gray subsequent to the Effective Time, except where the
failure to make such filings and notifications would not, either
individually or in the aggregate, materially and adversely affect the
consummation of the Merger or have a Material Adverse Effect on Intirion.
Intirion and its securityholders and Mac-Gray shall have received all
authorizations, waivers, consents and permits, in form and substance
reasonably satisfactory to Mac-Gray, including any and all notices,
consents and waivers required by the terms of any securities that are
convertible or exercisable into Intirion Common Stock, from all third
parties, including, without limitation, applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the continuation of the business of Intirion and the
consummation of the Merger, and to avoid a breach, default, termination,
acceleration or modification of any indenture, loan or credit agreement or
any other material agreement, contract, instrument, mortgage, lien, lease,
permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award as a result of, or in connection with,
the execution and performance of the Merger Agreement except where the
failure to have so received such authorizations, waivers, consents and
permits would not, either individually or in the aggregate, materially and
adversely affect the consummation of the Merger or have a Material Adverse
Effect on Intirion.
Non-Competition Agreements. Bennett shall have executed and delivered to
Mac-Gray a non-competition agreement (the "Bennett Non-Competition
Agreement") in substantially the form attached to the Merger Agreement. See
Exhibit G to Appendix A.
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Merger Certificate. Intirion shall have executed and delivered the
Certificate of Merger.
Comfort Letter. Mac-Gray shall have received letters, dated as of the
date the Registration Statement is declared effective and as of the Closing
Date, from Price Waterhouse LLP, relating to the financial statements and
other financial data with respect to Intirion included in this
Prospectus/Proxy Statement and Registration Statement and such other
matters as may be reasonably requested by Mac-Gray.
Resignations. Intirion shall have delivered to Mac-Gray the resignations
of all of the directors of Intirion and of such officers of Intirion as may
be requested by Mac-Gray at least five days prior to the Closing Date, such
resignations to be effective at the Effective Time.
Releases. Intirion shall have delivered to Mac-Gray general releases
signed by each Intirion Principal Stockholder and each securityholder of
Intirion who is an officer or director of Intirion in the form attached to
the Merger Agreement. See Exhibit H to Appendix A.
Dissenting Stockholders. The aggregate number of shares of the Intirion
Voting Stock owned by holders thereof who have perfected and not abandoned
dissenters' rights of appraisal shall not constitute more than ten percent
(10%) of the total shares of Intirion Voting Stock immediately prior to the
Effective Time. See "Rights of Dissenting Stockholders."
Affiliate Letters. Mac-Gray shall have received executed Affiliate
Letters from each party required to execute such Affiliate Letters pursuant
to the terms of the Merger Agreement. See Exhibit C to Appendix A.
Consents and Estoppels. Mac-Gray shall have received consents to the
Merger from certain lessors (the "Lessors") of real property to Intirion
specified in the Merger Agreement and shall also have received estoppel
certificates addressed to Mac-Gray from the Lessors, dated within 15 days
of the Closing Date, in a form reasonably satisfactory to Mac-Gray.
Termination of Certain Agreements. Certain agreements specified in the
Merger Agreement shall have been terminated on terms satisfactory to
Parent. See Exhibit I to Appendix A.
Conditions to Obligations of Intirion. The obligation of Intirion to effect
the Merger is subject to the fulfillment, prior to or at the Effective Time,
of the following conditions:
Representations; Warranties; Covenants. Each of the representations and
warranties of Mac-Gray contained in the Merger Agreement shall be true and
correct in all material respects (except for such representations and
warranties that are qualified by their terms as to materiality, which
representations and warranties as so qualified shall be true in all
respects) as of the date of the Merger Agreement and as of the Closing Date
as though made on and as of the Closing Date; and Mac-Gray shall, on or
before the Closing Date, have performed in all material respects all of its
obligations under the Merger Agreement which by the terms thereof are to be
performed on or before the Closing Date.
No Material Change. There shall have been no material adverse change in
the financial condition, properties, assets, liabilities, business or
operations of Mac-Gray and its subsidiaries taken as a whole since the date
of the Merger Agreement, whether or not in the ordinary course of business,
provided that no decrease in the reported price of Mac-Gray Common Stock
shall in any event constitute a material adverse change.
Certificate from Officers. Mac-Gray shall have delivered to Intirion a
certificate of Mac-Gray's President and Chief Financial Officer dated as of
the Closing Date to the effect that the conditions described in the
previous two paragraphs have been satisfied.
Approval of Intirion's Counsel. All actions, proceedings, instruments and
documents required to carry out the Merger and all related legal matters
contemplated by the Merger Agreement shall have been approved by White &
McDermott, P.C., as counsel for Intirion and Bennett, and such counsel
shall have received on behalf of the Intirion and Bennett such other
certificates, opinions and documents in form satisfactory to such counsel
as Intirion may reasonably require from Mac-Gray to evidence compliance
with the terms and conditions of the Merger Agreement as of the Closing
Date.
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Opinion of Counsel. On the Closing Date, Intirion and Intirion's
securityholders shall have received from Goodwin, Procter & Hoar LLP,
counsel for Mac-Gray, an opinion as of said date, in substantially the form
attached to the Merger Agreement. See Exhibit J to Appendix A.
Registration Rights. Mac-Gray and the Intirion Principal Stockholders
shall have entered into the Registration Rights Agreement. See "Ancillary
Agreements--Registration Rights Agreement " and Exhibit D to Appendix A.
TERMINATION
Termination Events. The Merger Agreement is subject to termination by (a)
the mutual written consent of Mac-Gray and Intirion; or (b) by Intirion,
provided that neither Intirion nor Bennett is in material breach of the Merger
Agreement, (i) if Mac-Gray is in material breach of the Merger Agreement and
such breach remains uncured for a period of ten (10) business days after
Intirion has given written notice of such breach to Mac-Gray, or (ii) if Mac-
Gray has explicitly or by conduct repudiated the Merger Agreement and such
repudiation remains uncured for a period of ten (10) business days after
Intirion has given written notice thereof to Mac-Gray, or (iii) if by April
30, 1998, any of the conditions precedent to Intirion's obligation to
consummate the Merger have not been satisfied, complied with or performed in
all material respects (unless such failure of satisfaction, noncompliance or
nonperformance is the result directly or indirectly of any action or failure
to act on the part of Intirion or Bennett) and Intirion has not waived such
failure of satisfaction, noncompliance or nonperformance; or (c) by Mac-Gray,
provided that Mac-Gray is not in material breach of the Merger Agreement, (x)
if Intirion or Bennett is in material breach of the Merger Agreement and such
breach remains uncured for a period of ten (10) business days after Mac-Gray
has given written notice of such breach to Intirion and, if applicable,
Bennett, (y) if Intirion or Bennett has explicitly or by conduct repudiated
the Merger Agreement and such repudiation remains uncured for a period of ten
(10) business days after Mac-Gray has given written notice thereof to Intirion
and, if applicable, Bennett, or (z) if by April 30, 1998, any of the
conditions precedent to Mac-Gray's obligation to consummate the Merger have
not been satisfied, complied with or performed in all material respects
(unless such failure of satisfaction, noncompliance or nonperformance is the
result directly or indirectly of any action or failure to act on the part of
Mac-Gray) and Mac-Gray has not waived such failure of satisfaction,
noncompliance or nonperformance.
Effect of Termination. With the exception of the termination provisions and
the provisions regarding confidentiality, public announcements, fees and
expenses and publicity and disclosures, all obligations of the parties to the
Merger Agreement shall cease upon any termination of the Merger Agreement;
provided, however, that (i) no party shall be relieved from any liability for
any material breach of the Merger Agreement, (ii) if any of the conditions to
Mac-Gray's obligation to proceed with the Merger have not been satisfied, Mac-
Gray may proceed with the Merger without waiving any of its rights under the
Merger Agreement and (iii) if any of the conditions to Intirion's obligation
to proceed with the Merger have not been satisfied, Intirion may proceed with
the Merger without waiving any of its rights under the Merger Agreement.
INDEMNIFICATION
Intirion and Bennett have agreed and, by approving the Merger Agreement,
Intirion's stockholders will agree, that 10% of the number of shares of Mac-
Gray Common Stock issued in connection with the Merger will be deducted pro
rata from the shares allocable to each former holder of Intirion Exchangeable
Securities and held in escrow, pursuant to the terms of the Escrow Agreement,
for the purpose of satisfying certain claims for which Mac-Gray is indemnified
under the Merger Agreement arising out of or otherwise in respect of: (a) any
breach of any representation, warranty or covenant of Intirion or Bennett
under the Merger Agreement or in any certificate, schedule or exhibit
delivered pursuant thereto, or by reason of any claim, action or proceeding
asserted or instituted growing out of any matter or thing constituting a
breach of such representations, warranties or covenants and (b) any liability
or obligation of or loss by Intirion for or with respect to (i) social
security taxes for the year ended December 31, 1994; (ii) Pennsylvania state
taxes in excess of $2,000 in the aggregate for the years ended December 31,
1989, 1990, 1991, 1992 and 1993 and (iii) the failure of Intirion to file any
Annual Reports on Form 5500 with respect to any Employee Program (as defined
in the Merger Agreement). No
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indemnification shall be payable with respect to claims asserted pursuant to
clause (a) above unless and until the amount of all claims for indemnification
under such clause exceeds $300,000 in the aggregate, whereupon the full amount
of such claims shall be recoverable. No indemnification shall be payable with
respect to claims asserted pursuant to clause (a) or (b) above after the
earlier of (x) the first anniversary of the Closing Date or (y) the date of
issuance of the first audited financial statements of Mac-Gray for the fiscal
year ending December 31, 1998; provided, however, that if on or prior to the
Expiration Date a specific state of facts shall have become known which may,
in the good faith judgment of Mac-Gray, give rise to a claim for
indemnification under clause (a) or (b) above and Mac-Gray shall have given
written notice to the Escrow Agent of such facts known by Mac-Gray at such
time, then the right to indemnification with respect to such claim shall
remain in effect without regard to when such matter shall be finally
determined and disposed of. All indemnification claims asserted under clause
(a) or (b) above shall be satisfied solely from the Escrowed Shares, provided
that claims asserted under clause (a) above that involve a fraudulent or
intentional misrepresentation made by Intirion to Mac-Gray or an intentional
breach of the Merger Agreement by Intirion or Bennett may also be satisfied
from Bennett, and provided further that the Threshold and the Expiration Date
shall not apply in the case of a fraudulent or intentional misrepresentation
made by Intirion to Mac-Gray or an intentional breach of the Merger Agreement
by Intirion or Bennett, and the Threshold shall not apply in the case of
claims asserted under clause (b) above. See "Ancillary Agreements--Escrow
Agreement."
See "Summary of Prospectus/Proxy Statement--Terms of the Merger--
Indemnification" for definitions of certain capitalized terms used in this
section.
FEES AND EXPENSES
Whether or not the Merger is consummated, each party to the Merger Agreement
will pay its own fees, expenses and disbursements and those of its agents,
representatives, accountants and counsel incurred in connection with the
Merger, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed pursuant to the Merger
Agreement. Notwithstanding the foregoing, if the Merger is consummated, the
holders of Intirion Exchangeable Securities shall pay all of such fees and
expenses incurred by them and all of such fees and expenses incurred by
Intirion and no such fees or expenses shall be paid for or reflected in any
account of Intirion; provided that Intirion will pay the reasonable fees and
expenses of White & McDermott, P.C. up to $125,000.
AMENDMENT; WAIVER
The Merger Agreement may not be amended or modified, nor may compliance with
any condition or covenant set forth therein be waived, except by a writing
duly and validly executed by each party to the Merger Agreement, or in the
case of a waiver, the party waiving compliance.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes. Mac-Gray has received a letter from Price
Waterhouse LLP dated as of the date of the Merger Agreement to the effect that
the Merger is expected to qualify for pooling of interests accounting
treatment. Under the pooling of interests method of accounting, the historical
recorded assets and liabilities of Mac-Gray and Intirion will be carried
forward to the combined company at their recorded amounts, the operating
results of the combined company will include the operating results of Mac-Gray
and Intirion for the entire fiscal year in which the combination occurs and
the historical reported operating results of the separate companies for prior
periods will be combined and restated as the operating results of the combined
company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Assuming the Merger is so treated, for federal
income tax purposes, the Merger will not result in the recognition
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of gain or loss to Mac-Gray, Intirion, Sub or the holders of Intirion Voting
Stock, except with respect to cash received in the Merger (including in lieu
of fractional shares) or pursuant to the exercise of appraisal rights. The tax
basis of Mac-Gray Common Stock received will generally be the same as the tax
basis of the Intirion Voting Stock surrendered in the Merger, and the holding
period of the Mac-Gray Common Stock received will include the holding period
of the Intirion Voting Stock surrendered if the Intirion Voting Stock was held
as a capital asset. Similar treatment should apply to holders of the $12.50
Warrants, the $5.00 Warrants and any Miscellaneous Warrant or Intirion Option
that is not a compensatory stock option subject to special tax rules. See
"Certain Federal Income Tax Considerations."
RESALE OF MAC-GRAY COMMON STOCK
All shares of Mac-Gray Common Stock issued in connection with the Merger
will be freely transferable, except that any shares of Mac-Gray Common Stock
received by persons who, at the time of the Intirion Special Meeting are
deemed to be "affiliates" of Intirion for purposes of Rule 145 under the
Securities Act, may be sold by them only in transactions permitted by the
resale provisions of Rule 145 under the Securities Act (with respect to
affiliates of Intirion) or Rule 144 under the Securities Act (with respect to
persons who are or become affiliates of Mac-Gray) or as otherwise permitted
under the Securities Act. Persons who may be deemed to be affiliates of
Intirion generally include individuals or entities that control, are
controlled by, or are under common control with, Intirion and may include
certain officers and directors of Intirion as well as principal stockholders
of Intirion.
Affiliates of Intirion may not sell their shares of Mac-Gray Common Stock
acquired in connection with the Merger, except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 (or Rule 144 under the Securities Act in the case of
persons who are or become affiliates of Mac-Gray) or another applicable
exemption from the registration requirements of the Securities Act. In
general, under Rule 145, for one year following the Effective Time an
affiliate (together with certain related persons) would be entitled to sell
shares of Mac-Gray Common Stock acquired in connection with the Merger only
through unsolicited "brokers' transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144. Additionally, the
number of shares to be sold by an affiliate (together with certain related
persons) within any three-month period for purposes of Rule 145 may not exceed
the greater of 1% of the outstanding shares of Mac-Gray Common Stock or the
average weekly trading volume of such stock during the four calendar weeks
preceding such sale. Rule 145 would, however, only remain available to
affiliates if Mac-Gray remained current with its informational filings with
the Commission under the Exchange Act. One year after the Effective Time, a
person who was an affiliate of Intirion at the time of the Intirion Special
Meeting would be able to sell shares of Mac-Gray Common Stock acquired in the
Merger without such manner of sale or volume limitations provided that Mac-
Gray was current with its Exchange Act informational filings and such person
was not then an affiliate of Mac-Gray. Two years after the Effective Time, a
person who was an affiliate of Intirion at the time of the Intirion Special
Meeting would be able to sell such shares of Mac-Gray Common Stock acquired in
the Merger without any restrictions so long as such person had not been an
affiliate of Mac-Gray for at least three months prior thereto.
In order to help assure compliance with Rule 145 under the Securities Act
and treatment of the Merger as a pooling of interests, Intirion has agreed to
deliver the Affiliate Letters. See "The Merger--Certain Covenants and
Agreements--Other Agreements--Affiliate Letters."
Under the terms of the Registration Rights Agreement, the Intirion Principal
Stockholders have certain registration rights that obligate Mac-Gray to
register the shares of Mac-Gray Common Stock received by the Intirion
Principal Stockholders in connection with the Merger. Such shares are being
registered pursuant to the Registration Statement of which this
Prospectus/Proxy Statement forms a part. See "Ancillary Agreements--
Registration Rights Agreement."
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ANCILLARY AGREEMENTS
The descriptions of the Voting Agreements, the Escrow Agreement, the
Registration Rights Agreement and the Bennett Non-Competition Agreement
contained in this Prospectus/Proxy Statement do not purport to be complete and
are qualified in their entirety by reference to such agreements, which are
attached as Exhibits E-1, E-2, B and D, respectively, to Appendix A.
VOTING AGREEMENTS
Concurrently with the execution of the Merger Agreement, Mac-Gray and each
of the Intirion Principal Stockholders entered into the Voting Agreements
pursuant to which each Intirion Principal Stockholder has agreed to vote all
of the shares of Intirion Voting Stock controlled by it (the "Subject
Securities") in favor of the Merger and the approval of the terms of the
Merger Agreement and against other business combinations and actions which
could interfere with the Merger and has granted an irrevocable proxy to Sub,
certain officers of Sub and their successors and any other designee of Sub to
vote the Subject Securities in accordance with such agreement. As of the date
of this Prospectus/Proxy Statement, the Intirion Principal Stockholders
collectively own 100% of the issued and outstanding shares of Intirion Senior
Preferred Stock, 100% of the issued and outstanding shares of the Intirion
Series A Preferred Stock and 317,568 shares of Intirion Common Stock (or
approximately 42% of the issued and outstanding shares of Intirion Common
Stock).
Each Intirion Principal Stockholder has agreed that it will not, directly or
indirectly, solicit or respond to any inquiries or the making of any proposal
by any person or entity (other than Mac-Gray or any affiliate of Mac-Gray)
with respect to Intirion which constitutes or could reasonably be expected to
lead to an acquisition or purchase of all or (other than in the ordinary
course of business) a portion of the assets of, or any equity interest in,
Intirion, any merger or business combination with Intirion or any public or
private offering of interests in Intirion. Each Intirion Principal Stockholder
has also agreed that it will not, directly or indirectly, except pursuant to
the terms of the Merger Agreement, offer for sale, sell, or otherwise dispose
of or grant any proxies with respect to any or all of such Intirion Principal
Stockholder's Subject Securities.
The Voting Agreements shall terminate upon the earlier of (i) the
consummation of the Merger, (ii) the termination of the Merger Agreement
pursuant to its terms and (iii) in the case of the Voting Agreement by and
between Mac-Gray and Gelco Corporation, an amendment to the Merger Agreement
that (a) reduces the consideration to be paid to Gelco Corporation in
connection with the Merger or (b) otherwise materially adversely affects Gelco
Corporation.
ESCROW AGREEMENT
As of the consummation of the Merger, Mac-Gray, Gelco Corporation, Michael
Shanahan, as agent (the "Agent") for the holders of Intirion Exchangeable
Securities other than Gelco Corporation, and the Escrow Agent (State Street
Bank) will enter into the Escrow Agreement, pursuant to which, upon
consummation of the Merger, Mac-Gray shall deliver ten percent (10%) of the
shares of Mac-Gray Common Stock comprising the Merger Consideration. The
Escrowed Shares will be deducted pro rata from the shares allocable to each
former holder of Intirion Exchangeable Securities. The purpose of the escrow
is to satisfy claims for indemnification made by Mac-Gray pursuant to the
Merger Agreement. See "The Merger-- Indemnification."
The Escrow Agent shall disburse the Escrowed Shares (i) upon joint written
notice and instruction from Mac-Gray, Gelco Corporation and the Agent that the
Escrowed Shares, or any portion thereof, should be disbursed or (ii) if at any
time, or from time to time, on or before the earlier of (a) the first (lst)
anniversary of the Closing Date and (b) the date of issuance of the first
audited financial statements of Mac-Gray for the fiscal year ended December
31, 1998 (such earlier date, the "Termination Date"), Mac-Gray delivers to the
Escrow Agent written notice asserting that (x) Mac-Gray is entitled to
indemnification under the Merger Agreement (an
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"Indemnification Notice") or (y) prior to the Termination Date a specific
state of facts (which facts shall be described) has become known which may, in
Mac-Gray's good faith judgment, give rise to a claim for indemnification under
the Merger Agreement (a "Contingent Claim Notice"), which Indemnification
Notice or Contingent Claim Notice, as the case may be, shall state the basis
and amount of such indemnification claim, then the Escrow Agent shall disburse
to Mac-Gray, on the thirtieth (30th) day following receipt by the Escrow Agent
of the Indemnification Notice or the Contingent Claim Notice, as the case may
be, a number of the Escrowed Shares equal in value to the amount of such
claim; provided, however, that if the Escrow Agent receives written notice
from either the Agent or Gelco Corporation prior to such thirtieth (30th) day
that a dispute exists with respect to such indemnification claim (a "Dispute
Notice"), which Dispute Notice shall state the basis of such dispute and the
number of Escrowed Shares, if any, as to which no dispute exists, the Escrow
Agent shall continue to hold the Escrowed Shares that are in dispute (but
shall disburse to Mac-Gray the number of Escrowed Shares as to which no
dispute exists) until directed otherwise.
If the Escrow Agent timely receives a Dispute Notice, the Escrow Agent shall
retain the Escrowed Shares in dispute until the first to occur of the
following: (i) receipt by the Escrow Agent of a joint written instruction from
Mac-Gray, Gelco Corporation and the Agent, in which case the Escrow Agent
shall disburse the Escrowed Shares (or applicable portions thereof) as set
forth in such joint written instructions or (ii) receipt by the Escrow Agent
of a final order of a court of competent jurisdiction (the "Indemnity Award")
resolving the dispute, in which case the Escrow Agent shall disburse the
Escrowed Shares (or applicable portions, thereof) as set forth in the
Indemnity Award.
If, on the Termination Date, there are Escrowed Shares remaining undisbursed
and not subject to an Indemnification Notice or a Contingent Claim Notice
received by the Escrow Agent, the Escrow Agent shall disburse (upon receipt of
proper stock certificates from Mac-Gray's transfer agent) such Escrowed Shares
to the Intirion Stockholders in accordance with each Intirion Stockholder's
Proportionate Interest (as defined in the Escrow Agreement).
Whenever the Escrow Agreement provides that the Escrow Agent may or shall
disburse Escrowed Shares to Mac-Gray, the Escrow Agent shall deliver to the
transfer agent for the Escrowed Shares the stock certificate representing such
Escrowed Shares and the transfer agent shall deliver to the Escrow Agent one
stock certificate representing the number of shares to be delivered to Mac-
Gray and another stock certificate representing the balance of Escrowed Shares
remaining. The Escrow Agent shall then deliver to Mac-Gray a stock certificate
representing the appropriate number of Escrowed Shares determined in
accordance with the next sentence. The number of Escrowed Shares disbursed to
satisfy an indemnification claim by Mac-Gray shall be equal to the number of
Escrowed Shares (rounded to the nearest whole share) determined as follows:
(i) the amount of losses with respect to which Mac-Gray is entitled to
indemnification under the Merger Agreement and as to which the Escrow Agent
has received an Indemnification Notice or a Contingent Claim Notice for which
a Dispute Notice is not timely delivered or, if so delivered, the dispute has
been resolved in accordance with the third paragraph of this section divided
by (ii) the per share closing price of Mac-Gray Common Stock on the NYSE on
the Closing Date as reported in The Wall Street Journal.
The Escrow Agent will receive a fee for its services and will be held
harmless and be indemnified in connection with any and all third party claims,
losses, judgments or costs, regardless of their nature, arising out of or
because of the Escrow Agreement, except such as may arise because of the
Escrow Agent's gross negligence or willful misconduct.
The Escrow Agreement will terminate upon the final disbursement of the
Escrowed Shares by the Escrow Agent as provided in the Escrow Agreement.
REGISTRATION RIGHTS AGREEMENT
As of the consummation of the Merger, Mac-Gray and the Intirion Principal
Stockholders will enter into the Registration Rights Agreement.
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Resale Registration. To facilitate the resale by the Intirion Principal
Stockholders of the shares of Mac-Gray Common Stock received by them in
connection with the Merger (the "Registrable Securities"), Mac-Gray has agreed
to use its best efforts to file and cause to become effective under the
Securities Act no later than the date which is thirty (30) days after the
Closing Date a resale registration statement (the "Resale Registration
Statement") covering all of the Registrable Securities. The Resale
Registration Statement is included in the Registration Statement of which this
Prospectus/Proxy Statement is a part. Once the Resale Registration Statement
is effective, Mac-Gray has agreed to use commercially reasonable efforts to
keep such Resale Registration Statement continuously effective for a period
ending with the earlier of (a) the sale of all Registrable Securities and (b)
12 months following the Closing Date.
Piggyback Registration. If at any time or times prior to the second
anniversary of the Merger Mac-Gray shall determine to register under the
Securities Act any shares of Mac-Gray Common Stock (except in certain
specified situations), the Intirion Principal Stockholders have the right to
request the inclusion in such registration of some or all of the Registrable
Securities held by them. In the event of such request, Mac-Gray shall use
commercially reasonable efforts to cause such Registrable Securities 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 Registrable Securities 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
Intirion Principal Stockholders of the Registrable Securities being
registered, will be paid by Mac-Gray. The Intirion Principal Stockholders will
be responsible for underwriting commissions or discounts or transfer taxes, if
any, attributable to the sale of Registrable Securities, any fees or expenses
of any counsel, accountants or other persons retained or employed by the
Intirion Principal Stockholders (other than the fees and expenses of one legal
counsel as provided above) or out-of-pocket expenses of the Intirion Principal
Stockholders 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
Intirion Principal Stockholders and certain related parties, and the Intirion
Principal Stockholders 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 Registrable
Securities.
NON-COMPETITION AGREEMENT
As of the consummation of the Merger, Mac-Gray and Bennett shall enter into
the Bennett Non-Competition Agreement, which provides that Bennett, so long as
he is employed by Mac-Gray and any time thereafter, shall keep secret and
shall not ever publish, divulge, furnish, impart or disclose any of the Trade
Secrets or Confidential Information (as such terms are defined in the Bennett
Non-Competition Agreement) to any person, firm or corporation other than Mac-
Gray or certain parties affiliated with Mac-Gray, or use any of the Trade
Secrets or Confidential Information, directly or indirectly, for his own
benefit or for the benefit of any person, firm or corporation other than Mac-
Gray and certain parties affiliated with Mac-Gray. The Bennett Non-Competition
Agreement also provides that Bennett shall not, for a period beginning on the
Closing Date and ending on the third anniversary of the date Bennett's
employment with Mac-Gray is terminated (the "Lapse Date"), without the express
prior written consent of Mac-Gray, directly or indirectly, anywhere in each
state of the United States in which Mac-Gray and its affiliates are,
collectively, as of the Closing Date or at any time prior to the Lapse Date,
conducting any business activities (a) engage in any activity in the principal
business of Mac-Gray and its affiliates as of the Closing Date, including,
without limitation, the business of (i) owning, selling, leasing, operating or
servicing card or coin-operated laundry machines and (ii) producing, selling,
leasing and servicing appliance products, including, without limitation,
refrigerators, freezers and microwave ovens, in the "in room" environments of
college and university residence halls, hotels and motels, government or
military
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accommodations or the senior living market or (b) engage, participate or
invest in or assist (whether as owner, part-owner, shareholder, partner,
member, director, officer, trustee, employee, agent or consultant, or in any
other capacity) any business organization whose activities, products or
services are in the industry described in clause (i) above; provided, however,
that Bennett may make passive investments in a competitive enterprise, the
shares of which are publicly traded, if Bennett's aggregate investment in such
enterprise constitutes less than one percent (1%) of the equity ownership of
such enterprise.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material United States
federal income tax consequences of the Merger. This discussion is based upon
the Code, regulations proposed or promulgated thereunder, judicial precedent
relating thereto, and current rulings and administrative practice of the
Service in each case as in effect as of the date hereof, all of which are
subject to change at any time, possibly with retroactive effect. The summary
set forth below may not be applicable with respect to holders of Intirion
Exchangeable Securities who are subject to special tax treatment, such as non-
U.S. persons, life insurance companies, tax-exempt organizations and financial
institutions, and may not apply to a holder in light of his or her individual
circumstances.
HOLDERS OF INTIRION EXCHANGEABLE SECURITIES SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS.
The Merger is intended to qualify as a reorganization under Section 368(a)
of the Code. The following discussion assumes that the Merger will be treated
as such a reorganization. However, Mac-Gray and Intirion will not be
requesting a ruling from the Service or receiving an opinion of counsel
regarding the federal income tax consequences of the Merger, and it is
possible that the Service will assert that the Merger should not be treated as
such a reorganization. If the Merger fails to so qualify, the tax treatment
applicable to shareholders would likely be materially different from that set
forth below.
No gain or loss will be recognized for federal income tax purposes by Mac-
Gray, Intirion or Sub as a consequence of the Merger.
A holder of Intirion Voting Stock who receives a combination of Mac-Gray
Common Stock and cash in exchange for Intirion Voting Stock pursuant to the
Merger will realize economic gain or loss equal to the difference between (i)
the sum of the cash and the fair market value of the Mac-Gray Common Stock
received and (ii) the aggregate tax basis in Intirion Voting Stock surrendered
therefor. However, any such gain will only be recognized to the extent of the
cash received. Such recognized gain will generally be treated as long-term
capital gain if (x) the Intirion Voting Stock surrendered in the Merger has
been held as a capital asset for more than one year at the Effective Time (and
may be eligible for the lowest capital gains rate if held for more than
eighteen months) and (y) the cash received does not have the effect of a
distribution of a dividend (which is taxable as ordinary income). Any such
loss will not be recognized.
The tax basis of the Mac-Gray Common Stock received by a holder of Intirion
Voting Stock will be the same as the aggregate tax basis of the Intirion
Voting Stock surrendered therefor, decreased by the cash received (including
cash received in lieu of a fractional share) and increased by any gain
recognized (whether capital gain or dividend income). The holding period of
the Mac-Gray Common Stock will include the holding period of the Intirion
Voting Stock surrendered therefor, if the Intirion Voting Stock was held as a
capital asset.
For purposes of determining whether the cash received has the effect of a
distribution of a dividend, a holder of Intirion Voting Stock should be
treated as if such holder first exchanged all of such holder's Intirion Voting
Stock solely for Mac-Gray Common Stock, and then Mac-Gray immediately redeemed
a portion of the Mac-Gray Common Stock in exchange for the cash the holder
actually received. Under this analysis, in general, if the
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receipt of cash in this deemed redemption results in a "substantially
disproportionate" reduction in the holder's voting stock interest in Mac-Gray
or is "not essentially equivalent to a dividend," the receipt of the cash will
not have the effect of the distribution of a dividend. For purposes of this
determination, the holder's deemed voting interest in Mac-Gray before the
hypothetical redemption is compared to the holder's interest after the
redemption, taking into account in each case any Mac-Gray Common Stock
constructively owned by the holder under the applicable attribution rules of
the Code. Generally, if the holder's share of the voting power of Mac-Gray has
declined, as a result of the deemed redemption, by more than 20%, then the
receipt of cash will not be taxed as a dividend. If such interest in the
voting power of Mac-Gray has declined by 20% or less, then generally, in the
case of a minority shareholder who is not an officer or director of Mac-Gray
and who exercises no control over Mac-Gray's corporate affairs, the receipt of
cash likely would not be taxed as a dividend. Each holder of Intirion Voting
Stock should consult with such holder's own tax advisors as to whether the
receipt of cash has the effect of the distribution of a dividend, based on the
particular facts and circumstances, and if so, the consequences thereof.
Cash received by a holder of Intirion Voting Stock in lieu of a fractional
share interest in Mac-Gray Common Stock will be treated as received in
exchange for such fractional share interest, and gain or loss will be
recognized for federal income tax purposes, measured by the difference between
the amount of cash received and the portion of the basis of the Intirion
Voting Stock allocable to such fractional share interest. Such gain or loss
would be capital gain or loss and will be long-term if such share of Intirion
Voting Stock had been held for more than one year at the Effective Time (and
may be eligible for the lowest capital gains rate if held for more than
eighteen months).
Under the Code, a holder of Intirion Voting Stock may be subject, under
certain circumstances, to back-up withholding at a 31% rate with respect to
the amount of cash received pursuant to the Merger unless such holder provides
proof of an applicable exemption or a correct taxpayer identification number,
and otherwise complies with applicable requirements of the back-up withholding
rules. Amounts withheld under the back-up withholding rules are not an
additional tax and may be refunded or credited against the holder's federal
income tax liability, provided that the required information is furnished to
the Service. A holder of Intirion Voting Stock that does not provide his or
her correct taxpayer identification number may be subject to penalties imposed
by the Service.
Under Treasury Regulations effective for exchanges occurring on or after
March 6, 1998, a holder of the $12.50 Warrants, the $5.00 Warrants or any
other non-compensatory Intirion Option or Miscellaneous Warrant should not
recognize gain or loss for federal income tax purpose as a result of the
receipt of Mac-Gray Common Stock in the Merger, except with respect to cash
received in lieu of fractional shares. The tax basis of the Mac-Gray Common
Stock received by such a holder will be the same as the aggregate tax basis of
the non-compensatory Intirion Option or Miscellaneous Warrant exchanged
therefor, and the holding period of the Mac-Gray Common Stock should include
the holding period of the non-compensatory Intirion Option or Miscellaneous
Warrant exchanged therefor, assuming such non-compensatory Intirion Option or
Miscellaneous Warrant was held as a capital asset. Nonrecognition of gain or
loss with respect to holders of the $12.50 Warrants, the $5.00 Warrants and
any other non-compensatory Intirion Option or Miscellaneous Warrant will
depend upon the treatment of such options or warrants as "rights to acquire
stock" within the meaning of the applicable Treasury Regulations. That term is
not fully defined in such Treasury Regulations, and the Service has not issued
any guidance on that issue. Although the $12.50 Warrants and the $5.00
Warrants should be treated as "rights to acquire stock" with respect to
Intirion, holders of such warrants should nevertheless consult their tax
advisors to confirm the application of the Treasury Regulations to such
warrants, particularly in light of any guidance that the Service may issue in
the future.
Holders of Miscellaneous Warrants or Intirion Options that are compensatory
in nature are subject to special rules under the Code and generally will be
subject to federal income tax upon the receipt of Mac-Gray Common Stock
pursuant to the Merger. Such holders should consult their own tax advisors as
to the federal income tax consequences of the Merger in light of their
particular circumstances.
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DESCRIPTION OF MAC-GRAY
INTRODUCTION
Mac-Gray, founded in 1927, believes that it is among North America's largest
suppliers of card and coin-operated laundry services in multiple housing
facilities such as apartment buildings, colleges and universities and public
housing complexes, and, based upon Mac-Gray's survey of colleges and
universities, is North America's largest supplier of such services to the
college and university market. Mac-Gray owns and operates approximately
120,000 card and coin-operated washers and dryers in more than 17,000 multiple
housing laundry rooms located in 22 states in the Northeast, Midwest and
Southeast regions of the United States. In addition, Mac-Gray believes that it
is the largest operator of commercial laundry products manufactured by Maytag.
Mac-Gray's revenues, earnings before interest, taxes, depreciation and
amortization ("EBITDA") and pro forma net income for the twelve months ended
December 31, 1997, were approximately $81.4 million, $19.6 million and $4.7
million, respectively.
Approximately 85% 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, which have an average remaining
life of more than seven years, 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. Mac-Gray has been able to retain 99% of
its existing machine base, while also adding an average of 5.1% to its machine
base, during each of the past five years. Mac-Gray believes that its ability
to retain its existing machine base in the past, while growing its machine
base through acquisitions, is indicative of its service of, and attention to,
property owners and managers. 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, thus optimizing customer retention.
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. Mac-Gray
believes that many larger property owners and managers may be even more
inclined to outsource non-core operations, such as laundry services, during
economic downturns as they seek to control capital expenditures while
maximizing resident retention through the availability of quality services
and amenities.
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DIVERSIFIED AND STABLE CUSTOMER BASE--Mac-Gray provides laundry services
to more than 17,000 laundry rooms located in 22 states in the Northeast,
Midwest and Southeast regions of the United States. Currently, no lessor
represents more than 1% of Mac-Gray's machine base. Mac-Gray serves
customers in a number of markets including apartment buildings, colleges
and universities and public housing complexes.
INDUSTRY OVERVIEW
The card and coin-operated laundry services industry serves multiple housing
markets such as apartment buildings, colleges and universities and public
housing complexes. Mac-Gray estimates, based upon its analysis of 1990 U.S.
Department of Census data on multi-family housing units and colleges and
universities, as well as its analysis of related U.S. Department of Census
research surveys conducted during 1996, that these markets contain more than
3.5 million machines nationally, generating more than $2.0 billion in annual
revenues, and approximately 1.7 million machines in 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 property
management and ownership entities are beginning to outsource on-premise
services to enable the property owner or manager to focus on their core
business. By outsourcing services, property owners and managers are able to
respond more quickly and efficiently to the residents' needs, thereby
increasing retention, the critical factor in these larger entities'
profitability. These same property owners and managers are also increasingly
looking for service providers that can service multiple locations with a
broader product mix.
The laundry services industry has historically been serviced by small,
independent owner-operators. Many of these independent business owners
commenced operations during the 1940s and 1950s and are facing generational
transfer issues as they reach retirement age. While many of these
entrepreneurs enjoy excellent reputations, they are confronted with
significant capital expenditures necessary to upgrade existing equipment and
implement newly available payment technologies. Faced with these factors, many
are choosing to sell their businesses.
Recent developments in cashless payment technology have also begun to change
the way in which the laundry services industry conducts business. Cashless
payment technology, the costs of which have historically outweighed the
benefits, has recently become more affordable which, Mac-Gray believes, will
lead to more cashless, card based laundry rooms. The benefits of cashless
payment technology include the potential for modest incremental price
increases, variable time pricing, reduced administrative burden, improved cash
controls and enhanced user convenience. Cashless payment technology will also
provide property owners with the ability to integrate laundry room services
with previously unrelated amenities, such as door and perimeter access,
photocopying, telephone, rent collection, vending machines and other ancillary
services.
The card and coin-operated laundry service industry is also influenced by
societal trends in multi-family housing, whether it be in the retirement,
assisted-living or low income rental markets or in the development of larger
and more full-service apartment and condominium communities. As the retirement
age population grows, retirement and full-service assisted living facilities
are being increasingly utilized by those who desire a communal, secure living
arrangement with access to a full range of on-premise services. 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.
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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, which have significantly increased during
the past 20 months, 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,
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. This focus has resulted in a 99% machine retention rate
over the past five years.
IMPLEMENT NEWLY AVAILABLE TECHNOLOGY--Mac-Gray has installed smart card
readers in more than 3,900 laundry machines since April 1, 1997 and intends
to accelerate the use of cost-effective smart card based payment and access
systems. Smart card based payment technology permits Mac-Gray to make
modest, periodic price increases, as well as to establish variable time
pricing, which will add incremental revenue. The installation of smart card
readers has increased revenue at existing facilities and has also attracted
additional customers as a result of Mac-Gray providing a broader product
offering.
Mac-Gray particularly believes that smart card based payment systems are
making its laundry equipment more convenient by eliminating the need to
gather coins to use the equipment. Mac-Gray has experienced increased usage
in some of its laundry facilities following the recent installation of
smart card readers. In addition, as card based technologies become more
prevalent, their use may also permit Mac-Gray to offer other smart card
based services to its customers, including door and perimeter 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 LEADING POSITION IN COLLEGE AND UNIVERSITY MARKET--Mac-Gray
intends to strengthen its leading position in the college and university
market and to use it as a foundation for growth in both existing and new
geographic markets. 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 the acquisition of Intirion and potentially through other
acquisitions, the services offered to its existing college and university
customers, including ancillary services typically used by college students,
such as off-site laundry and vended services, 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 during the past 20 months in order to take advantage of
opportunities which have arisen as a result of the consolidation in the real
estate industry. Nearly all of Mac-Gray's employees are eligible for incentive
bonuses based upon the net growth of Mac-Gray's customer base. Mac-Gray's
efforts have helped it to retain 99% of its existing machine base, while also
adding an average of 5.1% to its machine base, during each of the past five
years. 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
47
<PAGE>
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 another independent operator.
USE OF 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 to increase Mac-
Gray's revenue and to maximize machine usage. Prior to the availability of
smart card based cashless payment systems, modest incremental price
increases could not be implemented because of the use of twenty-five cent
coins to operate the laundry machines and the risk of imposing larger price
increases than a particular user-base would accept without experiencing a
reduction in usage. 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. 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. Mac-Gray
further believes that its reputation for integrity in collection, a local
sales force and prompt, efficient service, provide Mac-Gray with a
competitive advantage in successfully converting Self-Owners to Mac-Gray
customers. For example, in December 1996, Mac-Gray acquired The Laundry
Works, a division of Boston Financial Group, L.P. ("BFG"), a large property
management company headquartered in Boston, Massachusetts, which resulted
in the conversion of more than 500 machines at 18 locations in seven states
from self-owned and operated laundry rooms to Mac-Gray-operated laundry
rooms. Mac-Gray believes that BFG will realize a reduction in capital and
administrative expenditures related to self-ownership, which should
increase BFG's cash flows.
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. Mac-
Gray has accelerated its acquisition efforts by adding to its senior
management team, increasing its sales and marketing departments and
substantially increasing the funds available under its Credit Facility. Mac-
Gray's recent efforts are intended to accelerate and build upon Mac-Gray's
successful acquisition record. Since May 1996, Mac-Gray has acquired nine
laundry route businesses, representing approximately 42,000 machines,
contributing to the growth in its machine base. The following table summarizes
the locations of Mac-Gray's acquisitions consummated since May 1996:
<TABLE>
<CAPTION>
DATE LOCATION
---- --------
<S> <C>
May 1996........................................ Syracuse, New York
June 1996....................................... Buffalo, New York
August 1996..................................... St. Louis, Missouri
September 1996.................................. Georgia and South Carolina
December 1996................................... Madison, Wisconsin
December 1996................................... Boston, Massachusetts
April 1997...................................... Tampa, Florida
October 1997.................................... Largo, Florida
November 1997................................... Tucker (Atlanta), Georgia
</TABLE>
48
<PAGE>
The acquisitions include the Sun Services Acquisition, which added a
significant number of machines to Mac-Gray's existing machine base in Florida,
the state with the third largest multiple housing market in the country. Mac-
Gray believes that its access to capital and its proven ability to acquire and
integrate smaller independent laundry route operators with its operations
provides it with a competitive advantage when pursuing some of the numerous,
private, family-owned businesses that, in many cases, are experiencing
generational ownership changes. Many of these independent owner-operators have
decided to sell their businesses because they either have elected not to
expend the financial resources necessary, or lack access to the additional
capital necessary to upgrade existing equipment and to implement new
technology in order to compete with larger operators, such as Mac-Gray.
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. Mac-Gray believes this focus on smaller to
mid-sized acquisitions has enabled it to experience significant, long-term
growth because it permits Mac-Gray to successfully integrate these acquired
businesses into existing operations without adversely affecting its overall
customer service.
Local Laundry Route Operators. The purchase of small, local laundry route
operators and the integration of their assets into Mac-Gray's operations
results in a lower overall cost structure for the acquired business. Mac-
Gray expects to continue to evaluate additional opportunities to acquire
laundry route businesses from independent owner-operators to further
increase operating leverage within its markets. In many regions, Mac-Gray
may be able to acquire laundry routes contiguous with its existing areas of
operation without incurring significant incremental administrative costs.
Regional Laundry Route Operators. A regional laundry route acquisition is
typically larger in size and provides Mac-Gray with the opportunity to
improve its cash flow by significantly increasing total revenue, by
eliminating duplicative corporate and administrative functions and by
reducing capital expenditures through improved purchasing power. The
acquisition of a regional laundry route also provides a geographic
footprint from which Mac-Gray's sales staff can operate to increase market
penetration.
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, such as Intirion, that can provide
additional services to Mac-Gray's customer base and target markets. Mac-Gray
believes that, although certain of these ancillary services, such as off-site
laundry and vended services, may be outside Mac-Gray's current core business,
certain operating characteristics, such as the similarity of sales
distribution networks, customer decision makers and payment and collection
procedures, may present Mac-Gray with attractive growth opportunities.
CARD AND COIN-OPERATED LAUNDRY ROUTE BUSINESS
Mac-Gray currently owns and operates more than 120,000 machines in over
17,000 laundry rooms located in multiple housing facilities, with no lessor
representing more than 1% of Mac-Gray's total machine base. 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 46 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.
Mac-Gray has added 20 sales and marketing personnel during the past 20 months.
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
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<PAGE>
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 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. Mac-
Gray believes that having a sales team focused solely on the college and
university market has helped it to achieve its status as North America's
largest supplier of card and coin-operated laundry services to the college
and university market.
Facility Leasing. Mac-Gray typically sets up a complete laundry room
facility in the leased space, including washers, dryers and debit or smart
card readers, tables for organizing and folding laundry and seating areas. In
addition, Mac-Gray will frequently refurbish the premises by painting the room
and/or installing ventilation, lighting, plumbing and drainage. These
improvements are designed to create a laundry room which is clean and
convenient, thus encouraging maximum usage of the equipment by the residents
of the property. Mac-Gray generally enters into long-term leases with property
owners which provide, in most cases, for sharing of machine revenue on a
percentage basis. Under the terms of a standard long-term lease, Mac-Gray
leases a room or dedicated area within a multi-housing facility from the
property owner, public housing agency or college or university. Mac-Gray's
installed machine base is diversified across the various types of properties
that it serves as follows:
<TABLE>
<S> <C>
Apartments, condominiums and co-operatives............................. 68%
Colleges, universities and schools..................................... 24%
Public housing......................................................... 4%
Other.................................................................. 4%
</TABLE>
Based upon Mac-Gray's survey of colleges and universities, Mac-Gray is the
largest operator of card and coin-operated laundry rooms in the North American
college and university market with a customer base consisting of approximately
330 of the more than 1,600 public and private residential institutions. Mac-
Gray's strategy has been to pursue additional college and university accounts
both through acquisitions and through entering into new geographic markets.
Approximately 85% 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, which have an average remaining life of over seven years
and 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. Mac-Gray is unaware of any laundry room
lease that has ever been terminated by a customer due to 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.
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<PAGE>
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 believes that its role as a
significant purchaser and user, as well as distributor, of Maytag equipment
affords it a competitive advantage both in terms of pricing and in terms of
its staff of highly qualified service technicians. 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.
On-Call Service. Mac-Gray employs approximately 91 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 is the only Maytag
distributor to have ever won the prestigious Maytag Red Carpet Service
Award twice, both times within the past ten years.
Collections and Security. Revenues from Mac-Gray's laundry rooms are
collected on a periodic basis (typically one to three times per month) based
upon the historical use at each property. The collection routes are altered
frequently and 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 15,000
debit card operated laundry machines in response to customer demand in the
college and university market. The installation of these debit card based
machines often provided Mac-Gray with access to colleges and universities that
demanded card based payment systems as part of their procurement process.
Mac-Gray has installed smart card readers in more than 3,900 laundry
machines since April 1, 1997 and intends to accelerate the use of cost-
effective smart card based payment and access systems. Smart cards are the
same size as credit or debit cards, but contain a small microprocessor chip
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, which has
experienced increased usage at existing facilities which have been equipped
with smart card readers, believes that these smart card based payment
technologies may also be used
51
<PAGE>
to increase revenue by facilitating modest price increases and the
implementation of variable time pricing while also enhancing the ability to
expand its existing services and product offerings. The additional benefits
associated with smart card based transactions include reduced administrative
burdens and expenditures, reduced vandalism, improved security and more
efficient revenue collections. Mac-Gray believes that the availability of
these technologies will also increase laundry room usage and decrease the
property owner's risk of loss of resident business to off-premises operators
which, Mac-Gray believes, will further enhance the attractiveness of smart
card based payment systems to property owners and managers.
Newly Available Technology. The introduction of a new, single unit smart
card reader for use with laundry equipment has made it cost-effective and
operationally feasible to convert existing coin-operated machines and to
install new smart card operated machines. Prior to the availability of this
technology, each piece of laundry equipment had to be hard-wired to an on-
line processing system in order to function as a cashless unit. The newly
available single unit smart card reader makes conversions and new
installations more cost-effective.
On April 1, 1997, Mac-Gray commenced a roll-out of smart card based
payment systems. Mac-Gray has equipped more than 3,900 laundry machines
with smart card readers since the commencement of this roll-out. Mac-Gray
is also installing smart card operated machines at many of its new customer
accounts. Mac-Gray believes that its seven year experience with cashless
payment systems provides it with a competitive advantage as it further
pursues the roll-out of card-operated laundry equipment.
Pricing Flexibility. By equipping its machines with cashless payment
technology, Mac-Gray believes that it can go beyond providing a safer
environment and 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. Mac-Gray
believes that such modest price increases will lead to more revenue per
machine without reducing the usage of its machines significantly. In
addition, cashless technology will enable Mac-Gray to establish variable
time pricing schedules. For instance, the machines may be programmed to
have one set of prices during peak hours, one set during normal hours, and
another set of prices during "off" hours of operation to encourage maximum
usage, which Mac-Gray believes will lead to increased incremental revenue.
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 Company 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.
Machine Technology. In January 1997, Maytag introduced new laundry machine
models which can only be activated by using a smart card. These new machines,
which are comparably priced to existing equipment, along with Mac-Gray's
access to the newly developed smart card readers, will permit Mac-Gray to more
economically install smart card based equipment.
Additionally, in March 1997, Maytag introduced its new high-efficiency
Maytag Neptune(TM) line of laundry products. Mac-Gray believes that this new
line, which is more efficient in its use of water and utilities than existing
Maytag machines, will enhance customer relations.
COMPETITION
The card and coin-operated laundry services industry is highly competitive,
capital intensive and requires reliable and prompt service. Mac-Gray believes
that customers consider different factors in selecting a laundry service
provider including customer service, reputation, commission rates (including
advance commissions) and
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<PAGE>
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 fourth largest card and coin-
operated laundry services provider in North America. Mac-Gray believes that
only Coinmach Laundry Corporation ("Coinmach"), Web Service Company, Inc.
("Web"), and Macke Laundry Services, L.P. ("Macke") maintain larger machine
bases than Mac-Gray, with only Coinmach and Web maintaining significantly
larger machine bases than Mac-Gray's machine base. In January 1998, Coinmach
announced the execution of a definitive agreement to acquire Macke.
LAUNDRY EQUIPMENT SALES, LEASING AND SERVICE
Mac-Gray sells commercial laundry products to the retail coin laundromat
market and 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. Mac-Gray is currently the
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 believes that its role as a distributor, and not
just a buyer, of commercial laundry equipment provides it with a competitive
advantage in that it has access to numerous Self-Owners who may either choose
to buy equipment from Mac-Gray or choose to outsource this function by
becoming a lessor to Mac-Gray.
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. Although this operation currently provides a small amount of
revenue to Mac-Gray, Mac-Gray anticipates that this market presents Mac-Gray
with growth opportunities as additional Self-Owners see these services as a
way to free up available capital for other business needs.
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.
EMPLOYEES
Mac-Gray has approximately 305 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
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<PAGE>
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
Fort Lauderdale, Florida.................................... 6,000
Gainesville, Florida........................................ 750
Gurnee, Illinois............................................ 12,000
East Hartford, Connecticut.................................. 14,900
Pittsburgh, Pennsylvania.................................... 1,100
St. Louis, Missouri......................................... 2,400
Standish, Maine............................................. 7,500
Syracuse, New York.......................................... 7,800
Tampa, Florida.............................................. 6,200
Tucker (Atlanta), Georgia................................... 8,000
</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.
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<PAGE>
MAC-GRAY 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/Proxy Statement. The selected financial data set forth below should
be read in conjunction with, and are qualified by reference to, "Mac Gray's
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/Proxy Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997(1)
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue........................... $44,942 $48,031 $50,710 $64,427 $81,370
Cost of revenue:
Commissions...................... 17,762 19,168 20,471 25,760 31,717
Laundry route expenditures....... 7,458 7,889 8,251 10,955 12,232
Depreciation and amortization.... 4,377 4,756 4,899 6,216 8,635
Cost of equipment sales.......... 1,700 2,673 2,938 5,189 8,187
------- ------- ------- ------- -------
Total cost of revenue............ 31,297 34,486 36,559 48,120 60,771
Operating expenses:
General and administration....... 3,383 3,085 3,901 3,952 4,699
Sales and marketing.............. 2,445 2,501 2,531 3,803 5,165
Depreciation..................... 421 442 455 517 503
------- ------- ------- ------- -------
Total operating expenses......... 6,249 6,028 6,887 8,272 10,367
------- ------- ------- ------- -------
Income from operations............ 7,396 7,517 7,264 8,035 10,232
Interest expense................. (1,437) (1,217) (1,175) (1,956) (2,521)
Other income (expense), net...... 71 70 55 (87) 181
------- ------- ------- ------- -------
Income before provision for income
taxes............................ 6,030 6,370 6,144 5,992 7,892
Provision for income taxes(2).... (330) (388) (374) (465) (5,206)
------- ------- ------- ------- -------
Net income........................ $ 5,700 $ 5,982 $ 5,770 $ 5,527 $ 2,686
======= ======= ======= ======= =======
Net income per common share(4).... $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.37
======= ======= ======= ======= =======
Weighted average common shares
outstanding(4)................... 6,368 6,368 6,368 6,368 7,263
======= ======= ======= ======= =======
Net income per common share--
assuming dilution(4)............. $ 0.90 $ 0.94 $ 0.91 $ 0.87 $ 0.36
======= ======= ======= ======= =======
Weighted average common shares
outstanding--assuming
dilution(4)...................... 6,368 6,368 6,368 6,368 7,391
======= ======= ======= ======= =======
TAX ADJUSTED EARNINGS PER SHARE
DATA(3):
Pro forma net income.............. $ 3,595 $ 4,735
======= =======
Pro forma net income per common
share(4)......................... $ 0.56 $ 0.65
======= =======
Pro forma net income per common
share--assuming dilution(4)...... $ 0.56 $ 0.64
======= =======
OTHER FINANCIAL DATA:
EBITDA(5)........................ $12,265 $12,785 $12,673 $14,681 $19,551
Depreciation and amortization.... 4,798 5,198 5,354 6,733 9,138
Capital expenditures............. 5,407 5,679 4,421 7,635 8,681
Cash flows from operating
activities...................... 9,405 10,650 10,417 13,650 10,942
Cash flows used in investing
activities...................... (5,689) (5,613) (5,105) (22,070) (20,544)
Cash flows provided by (used in)
financing activities............ (3,744) (6,128) (3,549) 7,382 10,532
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital.................. $(3,437) $(4,181) $(2,237) $(6,069) $ (885)
Total assets..................... 32,713 33,292 36,754 54,108 84,374
Long-term debt, net of current
portion......................... 15,718 13,544 11,843 23,325 5,395
Redeemable common stock(6)....... -- -- -- -- 7,797
Stockholders' equity............. 6,783 9,439 12,850 14,683 49,161
</TABLE>
- --------
(1) The financial data for the year ended December 31, 1997 include the
results of Sun Services subsequent to the acquisition date of April 17,
1997.
(2) The 1997 provision for income taxes includes a non-recurring charge of
$4,037 as a result of the termination of Mac-Gray's S corporation status.
(3) Tax adjusted earnings per share data have been adjusted to give effect to
Mac-Gray's operations as if Mac-Gray were subject to federal and state
income taxes on a corporate level (at an estimated income tax of 40%)
during the periods presented.
(4) Mac-Gray adopted Statement of Financial Accounting Standards No. 128 (SFAS
128) in 1997. In conjunction with the adoption of this standard, Mac-Gray
has complied with Staff Accounting Bulletin No. 98 (SAB 98) recently
issued by the SEC. 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.
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MAC-GRAY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus/Proxy Statement 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 those discussed in "Risk Factors" as
well as those discussed elsewhere in the Prospectus/Proxy Statement. The
historical financial information presented herein represents (i) consolidated
results of Mac-Gray, (ii) the combined results of Mac-Gray Co. and the Limited
Partnership and (iii) the combined results of Sun Services for the period
subsequent to the 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/Proxy Statement.
OVERVIEW
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 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 approximately 120,000 laundry machines,
operated in over 17,000 multiple housing laundry rooms located in 22 states in
the Northeast, Southeast and Midwest regions of the United States.
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.
PROPOSED MERGER
On December 22, 1997, Mac-Gray entered into the Merger Agreement with
Intirion, pursuant to which the Intirion Exchangeable Securities are expected
to be exchanged for approximately 1.6 million shares of Mac-Gray Common Stock
and approximately $1 million in cash. The Merger is expected to be accounted
for as a pooling of interests and is expected to close in early 1998.
RESULTS OF OPERATIONS
Fiscal year ended December 31, 1997 compared to fiscal year ended December
31, 1996
Revenue. Revenue increased by $16,943,000, or 26%, to $81,370,000 in 1997
from $64,427,000 in 1996. This increase was primarily attributable to growth
in existing laundry route revenue, the Sun Services Acquisition and the impact
of a full year's operation of businesses acquired in 1996. Laundry route
revenue increased $12,826,000, due to the expansion of existing operations and
to an increase in the number of machines operated as a result of the nine
acquisitions of laundry route businesses subsequent to March 31, 1996. Sales
of equipment increased by $4,117,000, due to growth of revenue from existing
distributorships and the distributorships acquired during 1996 and 1997. Mac-
Gray believes that its increased focus on sales and marketing efforts since
mid-1996 has had a significant impact on the growth of revenue from existing
laundry routes and distributorships.
Commissions. Commissions increased by $5,957,000, or 23%, to $31,717,000 in
1997 from $25,760,000 in 1996. This increase was primarily attributable to an
increase in laundry route revenue, since commissions are generally paid based
upon a percentage of laundry route revenue.
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Laundry Route Expenditures. Laundry route expenditures, which are primarily
variable expenses which change with the increases and decreases in revenue and
include costs associated with installing and servicing machines, as well as
the costs of collecting, counting and depositing the revenue, increased by
$1,277,000, or 12%, to $12,232,000 in 1997 from $10,955,000 in 1996. This
increase was due to the general increase in revenue, which resulted in
increased servicing, collecting, counting and depositing activity, increased
levels of expenses associated with improving service in some of the acquired
businesses, and other associated costs.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization included as a component of cost of revenue, as
well as depreciation which is included as an operating expense. Aggregate
depreciation and amortization increased by $2,405,000, or 36%, to $9,138,000
in 1997 from $6,733,000 in 1996. This increase was primarily attributable to
the acquisition of nine laundry route businesses in 1996 and 1997, which
resulted in additional machines to depreciate, as well as an increase in
intangible assets to amortize, and the placement of additional machines on
Mac-Gray's existing laundry routes.
Cost of Equipment Sales. Cost of equipment sales increased by $2,998,000, or
58%, to $8,187,000 in 1997 from $5,189,000 in 1996. This increase was a direct
result of increased equipment sales.
General and Administration. General and administration expenses increased by
$747,000, or 19%, to $4,699,000 in 1997 from $3,952,000 in 1996. This increase
was attributable to an increase in professional fees and to the hiring of
additional clerical and administrative staff to support the growth in Mac-
Gray's business.
Sales and Marketing. Sales and marketing expense increased by $1,362,000, or
36%, to $5,165,000 in 1997 from $3,803,000 in 1996. This increase was
attributable to the expansion of the marketing department, led by the hiring
of an experienced national marketing executive in the third quarter of 1996,
and an increase in the number of field sales representatives.
Interest Expense. Interest expense, net of interest income, increased by
$565,000, or 29%, to $2,521,000 in 1997 from $1,956,000 in 1996. This increase
was primarily attributable to the increased borrowings incurred to finance the
acquisitions made during 1996 and 1997. Interest expense was minimal
subsequent to the IPO because a portion of the net proceeds from that offering
was used to repay the existing indebtedness under the Credit Facility, as
further described below.
Income Tax Expense. Income tax expense increased by $4,741,000 to $5,206,000
in 1997 from $465,000 in 1996 due to the termination of Mac-Gray's S
corporation status concurrent with the IPO. Upon termination of the S
corporation status, Mac-Gray became subject to federal and state income taxes,
with a statutory rate of approximately 40%. As a result, Mac-Gray recognized a
non-recurring charge to income tax expense of approximately $4,037,000 in
October 1997, representing additional net deferred tax liabilities as of the
date the S corporation election was terminated. As the historical income tax
provision prior to the termination of the S corporation status was established
only to provide for income taxes in states that do not recognize Subchapter S
corporations, the income tax provision recorded in 1997 was significantly
higher than the amount recorded in 1996.
Fiscal year ended December 31, 1996 compared to fiscal year ended December
31, 1995.
Revenue. Revenue increased by $13,717,000, or 27%, to $64,427,000 in 1996
from $50,710,000 in 1995. This increase was primarily attributable to the
acquisition of six laundry route businesses, two of which also maintained
Maytag distributorships, as well as internal growth of both card and coin
laundry route revenue and revenue from sales of equipment under various
distribution arrangements. Laundry route revenue increased $9,506,000, of
which $3,596,000 was attributable to the expansion of existing operations and
$5,910,000 was attributable to an increase in the number of machines operated
as a result of the six acquisitions of laundry route businesses. Sales of
equipment increased by $4,211,000, of which $3,111,000 was attributable to the
growth of revenue from existing distributorships and $1,100,000 was
attributable to revenue from two newly acquired distributorships. Mac-Gray
believes that a substantial portion of the growth of revenue from existing
laundry
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routes and from existing distributorships was attributable to Mac-Gray's
increased expenditures on sales and marketing efforts, which are described
below.
Commissions. Commissions increased by $5,289,000, or 26%, to $25,760,000 in
1996 from $20,471,000 in 1995. This increase was primarily attributable to an
increase in laundry route revenue, which resulted in an increase in variable
expenses, including commissions, related thereto, as well as slightly higher
commission rates applicable to the new leases that Mac-Gray acquired or
entered into during 1995 and 1996.
Laundry Route Expenditures. Laundry route expenditures, which include costs
associated with installing and servicing machines and cost of equipment sales,
as well as the cost of collecting, counting and depositing the revenue,
increased by $2,704,000, or 33%, to $10,955,000 in 1996 from $8,251,000 in
1995. This increase was primarily attributable to the increase in laundry
route business, which resulted in increased servicing and collecting activity.
Depreciation and Amortization. Depreciation and amortization includes
depreciation and amortization which is included as a component of cost of
revenue, as well as depreciation which is included as an operating expense.
Aggregate depreciation and amortization increased by $1,379,000, or 26%, to
$6,733,000 in 1996 from $5,354,000 in 1995. The increase was primarily
attributable to the acquisition of six laundry route businesses, which
resulted in additional machines to depreciate, as well as an increase in
intangible assets to amortize, and the placement of 5,143 new machines on Mac-
Gray's existing laundry routes.
Cost of Equipment Sales. Cost of equipment sales increased by $2,251,000, or
77%, to $5,189,000 in 1996 from $2,938,000 in 1995. This increase was
attributable to increased equipment sales.
General and Administration. General and administration expenses increased by
$51,000, or 1%, to $3,952,000 in 1996 from $ 3,901,000 in 1995. This increase
was attributable to the hiring of additional clerical and administrative staff
to help support the increase in the laundry route business, as well as the
increase in distributorship business. General and administration expenses for
1995 were unusually high as a result of certain expenses related to the
hiring, relocation and subsequent termination of a senior executive.
Sales and Marketing. Sales and marketing expenses increased by $1,272,000,
or 50%, to $3,803,000 in 1996 from $2,531,000 in 1995. This increase was
attributable to the hiring of a significant number of additional field sales
representatives, the expansion of the marketing department and the hiring of
an experienced national marketing executive in the third quarter of 1996.
Interest Expense. Interest expense increased by $781,000, or 66%, to
$1,956,000 in 1996 from $1,175,000 in 1995. This increase was primarily
attributable to increased borrowings incurred to finance the six acquisitions
completed during 1996.
Income Tax Expense. Income tax expenses increased by $91,000, or 24%, to
$465,000 in 1996 from $374,000 in 1995. The effective income tax rate for 1995
was approximately 6.1% compared to 7.8% for 1996. As the historical income tax
provision was established only to provide for income taxes in states that do
not recognize Subchapter S corporations, the statutory income tax rate for
1995 and 1996 was 6%. The effective income tax rate differed from the
statutory rate in 1995 and 1996 due to expenses recorded for book purposes
that are not deductible for income tax purposes.
The statutory income tax rate utilized by Mac-Gray during 1995 and 1996 is
not indicative of the statutory income tax rate of approximately 40% that has
been utilized since termination of Mac-Gray's S corporation status on October
16, 1997.
SEASONALITY
Mac-Gray experiences moderate seasonality as a result of its significant
operations in the college and university market. Revenues derived from the
college and university market represent approximately thirty percent of Mac-
Gray's total revenue. These revenues are derived substantially during the
school year which includes the first, second and fourth quarters. Conversely,
Mac-Gray increases its operating expenditures during the third quarter when
colleges and universities are not in session as a result of Mac-Gray's
increased machine installation activities.
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LIQUIDITY AND CAPITAL RESOURCES
Mac-Gray's primary sources of cash have been operating activities, bank
borrowings, and the proceeds of the IPO. Mac-Gray's primary uses of cash have
been the nine acquisitions consummated since May 1996, capital expenses,
including the purchase of new laundry machines and smart card based payment
systems, the payment of a dividend of $9,000,000 to shareholders in October
1997 and the repayment of the Credit Facility. Mac-Gray anticipates that it
will continue to use cash flow from its operating activities to finance
working capital needs, including interest payments on any outstanding
indebtedness, as well as capital expenditures. Funds available under the
Credit Facility may also be used to finance the cash outlay for the proposed
Merger. Mac-Gray also anticipates that it will use additional funds available
to it under the Credit Facility to finance additional possible acquisitions,
larger capital expenditures and, as needed, working capital.
Cash flow from operations was $10,942,000, $13,650,000 and $10,417,000 for
the years ended December 31, 1997, 1996, 1995, respectively. Cash flow from
operations consists primarily of laundry route revenue, distributorship and
laundry equipment service revenue, commissions, laundry route expenditures,
cost of equipment sales, general and administration expenses and sales and
marketing expenses.
Cash used in investing activities was $20,544,000, $22,070,000 and
$5,105,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. Mac-Gray invested $12,196,000, $14,487,000 and $821,000 for the
fiscal years ended December 31, 1997, 1996 and 1995 in connection with the
acquisitions consummated during those years. Capital expenditures were
$8,681,000, $7,635,000 and $4,421,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Net cash flows provided by (used in) financing activities were $10,532,000,
$7,382,000, and $(3,549,000) for the years ended December 31, 1997, 1996, and
1995, respectively. Financing activities consist primarily of proceeds from
the IPO, proceeds from and repayments of bank borrowings, and payments of
dividends. Mac-Gray also utilized $125,000 as a portion of the consideration
paid in connection with the redemption of 2,275 shares of Mac-Gray Common
Stock as of January 1, 1996.
Mac-Gray maintains a $50 million revolving line of credit under its Credit
Facility with State Street Bank and CoreStates Bank. All borrowings under the
Credit Facility were repaid in October 1997 using proceeds from the IPO.
Borrowings under the Credit Facility bear interest, at Mac-Gray's option, at a
rate equal to the prime rate minus 0.5% or LIBOR plus 2.0%. There were no
borrowings under the Credit Facility as of December 31, 1997. The Credit
Facility imposes certain financial covenants on Mac-Gray, including (i) a
limit on Mac-Gray's senior liabilities of 3.5 times and 2.5 times EBITDA for
the prior four quarters ending as of the end of each quarter of 1997 and for
the prior four quarters ending as of the end of each quarter after 1997,
respectively; (ii) a requirement to maintain minimum shareholders equity (as
specifically defined in the Credit Facility), as measured at the end of each
quarter, of $23,000,000 as of December 31, 1996, increasing by $4,000,000 per
year thereafter; (iii) a limit on aggregate capital expenditures of
$7,000,000, $8,000,000 and $9,000,000 for the years ending December 31, 1996,
1997, and 1998 and thereafter, respectively; (iv) minimum EBITDA, measured on
a quarterly basis for the immediately preceding four quarters, of $4,000,000;
(v) a minimum fixed charge coverage ratio (EBITDA to scheduled principal and
interest payments) of 1.3:1, 1.1:1 and 1.3:1 for the quarters during 1996,
1997 and 1998 and thereafter, respectively; and (vi) a requirement that Mac-
Gray have minimum annual net income of $4,000,000. Mac-Gray was in compliance
with all such covenants, or received a written waiver with respect to any non-
compliance therewith, as of the year ended December 31, 1997. The Credit
Facility under certain limited circumstances, also restricts the payment of
dividends and other distributions as well as certain acquisitions and
investments. The Credit Facility is secured by a blanket lien on Mac-Gray's
assets and the assets of each of its subsidiaries, as well as a pledge by Mac-
Gray of all of the capital stock of its subsidiaries.
In connection with the Sun Services Acquisition in April 1997, Mac-Gray
issued 612,026 shares of Mac-Gray Common Stock to the owner of Sun Services.
As a privately owned company issuing shares of its common stock, which, at
that point, were substantially illiquid, Mac-Gray provided the Sun Services
owner with the right to require Mac-Gray to repurchase the shares of Mac-Gray
Common Stock issued by Mac-Gray as consideration
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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 of Mac-Gray--Certain Relationships and Related
Transactions."
Mac-Gray has used all of the net proceeds from the IPO to repay existing
outstanding indebtedness under the Credit Facility, to fund a $9,000,000
dividend paid to shareholders in October 1997 and to fund two laundry route
acquisitions, one in October 1997 for approximately $2,075,000 and one in
November 1997 for approximately $5,075,000. 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,
including the cash outlay associated with the proposed Merger. Additional
financing under the Credit Facility or otherwise may, however, be required in
connection with an acquisition or acquisitions which Mac-Gray may consummate
in the future. If any such additional financing were needed, and could not be
obtained on terms favorable to Mac-Gray, if at all, Mac-Gray's ongoing capital
improvement efforts and acquisition activity would likely be reduced or
delayed as cash generated from operating activities was used for operating
expenses and debt service. See "Risk Factors--Risks Associated with
Acquisitions; Integration of Acquired Businesses."
INFLATION
Mac-Gray does not believe that its financial performance has been materially
affected by inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130) and Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131) which are
required to be adopted by Mac-Gray in its fiscal 1998 financial statements.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in the financial statements. SFAS 131 establishes
standards for reporting information on operating segments in financial
statements. Mac-Gray is currently reviewing the impact of SFAS 130 and SFAS
131 on its financial statements.
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MANAGEMENT OF MAC-GRAY
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Mac-Gray, their positions with Mac-
Gray and their ages as of February 17, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Chairman, Chief Executive Officer and
Stewart Gray MacDonald, Jr. ......... 48 Director
Executive Vice President, Sales and
Neil F. MacLellan, III............... 38 Marketing
John S. Olbrych...................... 42 Chief Financial Officer and Treasurer
Patrick A. Flanagan.................. 45 Executive Vice President, Mergers and
Acquisitions, Secretary and Director
Eugene B. Doggett.................... 61 Director
Jeffrey C. Huenink................... 41 Director
John P. Leydon....................... 64 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, 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. 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 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 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.
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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, until June 1997, the
President of the Multi-Housing Laundry Association, an industry trade group,
and was a member of the Florida House of Representatives from 1988 until 1992.
Mr. Huenink received his B.S. in Business Administration from the University
of South Florida. Certain principal stockholders of Mac-Gray have agreed to
vote their shares in favor of Mr. Huenink's election to the Mac-Gray Board,
provided that certain conditions contained in the First Stockholders'
Agreement (as defined below) are met, through April 1999. See "Management of
Mac-Gray--Certain Relationships and Related Transactions."
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 the
1997 Stock Plan and prescribes the terms and provisions of each grant made
under the 1997 Stock Plan other than with respect to the eligibility of Mr.
MacDonald, as to whom the full Mac-Gray Board makes such
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determinations. In addition, the Compensation Committee construes and
interprets the 1997 Stock Plan and issuances thereunder, and establishes,
amends and revokes rules and regulations for administration of the 1997 Stock
Plan.
Members of the 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 $500 per
meeting of the Mac-Gray Board. In addition, upon consummation of the IPO, each
Independent Director was granted an option to purchase 1,000 shares of Mac-
Gray Common Stock at an exercise price equal to the fair market value of Mac-
Gray Common Stock. Under the 1997 Stock Plan, each new Independent Director is
also entitled to receive an initial grant of an option to purchase 1,000
shares of Mac-Gray Common Stock upon his or her election to the Mac-Gray
Board, and each Independent Director who is serving as a director of Mac-Gray
on the fifth business day after each annual meeting of stockholders, beginning
with the 1998 annual meeting, will automatically be granted an option to
purchase 1,000 shares of Mac-Gray Common Stock. All options granted to
Independent Directors under the 1997 Stock Plan shall be exercisable
immediately and shall terminate upon the tenth anniversary of the date of
grant. See "--1997 Stock Option and Incentive Plan--Stock Options Granted to
Independent Directors."
All members of the Mac-Gray Board are reimbursed for travel expenses
incurred in attending meetings of the Mac-Gray Board and its committees.
EXECUTIVE COMPENSATION
Summary Compensation. The following summary compensation table sets forth
information concerning compensation for the fiscal year ended December 31,
1997 for Mac-Gray's Chief Executive Officer and the other executive officers
named in the table (the "Named Executive Officers"). Other than the Named
Executive Officers, no other executive officer of Mac-Gray who held office as
of December 31, 1997 met the definition of "highly compensated" within the
meaning of the Commission's executive compensation disclosure rules for this
period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
--------------------- COMPENSATION
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) 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.
63
<PAGE>
Option Grants. The following table sets forth certain information concerning
the individual grant of options to purchase Mac-Gray Common Stock to the Chief
Executive Officer and the other Named Executive Officers who received such a
grant 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 fiscal 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.
64
<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. Mac-Gray currently has reserved
1,158,112 shares of Mac-Gray Common Stock for issuance under the 1997 Stock
Plan, of which 637,290 shares are subject to outstanding options and 520,822
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 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.
65
<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
66
<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,
67
<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 will be made by the
Compensation Committee. The Compensation Committee will review and make
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. 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
68
<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 until the earlier to occur of (a)
April 17, 1999, and (b) such time as Mr. Huenink ceases to hold five percent
of the outstanding shares of Mac-Gray Common Stock, (iii) Mr. Huenink received
the Put Right, and (iv) Mac-Gray received the Call Right, which Call Right
terminated upon the consummation of the IPO. The Put Right expires on October
22, 2000. See "Mac-Gray's Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources" and
Footnote 3 to the table included under "Principal Stockholders of Mac-Gray."
In connection with the Mac-Gray Combination, Mac-Gray (i) acquired all of
the shares of common stock, $.01 par value per share, of Mac-Gray Co. from
each of Mr. Stewart Gray MacDonald, Jr. ("Mr. S. MacDonald, Jr."), Ms. Sandra
E. MacDonald ("Ms. S. MacDonald"), Mr. Daniel W. MacDonald ("Mr. D.
MacDonald," and collectively, the "MacDonalds") and certain trusts under which
such individuals are beneficiaries in exchange for an aggregate of 5,000,000
shares of Mac-Gray Common Stock and (ii) acquired all of the limited partner
interests in the Limited Partnership from each of the MacDonalds in exchange
for an aggregate of 1,367,800 shares of Mac-Gray Common Stock. Immediately
after the Mac-Gray Combination, Mac-Gray effected the merger of the Limited
Partnership with and into Mac-Gray Co., the Limited Partnership's sole general
partner. Mac-Gray and Mac-Gray Co. have assumed the existing liabilities and
indebtedness of the Limited Partnership. Mr. S. MacDonald, Jr. is Chief
Executive Officer and Chairman of the Mac-Gray Board, and each of Mr. S.
MacDonald, Jr., Ms. S. MacDonald and Mr. D. MacDonald own of record and
beneficially greater than five percent of the outstanding shares of Mac-Gray
Common Stock.
Pursuant to a Stockholders' Agreement by and among Mac-Gray and certain of
its stockholders (the "Second Stockholders' Agreement," and together with the
First Stockholders' Agreement, the "Stockholders' Agreements"), (i) each of
Mr. S. MacDonald, Jr., Ms. S. MacDonald and Mr. D. MacDonald (and any
assignees or trusts created by them or under which they are beneficiaries)
received "piggy-back" and demand registration rights, (ii) each of the
MacDonalds granted to and received rights of first offer to purchase shares of
Mac-Gray Common Stock offered for sale by another stockholder who is a party
thereto and (iii) the MacDonalds granted to Mac-Gray rights of second offer to
purchase such shares. See Footnote 3 to the table included under "Principal
Stockholders of Mac-Gray."
In 1977, Mac-Gray Co. entered into an arrangement with Mac-Gray's co-founder
and then Chief Executive Officer that provided his wife, Ms. Evelyn C.
MacDonald ("Ms. E. MacDonald"), with an annual payment following his death.
Mac-Gray, through its subsidiary, Mac-Gray Services, pays Ms. E. MacDonald,
the mother of Mr. S. MacDonald, Jr., Mac-Gray's Chairman and Chief Executive
Officer, a fixed amount of $104,000 per year pursuant to this arrangement,
which is not evidenced by a comprehensive written agreement, and will continue
to make such payments for the remainder of Ms. E. MacDonald's life. See Note 8
of the Notes to Combined Financial Statements of Mac-Gray Corporation.
Immediately following the consummation of the IPO, Mac-Gray distributed
approximately $9.0 million of the proceeds thereof to its stockholders of
record as of a date immediately prior to the consummation of the IPO. This
distribution represented a significant portion of Mac-Gray's and certain of
its predecessor's historical, undistributed earnings through June 30, 1997,
which were previously taxed for federal and state income tax purposes directly
to the stockholders of Mac-Gray.
69
<PAGE>
PRINCIPAL STOCKHOLDERS OF MAC-GRAY
The following table sets forth certain information with respect to the
beneficial ownership of Mac-Gray Common Stock as of December 31, 1997, and as
adjusted to reflect the issuance of the shares of Mac-Gray Common Stock
offered pursuant to the Merger, 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 director 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>
PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY ------------------------------
NAME OF BENEFICIAL OWNER(1) OWNED (2)(3) BEFORE MERGER AFTER MERGER (2)
--------------------------- ------------ ------------- ----------------
<S> <C> <C> <C>
Evelyn C. MacDonald(3)(4).......... 1,700,000 14.7% 12.9%
Stewart Gray MacDonald,
Jr.(3)(4)(5)...................... 1,944,640 16.8% 14.7%
Sandra E. MacDonald(3)(4)(6)....... 3,209,250 27.7% 24.4%
Daniel W. MacDonald(3)(4)(7)....... 2,122,600 18.3% 16.1%
Patrick A. Flanagan(3)(4)(8)....... 1,716,370 14.8% 13.0%
Peter C. Bennett(3)(4)(9).......... 1,700,000 14.7% 12.9%
R. Robert Woodburn,
Jr.(3)(4)(10)..................... 1,700,000 14.7% 12.9%
Cynthia V. Doggett(3)(11).......... 1,435,000 12.4% 10.9%
Richard G. MacDonald(3)(12)........ 459,750 4.0% 3.5%
Gilbert M. Roddy, Jr.(3)(13)....... 580,000 5.0% 4.4%
Jeffrey C. Huenink(14)............. 613,026 5.3% 4.7%
Jerry E. Schiller(14).............. 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 direc-
tors as a group (8 persons)....... 3,748,289 32.1% 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 this Prospectus/Proxy
Statement are deemed outstanding. As of December 31, 1997, a total of
11,579,826 shares of Mac-Gray Common Stock were issued and outstanding.
The percentage of beneficial ownership of Mac-Gray Common Stock after the
Merger assumes 1,593,061 shares will be issued in the Merger and
13,172,887 shares of Mac-Gray Common Stock will be issued and outstanding
as of the Effective Time.
(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
70
<PAGE>
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
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) 655,100 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
71
<PAGE>
and The Robert C. MacDonald GST Trust-1997 (collectively, the "GST
Trusts") may be replaced at any time by Ms. S. MacDonald, the grantor of
such trusts, with property of equivalent value 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. Bennett serves as co-trustee and shares voting and
dispositive power over the shares of Mac-Gray Common Stock. Mr. Bennett
disclaims beneficial ownership of the shares of Mac-Gray Common Stock
held by the ECM Trust. Mr. Bennett's mailing address is c/o State Street
Research & Management Company, One Financial Center, 31st Floor, Boston,
MA 02110.
(10) Includes 1,700,000 shares of 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) 655,000 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, Leydon and Schiller 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.
72
<PAGE>
PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma unaudited financial information gives effect to the
Merger to be accounted for as a pooling of interests. The pro forma unaudited
condensed balance sheet presents the combined financial position of Mac-Gray
and Intirion as of December 31, 1997 assuming that the Merger had occurred as
of December 31, 1997. Such pro forma information is based upon the historical
balance sheet data of Mac-Gray and Intirion as of that date. The pro forma
unaudited condensed statement of operations gives effect to the proposed
Merger by combining the results of operations of Mac-Gray for the three years
ended December 31, 1997 with the results of operations of Intirion for the
three years ended June 30, 1997, respectively, on a pooling of interests
basis. The pro forma unaudited Mac-Gray condensed statement of operations data
for the year ended December 31, 1997 include the results of operations of Sun
Services as if the Sun Services Acquisition had occurred on January 1, 1997.
The historical results of Sun Services for the period from April 1, 1997 to
April 17, 1997 (the acquisition date) have not been included and are not
material to Mac-Gray. The unaudited pro forma combined statement of income for
Sun Services has been included following the notes to pro forma unaudited
condensed combined financial information. The operations of Intirion for the
six months ended December 31, 1997, resulting in net sales and net income of
$13,355,000 and $289,000, have not been included in the pro forma statements
of operations.
The pro forma unaudited financial information does not purport to represent
what Mac-Gray's financial position or results of operations would have
actually been had the Merger occurred at the beginning of the earliest period
presented or to project Mac-Gray's financial position or results of operations
for any future date or period. This pro forma unaudited financial information
should be read in conjunction with the historical financial statements and
notes thereto of Mac-Gray and Intirion included elsewhere in this
Prospectus/Proxy Statement.
73
<PAGE>
MAC-GRAY CORPORATION
PRO FORMA UNAUDITED CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
MAC-GRAY INTIRION ADJUSTMENTS(A) COMBINED
-------- -------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 3,774 $ -- $(1,000) $ 2,774
Trade receivables, net.......... 4,256 2,641 -- 6,897
Inventory....................... 2,886 4,631 -- 7,517
Prepaid commissions and other
assets......................... 2,818 269 -- 3,087
------- ------- ------- -------
Total current assets.......... 13,734 7,541 (1,000) 20,275
------- ------- ------- -------
Property, plant & equipment, net.. 37,699 7,392 -- 45,091
Intangible assets, net............ 27,926 691 -- 28,617
Other assets...................... 5,015 338 -- 5,353
------- ------- ------- -------
Total assets...................... $84,374 $15,962 $(1,000) $99,336
======= ======= ======= =======
LIABILITIES, REDEEMABLE STOCK AND
WARRANTS AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current Liabilities:
Current portion of long-term
debt and line of credit
borrowings..................... $ 2,026 $ 7,143 $ -- $ 9,169
Accounts payable and accrued ex-
penses......................... 12,593 2,330 600 15,523
Deferred revenues and deposits.. -- 2,552 -- 2,552
------- ------- ------- -------
Total current liabilities..... 14,619 12,025 600 27,244
Long-term debt.................... 5,395 -- -- 5,395
Capital lease obligations......... 491 -- -- 491
Other liabilities................. 6,911 -- -- 6,911
------- ------- ------- -------
Total liabilities............. 27,416 12,025 600 40,041
------- ------- ------- -------
Redeemable stock and warrants..... 7,797 6,963 (6,963) 7,797
------- ------- ------- -------
Stockholders' equity (deficit)
Common Stock:
Mac-Gray Corporation.......... 110 -- 16 126
Intirion Corporation.......... -- 7 (7) --
Additional paid-in capital...... 51,035 899 5,756 57,690
Retained earnings (deficit)..... (1,984) (3,734) (600) (6,318)
Less-treasury stock at cost..... -- (198) 198 --
------- ------- ------- -------
Total stockholders' equity
(deficit).................... 49,161 (3,026) 5,363 51,498
------- ------- ------- -------
Total liabilities, redeemable
stock and warrants and
stockholders' equity (deficit)... $84,374 $15,962 $(1,000) $99,336
======= ======= ======= =======
</TABLE>
- --------
(a) The pro forma condensed balance sheet gives effect to the proposed Merger
of Mac-Gray and Intirion by combining the respective balance sheets of the
two companies at December 31, 1997 on a pooling of interests basis. As
shown above, the accounts have been adjusted to reflect the issuance of
1,593,061 shares of Mac-Gray Common Stock and approximately $1,000,000 in
exchange for all of the outstanding securities of Intirion. The excess of
the value of Intirion securities received in exchange over the value of
Mac-Gray Common Stock issued has been credited to additional paid-in
capital. The accounts have also been adjusted to reflect estimated
transaction costs of approximately $600,000 associated with the proposed
Merger. See Note 3 on page 78.
See notes to pro forma unaudited condensed combined financial information.
74
<PAGE>
MAC-GRAY CORPORATION
PRO FORMA UNAUDITED CONDENSED COMBINED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
DECEMBER 31, JUNE 30,
1997 1997
------------ --------
PRO FORMA PRO FORMA
MAC-GRAY(A) INTIRION ADJUSTMENTS COMBINED
------------ -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.......................... $83,402 $23,477 $-- $106,879
Cost of Revenue.................. 62,270 15,141 -- 77,411
------- ------- ---- --------
Gross Profit..................... 21,132 8,336 -- 29,468
Operating expenses............... 10,658 7,490 -- 18,148
------- ------- ---- --------
Operating Income................. 10,474 846 -- 11,320
Other income (expense), net...... (2,429) (454) -- (2,883)
------- ------- ---- --------
Income before income taxes....... 8,045 392 -- 8,437
Provision for income taxes(b).... (5,206) (22) -- (5,228)
------- ------- ---- --------
Net income....................... $ 2,839 $ 370 $-- $ 3,209
======= ======= ==== ========
Accretion and dividends accrued
on redeemable stock............. -- (602) 602 --
------- ------- ---- --------
Net income (loss) available to
common stockholders............. $ 2,839 $ (232) $602 $ 3,209
======= ======= ==== ========
Net income (loss) per common
share (Note 5).................. $ 0.39 $ (0.30) $ 0.36
======= ======= ========
Weighted average common shares
outstanding (Note 5)............ 7,263 778 8,856
======= ======= ========
Net income (loss) per common
share--assuming dilution (Note
5).............................. $ 0.38 $ (0.30) $ 0.36
======= ======= ========
Weighted average common shares
outstanding--assuming dilution
(Note 5)........................ 7,391 778 8,984
======= ======= ========
Tax adjusted net income (loss)
available to common stockholders
(Note 4)........................ $ 4,827 $ (232) $602 $ 5,197
======= ======= ==== ========
Tax adjusted net income (loss)
per common share (Note 5)....... $ 0.66 $ (0.30) $ 0.59
======= ======= ========
Tax adjusted net income (loss)
per common share--assuming
dilution (Note 5)............... $ 0.65 $ (0.30) $ 0.58
======= ======= ========
</TABLE>
- --------
(a) Includes the results of Sun Services as if the Sun Services Acquisition had
occurred on January 1, 1997. The unaudited pro forma combined statement of
income for Sun Services has been included following the notes to pro forma
unaudited condensed combined financial information.
(b) 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.
See notes to pro forma unaudited condensed combined financial information.
75
<PAGE>
MAC-GRAY CORPORATION
PRO FORMA UNAUDITED CONDENSED COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
DECEMBER 31, JUNE 30,
1996 1996
------------ -------- PRO FORMA
MAC-GRAY INTIRION ADJUSTMENTS COMBINED
------------ -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.......................... $64,427 $17,833 $ -- $82,260
Cost of Revenue.................. 48,120 11,079 -- 59,199
------- ------- ------ -------
Gross Profit..................... 16,307 6,754 -- 23,061
Operating expenses............... 8,272 6,168 -- 14,440
------- ------- ------ -------
Operating Income................. 8,035 586 -- 8,621
Other income (expense), net...... (2,043) (398) -- (2,441)
------- ------- ------ -------
Income before income taxes....... 5,992 188 -- 6,180
Provision for income taxes....... (465) (49) -- (514)
------- ------- ------ -------
Net income....................... $ 5,527 $ 139 $ -- $ 5,666
======= ======= ====== =======
Accretion and dividends accrued
on redeemable stock............. -- (486) 486 --
------- ------- ------ -------
Net income (loss) available to
common stockholders............. $ 5,527 $ (347) $ 486 $ 5,666
======= ======= ====== =======
Net income (loss) per common
share (Note 5).................. $ 0.87 $ (0.48) $ 0.71
======= ======= =======
Weighted average common shares
outstanding (Note 5)............ 6,368 726 7,961
======= ======= =======
Net income (loss) per common
share--assuming dilution (Note
5).............................. $ 0.87 $ (0.48) $ 0.71
======= ======= =======
Weighted average common shares
outstanding--assuming dilution
(Note 5)........................ 6,368 726 7,961
======= ======= =======
Tax adjusted net income (loss)
available to common stockholders
(Note 4)........................ $ 3,595 $ (347) $ 486 $ 3,734
======= ======= ====== =======
Tax adjusted net income (loss)
per common share (Note 5)....... $ 0.56 $ (0.48) $ 0.47
======= ======= =======
Tax adjusted net income (loss)
per common share-assuming
dilution (Note 5)............... $ 0.56 $ (0.48) $ 0.47
======= ======= =======
</TABLE>
See notes to pro forma unaudited condensed combined financial information.
76
<PAGE>
MAC-GRAY CORPORATION
PRO FORMA UNAUDITED CONDENSED COMBINED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
DECEMBER 31, JUNE 30,
1995 1995
------------ -------- PRO FORMA
MAC-GRAY INTIRION ADJUSTMENTS COMBINED
------------ -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue.......................... $50,710 $15,642 -- $66,352
Cost of Revenue.................. 36,559 9,852 -- 46,411
------- ------- ------ -------
Gross profit..................... 14,151 5,790 -- 19,941
Operating expenses............... 6,887 5,735 -- 12,622
Restructuring charge............. -- 276 -- 276
------- ------- ------ -------
Operating Income................. 7,264 (221) -- 7,043
Other income (expense), net...... (1,120) (153) -- (1,273)
------- ------- ------ -------
Income before income taxes....... 6,144 (374) -- 5,770
Provision for income taxes....... (374) (26) -- (400)
------- ------- ------ -------
Net income (loss)................ $ 5,770 $ (400) -- $ 5,370
======= ======= ====== =======
Accretion and dividends accrued
on redeemable stock............. -- (456) 456 --
------- ------- ------ -------
Net income (loss) available to
common stockholders............. $ 5,770 $ (856) $ 456 $ 5,370
======= ======= ====== =======
Net income (loss) per common
share (Note 5).................. $ 0.91 $ (1.31) $ 0.67
======= ======= =======
Weighted average common shares
outstanding (Note 5)............ 6,368 654 7,961
======= ======= =======
Net income (loss) per common
share--assuming dilution (Note
5).............................. $ 0.91 $ (1.31) $ 0.67
======= ======= =======
Weighted average common shares
outstanding--assuming dilution
(Note 5)........................ 6,368 654 7,961
======= ======= =======
Tax adjusted net income (loss)
available to common stockholders
(Note 4)........................ $ 3,686 $ (856) $ 456 $ 3,286
======= ======= ====== =======
Tax adjusted net income (loss)
per common share (Note 5)....... $ 0.58 $ (1.31) $ 0.41
======= ======= =======
Tax adjusted net income (loss)
per common share-assuming
dilution (Note 5)............... $ 0.58 $ (1.31) $ 0.41
======= ======= =======
</TABLE>
See notes to pro forma unaudited condensed combined financial information.
77
<PAGE>
NOTES TO PRO FORMA UNAUDITED CONDENSED COMBINED FINANCIAL INFORMATION
1. The pro forma unaudited condensed combined financial information reflects
the issuance of shares of Mac-Gray Common Stock for all of the issued and
outstanding shares of Intirion Series A Preferred Stock, Intirion Common
Stock, $12.50 Warrants, $5.00 Warrants, Intirion Options and Miscellaneous
Warrants and the issuance of cash and shares of Mac-Gray Common Stock for all
of the issued and outstanding shares of Intirion Senior Preferred Stock in
connection with the proposed Merger assuming that 1,317,837 shares of Mac-Gray
Common Stock were issued in exchange for all of the issued and outstanding
shares of Intirion Series A Preferred Stock, Intirion Common Stock, $12.50
Warrants, $5.00 Warrants, Miscellaneous Warrants and Intirion Options and
assuming that 275,224 shares of Mac-Gray Common Stock and approximately $1
million was issued in exchange for all of the issued and outstanding shares of
Intirion Senior Preferred Stock.
The following table summarizes the Intirion Exchangeable Securities (other
than the Intirion Senior Preferred Stock) and identifies the shares of Mac-
Gray Common Stock to be issued in the exchange. The table excludes the
estimated 275,224 shares of Mac-Gray Common Stock and approximately $1 million
to be issued in exchange for the Intirion Senior Preferred Stock as these
shares are not common equivalent shares of Intirion Common Stock and are being
exchanged for a combination of Mac-Gray Common Stock and cash. The equivalent
number of common shares presented below represents the incremental number of
Intirion shares to be issued using the treasury stock method.
<TABLE>
<CAPTION>
INTIRION NUMBER OF EQUIVALENT NUMBER OF MAC-GRAY COMMON
SECURITIES SHARES COMMON SHARES STOCK TO BE ISSUED
- ---------- --------- -------------------- ------------------
<S> <C> <C> <C>
Series A Preferred........... 40,000 240,000 263,690
Common Stock................. 759,688 759,688 834,674
Warrants and Options......... 506,484 199,756 219,473
--------- ---------
Total........................ 1,199,444 1,317,837
========= =========
Calculated Exchange Ratio.... 1.10
=========
</TABLE>
The pro forma unaudited combined condensed balance sheet gives effect to the
proposed Merger by combining the respective balance sheets of Mac-Gray and
Intirion at December 31, 1997 on a pooling of interests basis. The excess of
the value of Intirion shares received in exchange over the value of Mac-Gray
shares issued ($5,756,000) has been credited to additional paid-in capital.
The pro forma unaudited combined condensed statements of operations give
effect to the proposed Merger by combining the results of operations of Mac-
Gray for the three years ended December 31, 1997 with the results of
operations of Intirion for the three years ended June 30, 1997, respectively,
on a pooling of interests basis. The pro forma unaudited condensed combined
statement of operations for the year ended December 31, 1997 also gives effect
to Mac-Gray's acquisition of Sun Services on April 17, 1997, in a transaction
accounted for as a purchase, and includes the results of operations of Sun
Services as if it had occurred on January 1, 1997.
2. There were no transactions between Mac-Gray and Intirion during any of
the periods presented.
3. Mac-Gray and Intirion expect to incur aggregate transaction costs of
approximately $600,000 associated with the proposed Merger, primarily in the
quarter in which the proposed Merger will be consummated. The pro forma
condensed combined balance sheet as of December 31, 1997 has been adjusted to
reflect these costs, most of which will not be deductible for corporate income
tax purposes. These estimated costs are not reflected in the pro forma
unaudited condensed combined statement of operations. The amount of these
costs is a preliminary estimate and therefore is subject to change.
4. Prior to the IPO, Mac-Gray was not subject to corporate federal income
tax as all taxable income was passed through to the stockholders and was
reported on their personal tax returns. Accordingly, the results of Mac-Gray
through October 16, 1997 do not include any corporate federal income tax
provisions.
78
<PAGE>
The pro forma information on the accompanying unaudited condensed combined
statement of operations reflects the estimated results of operations as if
Mac-Gray had been subject to corporate income taxes during the periods
presented. A similar pro forma calculation has been included in Mac-Gray's
historical financial statements, as more fully described in Note 15 of Mac-
Gray's Consolidated Financial Statements. Similar adjustments were not made
for Intirion, as Intirion was subject to corporate federal income tax for all
periods presented.
5. The pro forma unaudited combined net income per share amounts are based
on the weighted average number of shares of common stock and common stock
equivalents issued and outstanding of Mac-Gray and Intirion for each period
and have been restated to give effect to the adoption of Statement of
Financial Accounting Standards No. 128 (SFAS 128) and Staff Accounting
Bulletin No. 98 (SAB 98). Shares of Intirion have been adjusted to the
equivalent shares of Mac-Gray Common Stock for each period presented. Net
income per share amounts for Mac-Gray are reflective of the Mac-Gray
Combination.
79
<PAGE>
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................. $81,370 $2,032 $83,402 $ $83,402
Cost of revenue:
Commissions........... 31,717 797 32,514 32,514
Laundry route
expenditures......... 12,232 183 12,415 12,415
Depreciation and
amortization......... 8,635 209 8,844 146 (2) 8,990
Cost of equipment
sales ............... 8,187 164 8,351 8,351
------- ------ ------- ---- -------
Total cost of
revenue............ 60,771 1,353 62,124 146 62,270
------- ------ ------- ---- -------
Operating expenses:
General and
administration....... 4,699 307 5,006 (69)(3) 4,937
Sales and marketing... 5,165 47 5,212 5,212
Depreciation.......... 503 6 509 509
------- ------ ------- ---- -------
Total operating
expenses........... 10,367 360 10,727 (69) 10,658
------- ------ ------- ---- -------
Income from operations.. 10,232 319 10,551 (77) 10,474
Interest expense...... (2,521) (89) (2,610) (2,610)
Other income
(expense), net....... 181 -- 181 181
------- ------ ------- ---- -------
Income before provision
for income taxes....... 7,892 230 8,122 (77) 8,045
Provision for income
taxes(4)............. (5,206) -- (5,206) (5,206)
------- ------ ------- ---- -------
Net income.............. $ 2,686 $ 230 $ 2,916 $(77) $ 2,839
======= ====== ======= ==== =======
Net income (loss) per
common share (Note 5).. $ 0.39
=======
Weighted average common
shares outstanding
(Note 5)............... 7,263
=======
Net income (loss) per
common share--assuming
dilution (Note 5)...... $ 0.38
=======
Weighted average common
shares outstanding--
assuming dilution
(Note 5)............... 7,391
=======
Pro forma tax adjusted
net income(5).......... $ 4,735 $ 138 $ 4,873 $(46) $ 4,827
======= ====== ======= ==== =======
Pro forma tax adjusted
net income per common
share(6)............... $ 0.66
=======
Pro forma tax adjusted
net income per common
share-assuming
dilution(6)............ $ 0.65
=======
</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 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)
recently issued by the SEC. 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.
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<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)...................... $15.875 $13.6875
First Quarter (through February 17, 1998)................... $20.5 $15.375
</TABLE>
On December 22, 1997, the trading day prior to the announcement of the
Merger, the closing sales price of Mac-Gray Common Stock, as reported on the
NYSE, was $15.875 per share. On February 17, 1998, the closing sales price of
Mac-Gray Common Stock, as reported on the NYSE, was $15.5625 per share. As of
February 17, 1998, there were 11,581,126 shares of Mac-Gray Common Stock
outstanding held by 39 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.
No established public trading market exists for Intirion Common Stock and,
accordingly, no market price information is available with respect thereto.
Intirion has never paid cash dividends on Intirion Common Stock. As of
February 17, 1998, there were 759,688 shares of Intirion Common Stock
outstanding and 71 holders of record.
DESCRIPTION OF MAC-GRAY 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 February 17, 1998, there were 11,581,126 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 39
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.
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<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 THE MAC-GRAY CHARTER AND THE MAC-GRAY 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.
82
<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,
83
<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 is the transfer agent and registrar for Mac-Gray Common
Stock.
DESCRIPTION OF INTIRION
HISTORY
Intirion was incorporated in 1987 and is headquartered in Walpole,
Massachusetts. Intirion's primary product line is a family of patented
combination refrigerator/freezer/microwave ovens marketed under the brand name
MicroFridge (R). The product's patented circuitry has proven to be an
important feature for those customers who have concerns about electrical
capacity and seek a safer alternative to hot plates and other cooking or
heating appliances. Historically, Intirion has focused its sales efforts on
such "home-away-from-home" marketplaces as colleges and universities, military
bases, economy hotels and motels and assisted living facilities.
MARKETS AND CUSTOMERS
Intirion has established a multichannel distribution and sales network in
order to serve its markets and customers. Approximately 85% of Intirion's
revenues are derived from sales of MicroFridge units with the balance coming
from its rental programs. Rental units are leased to academic institutions or
individuals at academic institutions on an annual basis. Intirion's most
significant market, the Academic Living market, is composed of more than 1,600
colleges and universities which have on-campus residence halls. Market
research undertaken by Intirion indicates there are approximately 1.2 million
rooms in this market. Intirion sells its products to colleges and universities
across the continental United States. Intirion believes that it is the largest
refrigerator/microwave rental company serving the Academic Living market. The
second largest market is the Government Living market, consisting principally
of military bases. In this market, the MicroFridge (R) product line is
available through government contracts with the General Services
Administration and the U.S. Air Force. MicroFridge (R) products have been
installed at government facilities throughout the world. The Hotel/Motel
Living market is estimated to have in excess of 3 million rooms.
MicroFridge (R) brand products are sold to the hospitality and lodging
industry throughout the continental United States through an independent
dealer network. The Senior Living market is estimated to have in excess of 1
million rooms.
For the three years ended June 30, 1997, revenues from Intirion's major
markets were as follows:
<TABLE>
<CAPTION>
FOR THE THREE YEARS
ENDED JUNE 30, 1997
-----------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Academic Living(1)................................... $ 7,234 $ 8,541 $10,416
Government Living.................................... 4,695 5,504 7,142
Hotel/Motel Living................................... 3,375 3,500 4,812
Senior Living........................................ 338 288 1,107
------- ------- -------
$15,642 $17,833 $23,477
======= ======= =======
</TABLE>
- --------
(1) Includes rental income.
84
<PAGE>
EMPLOYEES
Intirion employs approximately 50 people. No Intirion employee is covered by
a collective bargaining agreement. Intirion believes that its relationship
with its employees is good. In addition, Intirion employs part-time employees
from time to time based on the seasonality of Intirion sales and rental
operations in the college and university marketplace.
COMPETITION
The refrigerator/microwave industry is highly competitive. In addition to
large direct sellers such as General Electric, Intirion also competes with the
major retail stores and local and regional distributors who sell various brand
name compact refrigerators and microwave ovens in the markets served by
Intirion. Although Intirion holds a patent on combination units utilizing
internal circuitry, there has been increased competition since 1995 from
"similar look" products utilizing an external circuitry control mechanism.
Intirion believes that competition will increase as products manufactured in
China reach the U.S. market in quantity. There also exists significant local
and regional competition in Intirion's rental business. Many of the
competitors are local sole proprietorships. The growth in Intirion's rental
business has been derived from both acquisitions and direct sales efforts.
Intirion believes that its expertise gained from being the first entrant in
the market enables it to compete effectively against new entrants in the
combination appliance business. Intirion's principal competitors include
General Electric, Avanti, Absocold, Tatung, Welbilt, Walmart, Sears, Sanyo
Fisher Sales and several companies focused on college rental marketplace. In
addition, new companies not currently competing in the appliance marketplace
could enter the market. Many of such current and potential competitors have
greater financial, marketing, technical and other resources than Intirion.
PROPERTIES
Intirion leases its corporate headquarters located at Ten Walpole Park
South, Walpole, Massachusetts. The facility houses corporate, sales,
marketing, customer service and distribution personnel and has 11,990 square
feet of office space and 7,000 square feet of distribution and warehousing
space. The lease terminates on May 31, 2001, with an option to extend for an
additional five-year term. In addition, Intirion leases warehousing and
storage space in San Diego, California. From time to time, Intirion also rents
temporary storage sites throughout the continental United States for seasonal
storage. Intirion believes that its properties are generally well-maintained
and in good condition and are adequate for its present needs and that suitable
additional replacement space will be available as required.
INTELLECTUAL PROPERTY
Intirion holds a United States patent for a Combined Refrigerator and
Microwave Oven with Time Overload Protection. The patent is held jointly with
Sanyo Corporation ("Sanyo") which has entered into a non-competition agreement
pursuant to which Sanyo has agreed not to compete with Intirion, provided that
Intirion purchases from Sanyo a minimum volume of products. Intirion also has
a patent application pending in the United States for the collapsible-upon-
demand LifeSpace (TM) closet maximization system. Intirion also holds a
registered trademark for all MicroFridge (R) brand products and has filed
additional trademark applications for certain new products.
SUPPLIERS
Intirion maintains OEM arrangements with three primary manufacturers, Sanyo
E&E Corporation, Daewoo Electronics Co., Ltd. and Imarflex Mfg. Co., Ltd.
Sanyo E&E Corporation has been Intirion's principal supplier since Intirion
was founded. In December 1997, Sanyo signed a non-competition agreement with
Intirion which will remain in effect through the remaining life of the patent
provided that certain minimum annual quantities of products are purchased from
Sanyo. The other OEM agreements are renewable year to year unless terminated
with proper notice.
85
<PAGE>
PRODUCTS AND CUSTOMER SERVICE
Intirion provides warranty and service through a network of independent
service centers across the continental United States and staffs its own
customer service center at its corporate headquarters in Walpole,
Massachusetts.
LEGAL PROCEEDINGS
Intirion is not a party to any pending legal proceedings.
86
<PAGE>
INTIRION'S SELECTED HISTORICAL FINANCIAL DATA
Set forth below are historical financial data of Intirion as of and for the
dates and for the periods indicated. The selected historical financial data
have been derived from audited and unaudited consolidated financial
statements. The unaudited information reflects all adjustments (consisting
only of normal, recurring adjustments) necessary for the fair presentation of
the financial condition as of these dates and the results of operations for
those unaudited interim periods for Intirion. The results of operations for
those interim periods are not necessarily indicative of the results to be
expected for any other period.
The selected historical financial data below should be read in conjunction
with, and are qualified by reference to, Intirion's Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
historical financial statements and notes thereto of Intirion included
elsewhere in this Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30, DECEMBER 31,
--------------- ---------- ------------------------- ----------------
1992 1993 1994(1) 1995 1996 1997 1996 1997
------ ------- ---------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $9,422 $12,602 $ 4,329 $15,642 $17,833 $23,477 $14,022 $13,355
Cost of revenues........ 6,491 8,503 3,023 9,852 11,079 15,141 9,254 8,471
------ ------- ------- ------- ------- ------- ------- -------
Gross profit............ 2,931 4,099 1,306 5,790 6,754 8,336 4,768 4,884
Operating expenses...... 2,790 3,677 2,064 6,011 6,168 7,490 3,938 4,272
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations............. 141 422 (758) (221) 586 846 830 612
Interest expense, net .. 89 83 34 153 398 454 200 314
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) before
taxes.................. 52 339 (792) (374) 188 392 630 298
Provision (benefit) for
taxes.................. -- (117) 6 26 49 22 19 9
------ ------- ------- ------- ------- ------- ------- -------
Net income (loss)....... 52 456 (798) (400) 139 370 611 289
------ ------- ------- ------- ------- ------- ------- -------
Accretion and dividends
accrued on redeemable
stock.................. (190) (191) (140) (456) (486) (602) (301) (437)
------ ------- ------- ------- ------- ------- ------- -------
Income (loss) available
to common
stockholders........... $ (138) $ 265 $ (938) $ (856) $ (347) $ (232) $ 310 $ (148)
====== ======= ======= ======= ======= ======= ======= =======
Basic income (loss) per
share(2)............... $(0.22) $ 0.41 $ (1.46) $ (1.31) $ (0.48) $ (0.30) $ 0.40 $ (0.19)
====== ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding(2).. 634 644 644 654 726 778 778 778
====== ======= ======= ======= ======= ======= ======= =======
Dilutive income (loss)
per share(3)........... $(0.22) $ 0.26 $ (1.46) $ (1.31) $ (0.48) $ (0.30) $ 0.34 $ (0.19)
====== ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding--
plus assumed
conversions(3)......... 634 1,016 644 654 726 778 908 778
====== ======= ======= ======= ======= ======= ======= =======
OTHER FINANCIAL DATA:
EBITDA(4)............... $ 224 $ 547 $ (669) $ 519 $ 1,665 $ 2,189 $ 1,614 $ 1,389
Depreciation and amorti-
zation................. 83 125 89 740 1,079 1,343 784 777
Capital expenditures.... 448 411 38 3,700 2,375 2,903 2,644 2,433
Cash flows provided by
(used in) operating ac-
tivities............... 160 456 (1,675) 157 2,275 187 509 1,669
Cash flows used in in-
vesting activities..... (448) (411) (254) (4,057) (2,375) (2,903) (2,644) (2,433)
Cash flows provided by
(used in) financing
activities............. 291 (39) 2,874 2,960 84 2,716 2,135 764
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital......... $ (273) $ 455 $ 2,624 $(1,074) $(2,420) $(3,156) $(3,351) $(4,484)
Total assets............ 2,383 2,892 6,149 10,031 12,239 13,599 13,031 15,962
Long term debt, net of
current portion........ -- 375 404 282 148 -- 167 --
Redeemable stock and
warrants............... 880 1,209 5,054 5,510 5,924 6,526 6,174 6,963
Stockholders' deficit... (550) (458) (1,393) (2,248) (2,617) (2,849) (2,254) (3,026)
</TABLE>
- --------
(1) In 1994, Intirion changed its year end from December 31 to June 30
beginning with the period ended June 30, 1994.
(2) Based on the weighted average number of common shares outstanding and
calculated in accordance with SFAS 128. See Note 14 of Notes to the
Consolidated Financial Statements.
(3) Based on the weighted average number of common shares and common share
equivalents outstanding and calculated in accordance with SFAS 128. Common
share equivalents outstanding at December 31, 1992, June 30, 1994, 1995,
1996 and 1997 and December 31, 1997 were not included in the computation
of diluted income (loss) per common share because the effect of such
inclusion would be anti-dilutive. See Note 14 of Notes to the Consolidated
Financial Statements.
(4) "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 Intirion's management believes that certain investors may find it
to be a useful tool for measuring Intirion's ability to meet its future
debt service obligations, make capital expenditures and satisfy working
capital requirements.
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INTIRION'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Intirion derives its revenue principally through the sales of its
proprietary MicroFridge(R) product which is a combination
refrigerator/freezer/microwave oven utilizing patented circuitry. The product
is marketed throughout the continental United States to colleges and
universities, the federal government, mid range hotels and motels and to
builders of assisted living facilities. All of Intirion's products are
manufactured by outside suppliers. In addition to product sales, Intirion
rents the product on a year to year basis to students living in college and
university residence halls. Intirion rents approximately 29,000 units under
its rental program.
PROPOSED MERGER
On December 22, 1997, Intirion entered into the Merger Agreement with Mac-
Gray, pursuant to which the Intirion Exchangeable Securities are expected to
be exchanged for approximately 1.6 million shares of Mac-Gray Common Stock and
approximately $1 million in cash. The Merger is expected to be accounted for
as a pooling of interests and is expected to close in early 1998.
RESULTS OF OPERATIONS
Six months ended December 31, 1997 compared to six months ended December 31,
1996.
Revenue. Revenue decreased by $667,000, or 5%, to $13,355,000 in 1997 from
$14,022,000 in 1996. This decrease was primarily due to a decrease in unit
sales in the college and university market, offset in part by expanded unit
sales in Intirion's other markets and continued expansion in the number of
units placed in Intirion's rental program in the academic living market. Sales
in the college market in 1996 included an unusually large purchase by a major
university which did not recur in 1997.
Cost of Product Sales. Cost of product sales decreased by $916,000, or 10%,
to $7,908,000 in 1997 from $8,824,000 in 1996. The decrease was attributable
to the decrease in product sales and a reduction in product cost from
Intirion's suppliers.
Cost of Rental Revenue. Cost of rental revenue consists primarily of
depreciation of rental assets over an estimated useful life of seven years.
Cost of rental revenue increased by 133,000, or 31%, to $563,000 in 1997 from
$430,000 in 1996. The increase was primarily attributable to an increase in
units placed in the rental program.
Gross Profit. Gross profit increased $116,000 or 2%, to $4,884,000 in 1997
from $4,768,000 in 1996. Gross profit as a percent of revenue increased by 3%
to 37% in 1997 from 34% in 1996. The increase was primarily attributable to
reductions in product cost from Intirion's suppliers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $334,000, or 8%, to $4,272,000 in 1997
from $3,938,000 in 1996. This increase was primarily attributable to the
addition of support personnel and an increase in warehouse space to support
business growth.
Interest Expense. Interest expense increased $114,000, or 57%, to $314,000
in 1997 from $200,000 in 1996. This increase was primarily attributable to the
increased borrowings incurred to finance the purchase of units for Intirion's
rental business and an increase in inventory levels to meet projected
increases in product demand. There were no significant changes in interest
rates charged on Intirion's borrowings in 1997 as compared with 1996.
Income Tax Expense. Income tax expense decreased $10,000, or 53%, to $9,000
in 1997 from $19,000 in 1996. Intirion has been in a tax loss position and the
tax expense is primarily related to taxes due under federal alternative
minimum tax provisions and state excise tax liabilities.
Fiscal year ended June 30, 1997 compared to fiscal year ended June 30, 1996.
Revenue. Revenue increased by $5,644,000, or 32%, to $23,477,000 in 1997
from $17,833,000 in 1996. This increase was primarily due to increased unit
sales in all market segments as well as expansion in the number of units
placed in Intirion's rental program in the academic living market.
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Cost of Product Sales. Cost of product sales increased by $3,623,000, or
35%, to $13,870,000 in 1997 from $10,247,000 in 1996. The increase was
attributable to increased product sales.
Cost of Rental Revenue. Cost of rental revenue consists primarily of
depreciation of rental assets over an estimated useful life of seven years.
Cost of rental revenue increased by $439,000, or 53%, to $1,271,000 in 1997
from $832,000 in 1996. The increase was primarily attributable to an increase
in units placed in the rental program.
Gross Profit. Gross profit increased $1,582,000, or 23%, to $8,336,000 in
1997 from $6,754,000 in 1996. Gross profit as a percent of revenue decreased
by 2% to 36% in 1997 from 38% in 1996. The decrease was primarily attributable
to increases in product costs from vendors which could not be passed on to
customers and increases in storage and handling costs on rental units related
to the expansion of Intirion's rental business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1,322,000, or 21%, to $7,490,000 in 1997
from $6,168,000 in 1996. This increase was primarily attributable to an
increase in commissions and bonuses due to increased revenue and operating
profit and an increase in general operating costs associated with the
relocation of Intirion's headquarters to a new facility.
Interest Expense. Interest expense increased $56,000, or 14%, to $454,000 in
1997 from $398,000 in 1996. This increase was primarily attributable to the
increased borrowings incurred to finance the purchase of units for Intirion's
rental business and an increase in inventory levels to meet projected
increases in product demand. There were no significant changes in interest
rates charged on Intirion's borrowings in 1997 as compared with 1996.
Income Tax Expense. Income tax expense decreased $27,000, or 55%, to $22,000
in 1997 from $49,000 in 1996. Intirion has been in a tax loss position and the
tax expense is primarily related to taxes due under federal alternative
minimum tax provisions and state excise tax liabilities.
Fiscal year ended June 30, 1996 compared to fiscal year ended June 30, 1995.
Revenue. Revenue increased by $2,191,000, or 14%, to $17,833,000 in 1996
from $15,642,000 in 1995. This increase was primarily due to increased unit
sales in Intirion's academic living and government living market segments as
well as expansion in the number of units placed in Intirion's rental program
in the academic living market.
Cost of Product Sales. Cost of product sales increased by $951,000, or 10%,
to $10,247,000 in 1996 from $9,296,000 in 1995. The increase was attributable
to increased product sales.
Cost of Rental Revenue. Cost of rental revenue consists primarily of
depreciation of rental assets over an estimated useful life of seven years.
Cost of rental revenue increased by $276,000, or 50%, to $832,000 in 1996 from
$556,000 in 1995. The increase was primarily attributable to an increase in
units placed in the rental program.
Gross Profit. Gross profit increased $964,000, or 17%, to $6,754,000 in 1996
from $5,790,000 in 1995. Gross profit as a percent of revenue increased by 1%
to 38% in 1996 from 37% in 1995. The increase was primarily attributable to
product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $433,000, or 8%, to $6,168,000 in 1996
from $5,735,000 in 1995. This increase was primarily attributable to an
increase in commissions and bonuses due to increased revenue and operating
profit coupled with costs associated with a marketing study and related costs
associated with a change in the corporation's name from MicroFridge, Inc. to
Intirion Corporation.
Restructuring Expenses. Restructuring expenses in 1995 of $276,000 were the
result of terminating 13 employees and other costs associated with a
restructuring of Intirion's sales force. There were no such restructuring
actions in 1996.
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Interest Expense. Interest expense increased $245,000, or 160%, to $398,000
in 1996 from $153,000 in 1995. This increase was primarily attributable to the
increased borrowings incurred to finance the purchase of units for Intirion's
rental business and an increase in inventory levels to meet projected
increases in product demand. There were no significant changes in interest
rates charged on Intirion's borrowings in 1996 as compared with 1995.
Income Tax Expense. Income tax expense increased $23,000, or 88%, to $49,000
in 1996 from $26,000 in 1995. Intirion has been in a tax loss position and the
tax expense is primarily related to taxes due under federal alternative
minimum tax provisions and state excise tax liabilities.
SEASONALITY
Intirion experiences moderate seasonality as a result of its significant
operations in the college and university market. Revenues derived from this
market represent approximately forty-five percent (45%) of Intirion's total
revenue. The revenues are derived substantially during the academic school
year which includes the period September through June. Conversely, Intirion
has greater costs when colleges and universities are not in session due to
pick-up, cleaning and storage costs associated with its rental assets.
LIQUIDITY AND CAPITAL RESOURCES
Intirion's primary sources of cash over the past several years have been
operating activities and bank and vendor borrowings. Intirion's primary uses
of cash have been for capital equipment related to expansion of its rental
program. Intirion anticipates that it will continue to use cash flows from its
operating activities to finance working capital needs, including interest
payments on its outstanding indebtedness, as well as capital expenditures for
expansion of its rental business.
Cash flows from operations were $187,000, $2,275,000 and $157,000 for the
fiscal years ended June 30, 1997, 1996 and 1995, respectively. Cash flows from
operations consist primarily of net income, adjusted for non-cash expenses
coupled with changes in working capital assets and liabilities, specifically
accounts receivable and payable and inventories.
Cash used in investing activities was primarily for the purchase of rental
assets and totaled $2,903,000, $2,375,000 and $4,057,000 for the fiscal years
ended June 30, 1997, 1996 and 1995, respectively.
Net cash flows (sources) from financing activities, consisting primarily of
bank and vendor borrowings net of repayments of subordinated notes payable and
dividends on the Intirion Series A Preferred Stock, were $2,716,000, $84,000
and $2,960,000 for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively.
Intirion maintains a secured demand credit line with a bank which is capped
at $7,500,000. Borrowings under the credit facility totaled $2,525,000 at June
30, 1997 and $4,742,000 at December 31, 1997. Intirion believes that the
credit line and cash flows generated by operations will be sufficient to fund
Intirion's short-term working capital needs. Intirion believes that over the
longer term additional financing will be required to continue to grow its
rental business. To the extent that additional financing cannot be obtained on
terms acceptable to Intirion, Intirion would likely reduce the rate of growth
of its rental business.
INFLATION
Intirion does not believe that its financial performance has been materially
affected by inflation.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF MAC-GRAY AND INTIRION
At the Effective Time, holders of Intirion Exchangeable Securities will
become stockholders of Mac-Gray. Set forth below is a comparison of the terms
of the Intirion Voting Stock and the terms of Mac-Gray Common Stock, as well
as a summary of other material differences between the rights of holders of
Intirion Voting Stock and the rights of holders of Mac-Gray Common Stock. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Intirion Charter, the Intirion By-Laws, the Mac-Gray Charter,
the Mac-Gray By-Laws and the more detailed description of Mac-Gray Common
Stock contained herein. See "Description of Mac-Gray Capital Stock." Both Mac-
Gray and Intirion are incorporated in the State of Delaware.
CHARTER AMENDMENTS
General Law. To authorize an amendment to the corporate charter, the DGCL
generally requires the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon. The DGCL provides for any class
or series of stock to vote as a class for the proposed amendment if the
amendment would increase or decrease the number of authorized shares or change
the number or par value of the aggregate authorized shares of a class or
series, unless the charter provides otherwise. The DGCL also provides for
class voting if the amendment would alter or modify the powers, preferences or
special rights of the shares of such class to affect such class adversely.
Intirion. The Intirion Charter provides that it may be amended in the manner
prescribed by the DGCL.
Mac-Gray. The Mac-Gray Charter provides that its provisions may be amended
or repealed, after approval by the Mac-Gray Board, by the affirmative vote of
a majority of the outstanding shares entitled to vote thereon 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 amendment or
repeal of any provision contained in Articles V, VI, VII or IX of the Mac-Gray
Charter, which relate respectively to stockholder action, directors,
limitation of liability and amendment of the Mac-Gray Charter requires the
affirmative vote of four-fifths of the outstanding shares entitled to vote
thereon and the affirmative vote of four-fifths of the outstanding shares of
each class entitled to vote thereon as a class.
BY-LAW AMENDMENTS
General Law. The DGCL provides that the by-laws of a corporation may be
amended by the vote of a majority of the board of directors, if so provided in
the charter or in the by-laws. The board of directors' authority to adopt,
amend or repeal the by-laws of a corporation does not divest or limit the
power of stockholders to adopt, amend or repeal by-laws. Any amendment by the
board of directors to the by-laws may be subsequently changed by the
affirmative vote of holders of a majority of the shares entitled to vote
thereon.
Intirion. Either the Intirion Board or Intirion's stockholders may amend the
Intirion By-laws.
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Mac-Gray. The Mac-Gray Charter provides that the Mac-Gray By-Laws may be
amended or repealed by the Mac-Gray Board by the affirmative vote of a
majority of the directors then in office. The Mac-Gray By- Laws may also be
amended or repealed by the stockholders at any annual meeting of stockholders,
or special meeting of stockholders called for that purpose, by the affirmative
vote of three-fourths of the shares represented in person or by proxy and
entitled to vote thereon; provided, however, that if the Mac-Gray Board
recommends approval of such repeal or amendment, the affirmative vote of only
a majority of the shares represented in person or by proxy and entitled to
vote thereon is required.
VOTING RIGHTS
Intirion. Except as otherwise required by law or the Intirion Charter, each
holder of Intirion Common Stock has one vote in respect to each share of stock
held by him of record for the election of directors and on all matters
submitted to a vote of stockholders.
Each holder of outstanding shares of Intirion Series A Preferred Stock is
entitled to the number of votes equal to the number of whole shares of
Intirion Common Stock into which the shares of Intirion Series A Preferred
Stock held by such holder are convertible with respect to any and all matters
presented to the stockholders of Intirion for their action or consideration.
The holders of Intirion Series A Preferred Stock vote together as a single
class together with the holders of the Intirion Common Stock and any other
series of Intirion preferred stock, except with respect to (i) provisions
establishing other series of preferred stock; (ii) the election of directors;
and (iii) provisions which alter, amend or repeal the preferences, rights or
special powers of the Intirion Series A Preferred Stock.
Prior to the exercise of any warrant held by the holders of the Intirion
Senior Preferred Stock, each share of Intirion Senior Preferred Stock entitles
the holder thereof to vote on all matters submitted to a vote of the
stockholders of Intirion, voting together as a single class with the holders
of Intirion Common Stock and Intirion Series A Preferred Stock. Each holder of
Intirion Senior Preferred Stock is entitled to vote, with respect to each
share of Intirion Senior Preferred Stock held by such holder, a number of
votes equal to the result obtained by dividing (x) the aggregate number of
votes which could be cast in such vote by a holder of the number of shares of
Intirion Common Stock for which the warrant is exercisable on the record date
for such vote by (y) the number of outstanding shares of Intirion Senior
Preferred Stock on the record date for such vote. In addition, the affirmative
vote of the holders of at least two-thirds of the outstanding shares of
Intirion Senior Preferred Stock, voting separately as a single class, at a
special or annual meeting of stockholders called for the purpose, is necessary
to authorize certain extraordinary matters, including approval of the Merger
Agreement.
Mac-Gray. Subject to the voting rights of holders of Preferred Stock, of
which there is currently none designated, issued or outstanding, holders of
Mac-Gray Common Stock have the exclusive right to vote for the election of
directors and on all matters requiring stockholder action. Shareholders have
one vote for each share of stock entitled to vote owned by them of record and
may vote such shares either in person or by written proxy.
CONVERSION RIGHTS
Intirion. Each share of Intirion Series A Preferred Stock is currently
convertible, at the option of the holder thereof, and without the payment of
additional consideration by the holder thereof, at any time and from time to
time, into six shares of Intirion Common Stock. In case of any consolidation
or merger of Intirion with or into another corporation or the sale of all or
substantially all of the assets of Intirion to another corporation, each share
of Intirion Series A Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Intirion Common Stock deliverable upon
conversion of such Intirion Series A Preferred Stock would have been entitled
upon such consolidation, merger or sale.
Mac-Gray. Other than outstanding stock options granted pursuant to the 1997
Stock Plan, Mac-Gray has no issued or outstanding securities which are
convertible into shares of Mac-Gray Common Stock or any other security. In
addition, there are no conversion rights or redemption or sinking fund
provisions with respect to the Mac-Gray Common Stock.
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PREEMPTIVE RIGHTS
Intirion. The holders of Intirion Voting Stock have no preemptive or other
subscription rights.
Mac-Gray. The holders of Mac-Gray Common Stock have no preemptive or other
subscription rights.
SPECIAL MEETINGS
General Law. Under the DGCL, a special meeting of stockholders may be called
by the board of directors or such other persons as are authorized by the
certificate of incorporation or the by-laws.
Intirion. The Intirion By-laws provide that a special meeting of the
stockholders may be called by the Intirion Board or the President and shall be
called by the President or Secretary at the request in writing of a majority
of the Intirion Board, or at the request in writing of stockholders owning a
majority in voting power of the entire capital stock of Intirion issued and
outstanding and entitled to vote.
Mac-Gray. Special meetings of the stockholders of Mac-Gray may be called
only by the Mac-Gray Board pursuant to a resolution approved by the
affirmative vote of a majority of the directors then in office. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting. Each stockholder entitled to vote at a
special meeting is entitled to receive notice of such special meeting not less
than 10 days nor more than 60 days before such meeting.
CORPORATE ACTION WITHOUT A MEETING
General Law. The DGCL permits corporate action without a stockholders'
meeting, without prior notice and without a vote of stockholders upon receipt
of the written consent of that number of shares that would be necessary to
authorize the proposed corporate action at a meeting at which all shares
entitled to vote thereon were present and voting, unless the charter expressly
provides otherwise. Prompt notice of the taking of action without a meeting by
less than a unanimous written consent must be given to all stockholders who
have not consented in writing.
Intirion. The Intirion Charter makes no change to the DGCL provisions.
Mac-Gray. The Mac-Gray Charter provides that any action of stockholders must
be effected at a duly called annual or special meeting of stockholders and may
not be taken or effected by a written consent of stockholders in lieu thereof.
DIVIDENDS
General Law. Under the DGCL, the directors of a corporation are generally
permitted to declare and pay dividends out of surplus or out of net profits
for the current and/or preceding fiscal year, provided that such dividends
will not reduce capital below the amount of capital represented by all classes
of issued and outstanding stock having a preference upon the distribution of
assets. Also under the DGCL, a corporation may generally redeem or purchase
shares of its stock if such redemption or purchase will not impair the capital
of the corporation.
Intirion. The Intirion Senior Preferred Stock ranks senior to the Intirion
Common Stock, the Intirion Series A Preferred Stock and any other class or
series of capital stock of Intirion with respect to the payment of dividends.
The holders of shares of Intirion Senior Preferred Stock are entitled to
receive cumulative cash dividends at an annual rate per share equal to 6%. So
long as any shares of Intirion Senior Preferred Stock are outstanding,
Intirion may not declare or pay dividends, or make any other distributions, on
any shares of junior stock except that, so long as certain events have not
occurred, Intirion may declare and pay dividends on the Intirion Series A
Preferred Stock in cash in an amount not to exceed $36,000 annually in the
aggregate.
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The holders of shares of Intirion Series A Preferred Stock are entitled to
receive cumulative dividends at the rate of $0.90 per share per annum, payable
quarterly. For so long as any shares of Intirion Series A Preferred Stock are
outstanding, Intirion may not declare or pay any distributions on shares of
Intirion Common Stock until the holders of the Intirion Series A Preferred
Stock then outstanding shall have first received any accrued but unpaid
dividends from any prior year.
Intirion has never paid cash dividends on Intirion Common Stock. Subject to
the preferential rights of the Intirion Senior Preferred Stock and the
Intirion Series A Preferred Stock, the holders of shares of Intirion Common
Stock are entitled to receive, when and if declared by the Intirion Board,
dividends payable either in cash, in property or in shares of capital stock.
Mac-Gray. The Mac-Gray Board or any authorized committee thereof may declare
dividends, to be paid or set apart for payment upon the Mac-Gray Common Stock,
out of any assets or funds of Mac-Gray legally available for the payment
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. The Credit Facility also restricts dividend payments
in certain limited circumstances.
LIQUIDATION
General Law. Pursuant to the DGCL, upon the winding up, dissolution or
liquidation of a corporation, the stockholders of such corporation are
entitled to share in any of the assets distributable to the holders of the
respective corporation's stock upon such liquidation, dissolution or winding
up in accordance with their respective rights and interests.
Intirion. The Intirion Senior Preferred Stock ranks senior to the Intirion
Series A Preferred Stock and the Intirion Common Stock. No distribution may be
made upon liquidation to the holders of any shares of Intirion Series A
Preferred Stock or Intirion Common Stock, unless the holders of the Intirion
Senior Preferred Stock have first received $40.00 per share plus all accrued
and unpaid dividends.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Intirion, the holders of shares of Intirion Series A Preferred
Stock then outstanding are entitled to be paid before any payment is made to
the holders of Intirion Common Stock an amount equal to the greater of (i)
$15.00 per share, plus any dividends accrued or declared but unpaid thereon or
(ii) such amount per share as would have been payable had each such share been
converted to Intirion Common Stock immediately prior to such liquidation,
dissolution or winding up. The merger or consolidation of Intirion into or
with another corporation (except a merger or consolidation involving only a
change in the state of incorporation of Intirion, a merger of Intirion with or
into a wholly-owned subsidiary of Intirion that is incorporated in the United
States, or a merger for which stockholder approval is not required by
applicable law), or the sale of all or substantially all the assets of
Intirion, shall be deemed to be a liquidation, dissolution or winding up of
Intirion if the holders of at least two-thirds of the then outstanding shares
of Intirion Series A Preferred Stock so elect by giving written notice thereof
to Intirion at least fifteen days before the stockholder vote on such event.
After the payment of all preferential amounts required to be paid to the
holders of Intirion Senior Preferred Stock and Intirion Series A Preferred
Stock, upon the dissolution, liquidation or winding up of Intirion, the
holders of shares of Intirion Common Stock then outstanding are entitled to
receive the remaining assets and funds of Intirion available for distribution
to its stockholders.
Mac-Gray. Upon any voluntary or involuntary liquidation, dissolution or
winding up of Mac-Gray, the net assets of Mac-Gray will be distributed pro
rata to the holders of Mac-Gray Common Stock in accordance with their
respective rights and interests. The possible issuance of Preferred Stock with
a preference over Mac-Gray Common Stock as to liquidation could impact such
rights of holders of Mac-Gray Common Stock.
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PROVISIONS RELATING TO DIRECTORS AND OFFICERS
General Law. Under the DGCL, a corporation must have a board of directors
consisting of at least one director. Under the DGCL, a corporation's charter
may (i) confer upon holders of any class or series of stock the right to elect
one or more directors to serve for such term and to have such voting powers as
may be specified therein, (ii) permit classification of the board of
directors, and (iii) permit cumulative voting for the election of directors.
Intirion. The Intirion Charter confers upon the holders of the Intirion
Senior Preferred Stock the right to elect one director, except in the event of
certain defaults, in which case such holders have the right to elect two
directors. The Intirion Charter also confers upon the holders of the Intirion
Series A Preferred Stock the right to elect one director. The Intirion Charter
does not permit classification of the Intirion Board or cumulative voting for
the election of directors. The Intirion Board may fill any vacancies in the
Intirion Board, except that any vacancy created by the resignation, death or
removal of a director designated by the holders of the Intirion Senior
Preferred Stock or the holders of the Intirion Series A Preferred Stock shall
be filled by the vote of a majority of the class that designated the
predecessor director.
Mac-Gray. The number of directors of Mac-Gray may be fixed by resolution
duly adopted from time to time by the Mac-Gray Board. Currently, the number of
directors is fixed at six. The directors are classified into three classes of
equal size with terms expiring respectively at the annual meetings of
stockholders to be held in 1998, 1999 and 2000. At each annual meeting of
stockholders, the successors of the class of directors whose term expires at
that meeting shall be elected by a plurality of the votes cast at such meeting
and shall hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Presently, there is no cumulative voting for the election of directors.
Vacancies in the Mac-Gray Board, however occurring, shall be filled solely by
the affirmative vote of a majority of the remaining directors then in office.
The existence of a staggered board may have the effect of delaying or
deferring a change of control of Mac-Gray or removal of incumbent management.
STOCKHOLDER NOMINATIONS TO ELECT DIRECTORS
Intirion. There is no provision in the Intirion Charter or the Intirion By-
laws relative to stockholder nominations of directors.
Mac-Gray. Nominations of candidates for election as directors of Mac-Gray at
any annual meeting of stockholders may be made by any holder of record (both
as of the time notice of such nomination is given by the stockholder and as of
the record date for the annual meeting in question) of any shares of the
capital stock of Mac-Gray entitled to vote at such annual meeting who complies
with the timing, informational and other requirements set forth in the Mac-
Gray By-Laws. Any stockholder who has complied with all such requirements and
who seeks to make such a nomination must be present in person at the annual
meeting.
Such nominations shall be made pursuant to timely notice in writing to the
Secretary of Mac-Gray. For the annual meeting to be held in 1998, a
stockholder's notice shall be timely if received by Mac-Gray at its principal
executive office not later than the close of business on the later of the 75th
day prior to the scheduled date of such annual meeting or the 15th day
following the day on which public announcement of the date of such annual
meeting is first made by Mac-Gray. For all subsequent annual meetings, a
stockholder's notice shall be timely if received by Mac-Gray at its principal
executive office not less than 75 days nor more than 120 days prior to the
anniversary date of the immediately preceding annual meeting; provided,
however, that in the event the annual meeting is scheduled to be held on a
date more than 30 days before the anniversary date or more than 60 days after
the anniversary date, a stockholder's notice shall be timely if received by
Mac-Gray at its principal executive office not later than the close of
business on the later of the 75th day prior to the scheduled date of such
annual meeting or the 15th day following the day on which public announcement
of the date of such annual meeting is first made by Mac-Gray.
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REMOVAL OF DIRECTORS
General Law. Under the DGCL, any director or the entire board of directors
of a corporation may be removed, with or without cause, by the holders of a
majority of the shares then entitled to elect directors. In the case of a
corporation whose board of directors is classified, stockholders may effect
such removal only for cause unless the charter provides otherwise.
Intirion. Directors of Intirion may be removed for cause by vote of a
majority of the directors then in office. Directors of Intirion may be removed
without cause by vote in the election of directors, provided that the
directors of a class elected by a particular class of stockholders may be
removed only by the vote of the holders of a majority of the shares of the
particular class of stockholders entitled to vote for the election of such
directors.
Mac-Gray. The Mac-Gray Charter provides that, subject to the rights of any
series of Preferred Stock to elect or remove directors, any director may be
removed from office only with cause and only by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such director.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
General Law. The DGCL generally permits indemnification of directors,
officers, employees and agents for expenses, judgments, fines and amounts paid
in settlement of claims incurred by them by reason of their position with the
corporation, if such persons have acted in good faith and with the reasonable
belief that their conduct was in the best interest of the corporation.
However, the DGCL does not permit a corporation to indemnify persons against
judgments, fines and amounts paid in settlement in actions brought by or in
the right of the corporation. The DGCL permits indemnification of expenses of
such actions, unless the persons have been adjudged to be liable to the
corporation, in which case indemnification is available only if approved by
the Delaware Court of Chancery (the "Court") or the court in which such action
or suit was brought.
Intirion. The Intirion By-laws provide that directors and officers of
Intirion shall be, and in the discretion of the Intirion Board non-officer
employees may be, indemnified by Intirion to the fullest extent authorized by
Delaware law, as it now exists against all expenses and liabilities reasonably
incurred in connection with service for or on behalf of Intirion, and further
permits the advancing of expenses incurred in defense of claims. The Intirion
By-laws also provide that the right of directors and officers to
indemnification shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. The Intirion 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.
Mac-Gray. 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
96
<PAGE>
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.
RIGHTS OF DISSENTING STOCKHOLDERS
Pursuant to Section 262 of the DGCL, record holders of shares of Intirion
Voting Stock on the Record Date are entitled to assert dissenters' rights in
connection with the Merger and obtain payment of the "fair value" of their
shares, provided that such stockholders comply with the requirements of
Section 262. The Intirion Principal Stockholders, by entering into the Voting
Agreements, have effectively forfeited their appraisal rights with respect to
their shares of Intirion Voting Stock.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS APPENDIX B TO THIS
PROSPECTUS/PROXY STATEMENT. THE FOLLOWING DISCUSSION IS NOT A COMPLETE
STATEMENT OF THE LAW RELATING TO APPRAISAL RIGHTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX B. SECTION 262 SHOULD BE REVIEWED CAREFULLY
BY STOCKHOLDERS WHO WISH TO ASSERT THEIR DISSENTER' RIGHTS OR WHO WISH TO
PRESERVE THE RIGHT TO DO SO, SINCE FAILURE TO COMPLY WITH THOSE PROCEDURES MAY
RESULT IN THE LOSS OF SUCH DISSENTERS' RIGHTS.
A holder of Intirion Voting Stock who elects to exercise dissenters' rights
must satisfy each of the following conditions: (i) such holder must deliver to
Intirion, before the taking of the vote with respect to the Merger Agreement,
written notice of his or her intention to demand payment of the fair value of
his or her shares (this written notice must be in addition to and separate
from any proxy or vote against the Merger Agreement; neither voting against
adoption nor a failure to vote for the Merger Agreement will constitute such a
notice); and (ii) such holders must not vote in favor of adoption of the
Merger Agreement (a failure to vote will satisfy this requirement, but a vote
in favor of adoption of the Merger Agreement, by proxy or in person, will
constitute a waiver of such holder's dissenters' rights and will nullify any
previously filed written notice of intent to demand payment). A stockholder
who fails to comply with either of these conditions will have no dissenters'
rights with respect to his or her shares.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written notice to: Intirion Corporation, Ten
Walpole Park South, Walpole, Massachusetts 02081 Attention: Secretary. Such
notice must be executed by, or with the consent of, the holder of record. The
notice must identify the stockholder and indicate the intention of such
stockholder to demand payment of the fair value of his or her shares. In the
notice, the stockholder's name should be stated as it appears on his or her
stock certificate(s). If the shares are owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, such demand must be
executed by or for the fiduciary. If the shares are owned of record by or for
more than one person, as in a joint tenancy or tenancy in common, such demand
must be executed by or for all joint owners. An authorized agent, including an
agent for two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner(s)
and expressly disclose the fact that, in exercising the demand, he is acting
as agent for the record owners.
A record owner, such as a broker, who holds shares as a nominee for others
may exercise his or her right of appraisal with respect to the shares for all
or less than all beneficial owners of shares as to which he or she is the
record owner. In such case, the written demand must set forth the number of
shares covered by such demand. Where the number of shares is not expressly
mentioned, the demand will be presumed to cover all shares outstanding in the
name of such record owner.
After the stockholder vote adopting the Merger Agreement, and assuming the
Merger is consummated, the Surviving Corporation must give written notice
within ten days after the Closing Date that the Merger Agreement has been
adopted to each stockholder who filed a written notice of intent to demand
payment for such
97
<PAGE>
stockholder's shares and who did not vote in favor of adoption of the Merger
Agreement (a "Dissenting Stockholder"). Within 120 days after the Closing
Date, the Surviving Corporation or any Dissenting Stockholder may file a
petition in the Delaware Court of Chancery demanding a determination of the
value of the stock of all Dissenting Stockholders. Notwithstanding the
foregoing, at any time within 60 days after the Closing Date, any Dissenting
Stockholder has the right to withdraw his or her demand for appraisal and to
accept the Merger Consideration to which he or she otherwise would have been
entitled. In addition, within 120 days after the Closing Date, any Dissenting
Stockholder will, upon written request, be entitled to receive from the
Surviving Corporation a statement setting forth the aggregate number of shares
not voted in favor of adopting the Merger Agreement and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares.
At the hearing on such petition, the Court will determine the stockholders
who have perfected their dissenters' rights. The Court may require Dissenting
Stockholders to submit their stock certificates to the Register in Chancery
for notation thereon of the pending of appraisal proceedings; the failure of a
Dissenting Stockholder to comply with such direction may result in the Court
dismissing the proceedings as to such stockholder.
After determining the stockholders entitled to an appraisal, the Court will
appraise the shares, determining the fair value arising from the consummation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court may take into account all relevant factors. The Delaware Supreme Court
has stated that "proof of value by any techniques or methods which are
generally considered acceptable in the financial community and otherwise
admissible in court" should be considered in the appraisal proceedings. The
Court will then direct the payment of the fair value of the shares, together
with any interest, to the Dissenting Stockholders upon the surrender of the
certificates representing the dissenting shares.
Stockholders considering seeking appraisal for their shares should note that
the fair value of their shares determined under Section 262 could be more, the
same or less than the consideration they would receive pursuant to the Merger
Agreement if they did not seek appraisal of their shares. The costs of the
appraisal proceeding may be determined by the Court and allocated among the
parties as the Court deems equitable under the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal. In the absence of such a determination or assessment,
each stockholder bears his or her own expenses.
RESALES OF SECURITIES
The Mac-Gray Common Stock to be issued to the holders of Intirion
Exchangeable Securities under this Prospectus/Proxy Statement will be freely
transferable under the Securities Act, except for shares of Mac-Gray Common
Stock issued to persons who may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and Rule 145(c) thereunder.
Generally, these are persons, who are deemed to control, be controlled by, or
under common control with Intirion. The shares of Mac-Gray Common Stock issued
(or issuable) in connection with the Merger to persons who constitute
"underwriters" within the meaning of Section 2(11) and Rule 145(c) may not be
publicly reoffered or resold by such persons except pursuant to an effective
registration statement under the Securities Act covering the shares of Mac-
Gray Common Stock or, in certain circumstances, pursuant to Rule 145(d) or any
other applicable exemption under the Securities Act. Because the Intirion
securityholders listed in the table below (the "Selling Securityholders") may
be deemed to be underwriters of shares of Mac-Gray Common Stock issued to them
in the Merger, this Prospectus/Proxy Statement will also cover any offers or
sales of such shares of Mac-Gray Common Stock by the Selling Securityholders.
98
<PAGE>
The ownership of the shares of Mac-Gray Common Stock issued to them to be
issued to the Selling Securityholders is described below:
<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(2)................. 259,191 259,191 --
Gelco Corporation.................... 346,154 346,154 --
Eastech II L.P....................... 145,029 145,029 --
Eastech III L.P...................... 217,543 217,543 --
</TABLE>
- --------
(1) Assumes that the Selling Securityholders sell all the shares of Mac-Gray
Common Stock issued to them in the Merger and do not acquire additional
shares of Mac-Gray Common Stock.
(2) As of the Effective Time, Robert P. Bennett will be appointed Senior Vice
President, Sales of Mac-Gray.
The Selling Securityholders may sell shares of Mac-Gray Common Stock (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 of Mac-Gray Common Stock. 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
shares of Mac-Gray Common Stock 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 shares of Mac-Gray
Common Stock 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 of Mac-Gray Common Stock may be deemed to be
underwriters, and any profit on the sale of shares of Mac-Gray Common Stock 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 of Mac-Gray Common Stock, 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 shares of Mac-Gray Common Stock by the Selling
Securityholders.
To the extent not described herein and as otherwise required by law, the
specific amount of shares of Mac-Gray Common Stock being offered or sold, the
names of the Selling Securityholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer or sale
will be set forth in an accompanying prospectus supplement or, if appropriate,
a post-effective amendment to the Registration Statement of which this
Prospectus/Proxy Statement is a part.
Mac-Gray will not receive any of the proceeds of the sale of shares of Mac-
Gray Common Stock by any Selling Securityholder.
Under the securities laws of certain states, the shares of Mac-Gray Common
Stock may be sold in such states only through registered or licensed brokers
or dealers. In addition, in certain states the shares of Mac-Gray
99
<PAGE>
Common Stock may not be sold unless the shares of Mac-Gray Common Stock have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
Mac-Gray will pay all of the expenses incident to the registration, offering
and sale of the shares of Mac-Gray Common Stock, other than commissions, fees
and discounts of underwriters, brokers, dealers and agents. Mac-Gray has
agreed to indemnify the Selling Securityholders and any underwriters against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of Mac-Gray Common Stock to be issued in connection with the
Merger and certain other legal matters relating to the Merger will be passed
upon by Goodwin, Procter & Hoar LLP.
Certain legal matters relating to the Merger will be passed upon by White &
McDermott, P.C.
REGULATORY APPROVALS REQUIRED
Under the Hart-Scott-Rodino Act and the rules promulgated thereunder by the
FTC, certain information must be furnished to the Antitrust Division and the
FTC and specified waiting periods must expire in acquisition transactions
where: (i) the acquiring person, or the person whose voting securities or
assets are being acquired, is engaged in commerce or in any activity affecting
commerce; (ii) (a) any voting securities or assets of a person engaged in
manufacturing which has annual net sales or total assets of $10,000,000 or
more are being acquired by any person that has total assets or annual net
sales of $100,000,000 or more, or (b) any voting securities or assets of a
person not engaged in manufacturing that has total assets of $10,000,000 or
more are being acquired by any person that has total assets or annual net
sales of $100,000,000 or more, or (c) any voting securities or assets of a
person with annual net sales or total assets of $100,000,000 or more are being
acquired by any person with total assets or annual net sales of $10,000,000 or
more; and (iii) as a result of the acquisition the acquiring person would hold
either (x) 15% or more of the voting securities or assets of the acquired
person, or (y) an aggregate total amount of the voting securities and assets
of the acquired person in excess of $15,000,000. Currently, neither Mac-Gray
nor Intirion is required to make any filings with the FTC or the Antitrust
Division pursuant to the Hart-Scott-Rodino Act in connection with the Merger
because Mac-Gray does not satisfy either the asset or the revenue threshold
set forth above. No assurances can be given, however, that Mac-Gray will not
exceed one or both of such thresholds prior to the Closing Date. If Mac-Gray
were to exceed one of the above thresholds prior to the Closing Date, each of
Mac-Gray and Intirion would have to file a premerger notification form (and
any requested supplemental information) with the Antitrust Division and the
FTC with respect to the Merger, which would trigger a 30-day waiting period
that would have to elapse before the Merger could be consummated.
Mac-Gray and Intirion do not believe that any other material governmental
approvals, actions or filings, other than the Certificate of Merger, are or
will be required for the consummation of the Merger.
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, the
combined financial statements of Sun Services of America, Inc. and R. Bodden
Coin-Op-Laundry, Inc. as of and for the year ended December 31, 1996 and the
consolidated financial statements of Intirion Corporation as of June 30, 1997
and 1996 and for each of the three years ended June 30, 1997 included in this
Prospectus/Proxy Statement 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.
100
<PAGE>
SHAREHOLDER PROPOSALS
If the Intirion stockholders do not approve and adopt the Merger Agreement
and authorize the Merger and the other transactions contemplated by the Merger
Agreement, or if the Merger is not consummated for any other reason, the
Intirion Board will schedule the next annual meeting of Intirion stockholders
for a future date and will make provision for presentation of proposals at the
next such annual meeting by its stockholders.
101
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MAC-GRAY CORPORATION
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet as of December 31, 1996 and 1997............. F-3
Consolidated Statement of Income for the Years Ended December 31, 1995,
1996 and 1997.......................................................... F-4
Consolidated Statement of Stockholders' Equity for the Years Ended De-
cember 31, 1995, 1996 and 1997......................................... F-5
Consolidated Statement of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
SUN SERVICES OF AMERICA, INC. AND R. BODDEN COIN-OP -LAUNDRY, INC.
Report of Independent Accountants....................................... F-19
Combined Balance Sheet as of December 31, 1996 and March 31, 1997 (unau-
dited)................................................................. F-20
Combined Statement of Income for the Year Ended December 31, 1996 and
for the Three Months Ended March 31, 1996 and 1997 (unaudited)......... F-21
Combined Statement of Stockholder's Equity for the Year Ended December
31, 1996 and the Three Months Ended March 31, 1997 (unaudited)......... F-22
Combined Statement of Cash Flows for the Year Ended December 31, 1996
and for the Three Months Ended March 31, 1996 and 1997 (unaudited)..... F-23
Notes to Combined Financial Statements.................................. F-24
INTIRION CORPORATION
Report of Independent Accountants....................................... F-29
Consolidated Balance Sheet as of June 30, 1996 and 1997 and December 31,
1997 (unaudited)....................................................... F-30
Consolidated Statement of Operations for the Years Ended June 30, 1995,
1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997
(unaudited)............................................................ F-31
Consolidated Statement of Changes in Stockholders' Deficit for the Years
Ended June 30, 1995, 1996 and 1997 and for the Six Months Ended Decem-
ber 31, 1997 (unaudited)............................................... F-32
Consolidated Statement of Cash Flows for the Years Ended June 30, 1995,
1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997
(unaudited)............................................................ F-33
Notes to Consolidated Financial Statements.............................. F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Mac-Gray Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Mac-Gray Corporation (the "Company"), at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 30, 1998
F-2
<PAGE>
MAC-GRAY CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 2,844 $ 3,774
Trade receivables, net of allowance for doubtful accounts.. 1,640 4,256
Available-for-sale security................................ 343 --
Inventory.................................................. 1,509 2,886
Deferred income taxes...................................... -- 548
Prepaid commissions and other current assets............... 1,699 2,270
------- -------
Total current assets..................................... 8,035 13,734
Property, plant and equipment, net......................... 31,912 37,699
Intangible assets, net..................................... 11,491 27,926
Prepaid commissions and other assets....................... 2,670 5,015
------- -------
Total assets............................................. $54,108 $84,374
======= =======
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long term debt.......................... $ 4,042 $ 1,550
Current portion of capital lease obligations............... 251 476
Accounts payable........................................... 3,876 5,002
Accrued commissions........................................ 4,940 5,585
Accrued expenses........................................... 995 2,006
------- -------
Total current liabilities................................ 14,104 14,619
Long-term debt............................................... 23,325 5,395
Long-term capital lease obligations.......................... 193 491
Deferred income taxes........................................ 647 5,430
Deferred retirement obligation............................... 1,156 1,052
Other liabilities............................................ -- 429
Commitments and contingencies (Note 12)...................... -- --
Redeemable common stock, 612,026 shares...................... -- 7,797
Stockholder's equity:
Preferred stock of Mac-Gray Corporation ($.01 par value,
5,000,000 shares authorized, no shares issued and
outstanding).............................................. -- --
Common stock of Mac-Gray Co., Inc. ($1 par value; 200,000
shares authorized, 154,275 shares issued and outstanding
at December 31, 1996)..................................... 154 --
Common stock of Mac-Gray Corporation ($.01 par value;
30,000,000 shares authorized, 10,967,800 shares issued and
outstanding at
December 31, 1997)........................................ -- 110
Additional capital......................................... 2,413 51,035
Retained earnings (deficit)................................ 20,788 (1,984)
Net unrealized gain on available-for-sale security, net of
tax....................................................... 258 --
Less: 54,275 shares held in treasury at cost............... (8,930) --
------- -------
Total stockholders' equity................................. 14,683 49,161
------- -------
Total liabilities, redeemable common stock and stockhold-
ers' equity............................................. $54,108 $84,374
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MAC-GRAY CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
<S> <C> <C> <C>
Revenue............................................. $50,710 $64,427 $81,370
Cost of revenue:
Commissions....................................... 20,471 25,760 31,717
Laundry route expenditures........................ 8,251 10,955 12,232
Depreciation and amortization..................... 4,899 6,216 8,635
Cost of equipment sales........................... 2,938 5,189 8,187
------- ------- -------
Total cost of revenue........................... 36,559 48,120 60,771
------- ------- -------
Operating expenses:
General and administration........................ 3,901 3,952 4,699
Sales and marketing............................... 2,531 3,803 5,165
Depreciation...................................... 455 517 503
------- ------- -------
Total operating expenses........................ 6,887 8,272 10,367
------- ------- -------
Income from operations.............................. 7,264 8,035 10,232
Interest expense, net............................. (1,175) (1,956) (2,521)
Other income (expense), net....................... 55 (87) 181
------- ------- -------
Income before provision for income taxes.......... 6,144 5,992 7,892
Provision for income taxes........................ (374) (465) (5,206)
------- ------- -------
Net income...................................... $ 5,770 $ 5,527 $ 2,686
======= ======= =======
Net income per common share......................... $ 0.91 $ 0.87 $ 0.37
======= ======= =======
Weighted average common shares outstanding.......... 6,368 6,368 7,263
======= ======= =======
Net income per common share--assuming dilution...... $ 0.91 $ 0.87 $ 0.36
======= ======= =======
Weighted average common shares outstanding--assuming
dilution........................................... 6,368 6,368 7,391
======= ======= =======
UNAUDITED PRO FORMA TAX ADJUSTED DATA (NOTE 15):
Income before provision for income taxes.......... $ 6,144 $ 5,992 $ 7,892
Provision for income taxes........................ (2,458) (2,397) (3,157)
------- ------- -------
Pro forma tax adjusted net income................. $ 3,686 $ 3,595 $ 4,735
======= ======= =======
Pro forma tax adjusted net income per common
share............................................ $ 0.58 $ 0.56 $ 0.65
======= ======= =======
Pro forma tax adjusted net income per common
share-assuming dilution.......................... $ 0.58 $ 0.56 $ 0.64
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MAC-GRAY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED TREASURY STOCK
----------------- GAINS (LOSSES) ------------------
NUMBER OF ADDITIONAL RETAINED ON SECURITY, NUMBER OF
SHARES VALUE CAPITAL EARNINGS NET OF TAX SHARES VALUE TOTAL
---------- ----- ---------- -------- -------------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994................... 154,275 $ 154 $ -- $ 17,406 $ 262 52,000 $(8,384) $ 9,438
Net income............. -- -- -- 5,770 -- -- -- 5,770
Net change in
unrealized gains
(losses) on available-
for-sale security, net
of tax................ -- -- -- -- 28 -- -- 28
Dividends.............. -- -- -- (3,395) -- -- -- (3,395)
Contribution of capi-
tal................... -- -- 1,009 -- -- -- -- 1,009
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1995................... 154,275 154 1,009 19,781 290 52,000 (8,384) 12,850
Net income............. -- -- -- 5,527 -- -- -- 5,527
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (32) -- -- (32)
Dividends.............. -- -- -- (4,520) -- -- -- (4,520)
Common stock redemp-
tion.................. -- -- -- -- -- 2,275 (546) (546)
Contribution of capi-
tal................... -- -- 1,404 -- -- -- -- 1,404
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1996................... 154,275 154 2,413 20,788 258 54,275 (8,930) 14,683
Net income............. -- -- -- 2,686 -- -- -- 2,686
Elimination of capital
structure (Note 1).... (154,275) (154) (2,413) (6,363) -- (54,275) 8,930 --
Reorganization of the
Company (Note 1)...... 6,367,800 64 -- (64) -- -- -- --
Sale of common stock... 4,600,000 46 45,128 -- -- -- -- 45,174
Contribution of capital
(Note 3).............. -- -- 5,907 (5,907) -- -- -- --
Net change in
unrealized gains
(losses) on available-
for-sale securities,
net of tax............ -- -- -- -- (258) -- -- (258)
Dividends.............. -- -- -- (13,124) -- -- -- (13,124)
---------- ----- ------- -------- ----- -------- ------- --------
Balance, December 31,
1997................... 10,967,800 $ 110 $51,035 $ (1,984) $ -- -- $ -- $ 49,161
========== ===== ======= ======== ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MAC-GRAY CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 5,770 $ 5,527 $ 2,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 5,354 6,733 9,138
(Gain) loss on sale of assets................... (11) 43 (246)
Deferred income taxes........................... 71 60 4,235
Decrease (increase) in accounts receivable........ 69 (577) (2,572)
(Increase) decrease in inventory.................. (137) 224 (1,067)
(Increase) in prepaid expenses and other assets... (1,386) (1,299) (2,900)
Increase in accounts payable, accrued commissions
and accrued expenses............................. 687 2,939 1,668
------- ------- -------
Net cash flows provided by operating activi-
ties........................................... 10,417 13,650 10,942
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (4,421) (7,635) (8,681)
Acquisition of businesses (Note 2)................ (821) (14,487) (12,196)
Proceeds from sale of property and equipment...... 137 52 --
Proceeds from sale of securities.................. -- -- 333
------- ------- -------
Net cash flows used in investing activities..... (5,105) (22,070) (20,544)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt and capital
lease obligations................................ (2,490) (2,171) (3,529)
Retirement of line of credit and term loan........ -- (5,378) (19,512)
Advances on line-of-credit, net................... 1,327 18,247 1,823
Contribution of capital and proceeds from sale of
common stock..................................... 1,009 1,404 45,174
Cash dividends paid............................... (3,395) (4,520) (13,124)
Cash paid to repurchase shares of common stock.... -- (125) --
Cash paid for refinancing of long term debt....... -- (75) (300)
------- ------- -------
Net cash flows provided by (used in) financing
activities..................................... (3,549) 7,382 10,532
------- ------- -------
Increase (decrease) in cash and cash equivalents.... 1,763 (1,038) 930
Cash and cash equivalents, beginning of year........ 2,119 3,882 2,844
------- ------- -------
Cash and cash equivalents, end of year.............. $ 3,882 $ 2,844 $ 3,774
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid..................................... $ 1,161 $ 1,944 $ 2,884
Income taxes paid................................. 242 384 1,036
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING ACTIVITIES:
During the year ended December 31, 1997, common stock with an approximate
value of $7,797 was issued in connection with the Sun Services Acquisition.
Such common stock is redeemable at a negotiated price pursuant to a
contractual arrangement.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION AND DESCRIPTION OF THE BUSINESS
Basis of Presentation--The historical financial statements include the
combined accounts of Mac-Gray Co., Inc. and Mac-Gray, L.P. On April 17, 1997,
Mac-Gray Co., Inc. and Mac-Gray, L.P. were reorganized to create Mac-Gray
Corporation (the "Parent"). The Parent acquired all of the outstanding common
stock of Mac-Gray Co., Inc. and all of the outstanding limited partnership
interest of Mac-Gray, L.P. in exchange for 6,367,800 shares of the Parent's
common stock. Concurrently, Mac-Gray, L.P. was merged with and into Mac-Gray
Co., Inc. which continued to operate as a wholly owned subsidiary of the
Parent (collectively, the "Company"). The consolidated financial statements
for the current fiscal year include the accounts of Mac-Gray Corporation and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in the consolidation.
Description of the Business--The Company generates the majority of its
revenue from card and coin route laundry rooms located in the Northeastern,
Midwestern and Southeastern United States. The Company's principal customer
base is the multi-housing market, which consists of apartments, condominium
units, colleges and universities. The Company also sells, services and leases
commercial laundry equipment to commercial laundromats and institutions. The
majority of the Company's purchases of coin route laundry equipment is from
one supplier.
2. ACQUISITIONS
In 1995, the Company acquired certain assets of Commercial Appliance, Inc.
for $821 and recorded goodwill of approximately $564. During 1996, the Company
acquired certain assets of six coin-operated laundry businesses or divisions
for an aggregate purchase price of $15,561 and recorded goodwill of $10,184.
Non-compete agreements valued at $1,250 were also recorded in 1996 in
connection with these acquisitions. These acquisitions were accounted for
using the purchase method of accounting. Pro forma financial information has
not been provided for these acquisitions due to lack of historical financial
data of the acquired entities.
On April 17, 1997, the Company acquired in exchange for 612,026 shares of
its common stock, (approximate value of $7,797), approximately $2,170 in cash,
$850 of a deferred payment obligation, and assumption of approximately $2,787
in debt, each of Sun Services of America, Inc. and R. Bodden Coin-Op Laundry,
Inc. (collectively, "Sun Services"). The shares of the Company's common stock
are redeemable at the election of the shareholder. The redeemable common stock
has been valued at a contractual put price of $12.74 per common share (which
was in excess of market as of that date). The redemption feature of these
shares expires on October 22, 2000. Sun Services of America, Inc. and R.
Bodden Coin-Op Laundry were 100% owned by the same shareholder. The Parent
acquired all of the outstanding capital stock of Sun Services, which was
accounted for pursuant to the purchase method of accounting, and resulted in
goodwill of approximately $11,600.
The following pro forma financial information reflects the Sun Services
Acquisition as if it occurred on January 1, 1996. For the year ended December
31, 1997, the historical results of Sun Services for the period from April 1,
1997 through April 16, 1997 have not been included and are not material to the
Company.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA RESULTS FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
Revenue................................ $ 71,091 $ 83,402
Net Income............................. 5,680 2,839
Pro Forma tax adjusted net income (Note
15)................................... 3,687 4,827
Pro Forma tax adjusted net income Per
Share................................. $ 0.58 $ 0.66
Pro Forma tax adjusted net income Per
Share--assuming dilution.............. $ 0.58 $ 0.65
</TABLE>
F-7
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In October and November, 1997, the Company acquired certain assets of two
additional coin-operated laundry businesses for approximately $7,150. These
acquisitions were also accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired was the fair
market value on the respective acquisition dates. Purchase price in excess of
the fair value of assets acquired was allocated to goodwill and amounted to
approximately $6,228. Pro forma financial information for the October and
November 1997 acquisitions has not been presented due to their insignificance
in relation to the Company as a whole. The Company's consolidated financial
statements include the results of the 1995, 1996, and 1997 acquisitions from
their respective acquisition dates.
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
Mac-Gray Corporation completed its initial public offering of 4,600,000
shares of common stock at $11 per share on October 22, 1997. The net proceeds
from the sale of the common stock of $45,174 were used primarily to repay
existing indebtedness outstanding under the Credit Facility (Note 9) and to
fund a distribution of $9,000 of previously taxed but undistributed earnings
to the Company's shareholders of record as of October 16, 1997. As a result of
the initial public offering, the Company's S corporation status was
terminated. Retained earnings of $5,907 as of that date were reclassified to
additional paid-in capital to reflect additional contributions of capital by
the S-corporation shareholders.
4. SIGNIFICANT ACCOUNTING POLICIES
Cash, Cash Equivalents and Available-For-Sale Security--The Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
The Company invests excess cash in repurchase agreements and other highly
liquid short term investments. Accordingly, the investments are subject to
minimal credit and market risk. All of the Company's investments are
classified as available-for-sale. As such, unrealized gains and losses are
excluded from earnings and reported as a separate component of stockholders'
equity, net of tax.
Revenue Recognition--The Company recognizes coin route laundry revenue on
the accrual basis. Sales revenue from the Company's commercial sale of
equipment and parts is recognized upon shipment of the orders.
Allowance for Doubtful Accounts--The Company maintains an allowance for
doubtful accounts of $330 at December 31, 1996 and $490 at December 31, 1997.
Concentration of Credit Risk--Financial instruments which potentially expose
the Company to concentration of credit risk include trade receivables,
generated by the Company as a result of the selling and leasing of laundry
machines. To minimize this risk, ongoing credit evaluations of customers'
financial condition are performed and reserves are maintained. The Company
typically does not require collateral.
Fair Value of Financial Instruments--For purposes of financial reporting,
the Company has determined that the fair value of financial instruments
approximates book value at December 31, 1996 and 1997, based upon terms
currently available to the Company in financial markets.
Inventories--Inventories consist of laundry machines and parts purchased for
commercial sale. Inventories are stated at the lower of cost (as determined
using the first-in, first-out method) or market.
Property, Plant and Equipment--Property, plant and equipment are stated at
cost and depreciated using the straight-line method over the estimated useful
lives of the respective assets. Expenditures for maintenance and repairs are
charged to operations as incurred; acquisitions, major renewals, and
betterments are capitalized.
Coin route equipment-not yet placed in service--These assets represent
laundry machines that management estimates will be installed in coin route
laundry rooms and have not been purchased for commercial sale.
F-8
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Intangible Assets--Intangible assets primarily consist of various non-
compete agreements and goodwill recorded in connection with the acquisitions
(Note 2). The non-compete agreements are amortized using the straight-line
method over the life of the agreements, which ranges from two to five years.
Goodwill is amortized using the straight-line method over fifteen or twenty
years from the acquired companies respective dates of acquisitions.
Impairment of Long-Lived Assets--Impairment losses are recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount.
Income Taxes--Mac-Gray Co., Inc. which elected S corporation status, and
Mac-Gray, L.P. were "pass through" entities for income tax purposes prior to
the reorganization on April 17, 1997. From April 17, 1997 through October 16,
1997, Mac-Gray Corporation also elected S corporation status. Accordingly,
earnings and losses were included on the income tax returns of the respective
equity owners through October 16, 1997. On October 16, 1997, the Company's S
corporation status was terminated as a result of the initial public offering.
The Company accounts for income taxes utilizing the asset and liability
method as prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). Under the provisions of SFAS 109,
the current or deferred tax consequences of a transaction are measured by
applying the provisions of enacted tax laws to determined the amount of taxes
payable currently or in future years. The classification of net current and
non-current deferred tax assets or liabilities depend upon the nature of the
related asset or liability. Deferred income taxes are provided for temporary
differences between the income tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes.
Stock Compensation--The Company's stock option plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". In fiscal 1996, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation".
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Earnings Per Share--The Company accounts for earnings per share in
accordance with Statement of Financial Accounting Standard No. 128, "Earnings
Per Share" (SFAS 128). SFAS 128 replaces APB Opinion No. 15 "Earnings Per
Share" and requires the presentation of basic earnings per share and diluted
earnings per share (EPS). Basic EPS includes no dilution and is computed by
dividing net income by the weighted-average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted EPS under APB 15. Diluted earnings per share has been calculated using
the treasury stock method and prior period earnings per share have been
restated in accordance with SFAS 128. Net income per share gives effect to the
exchange of shares between the Parent and the Company (Note 1).
New Accounting Pronouncements--The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) and No. 131, "Disclosures About Segments of
an Enterprise and Related Information" (SFAS 131). In accordance with these
F-9
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
statements, the Company plans to implement SFAS 130 which requires
presentation of certain information related to comprehensive income and SFAS
131 which requires that certain additional information related to operating
segments be reported during fiscal year 1998. The Company is currently
reviewing the impact of these statements on its financial statements.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ---------------
(YEARS) 1996 1997
----------- ------- -------
<S> <C> <C> <C>
Coin route equipment........................... 10 $58,610 $68,179
Buildings and improvements..................... 15-32 6,531 7,388
Furniture, fixtures and computer equipment..... 5-7 4,062 5,092
Trucks and autos............................... 3-5 1,776 2,600
Land and improvements.......................... -- 309 309
------- -------
71,288 83,568
Less: accumulated depreciation................. 40,428 46,869
------- -------
30,860 36,699
Coin route equipment, not yet placed in serv-
ice........................................... 1,052 1,000
------- -------
Property, plant and equipment, net............. $31,912 $37,699
======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment totaled
$4,477, $5,176 and $6,441 for the years ended December 31, 1995, 1996 and
1997, respectively.
During 1995, 1996 and 1997, the Company acquired vehicles under capital
leases with a cost of $356, $328 and $892, respectively.
At December 31, 1996 and 1997, trucks and autos includes $1,449 and $2,284,
respectively, of capital leased equipment with an accumulated amortization
balance of $1,052 and $1,307, respectively.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Goodwill.................................................... $10,348 $28,208
Covenants-not-to-compete.................................... 2,549 2,869
Other....................................................... 153 451
------- -------
13,050 31,528
Less: accumulated amortization.............................. 1,559 3,602
------- -------
Intangible assets, net...................................... $11,491 $27,926
======= =======
</TABLE>
Amortization expense associated with the above intangible assets amounted to
$650, $841 and $1,811 for the years ended December 31, 1995, 1996 and 1997,
respectively.
F-10
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
-------------
<S> <C> <C>
Accrued interest.............................................. $134 $ 101
Accrued salaries.............................................. 78 233
Current portion of deferred retirement obligation............. 104 104
Current portion of deferred payment obligation................ -- 392
Other......................................................... 679 1,176
----- -------
$ 995 $ 2,006
===== =======
</TABLE>
8. DEFERRED RETIREMENT OBLIGATION
The deferred retirement obligation at December 31, 1996 and 1997 relates to
payments due to a shareholder of the Company in connection with a retirement
agreement which provides for annual payments of $104 until the death of the
shareholder. The liability at December 31, 1996 and 1997 has been estimated
based upon the life expectancy of the shareholder utilizing actuarial tables.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
------- ------
<S> <C> <C>
Credit agreement and revolving credit facility.............. $17,668 $ --
Unsecured notes payable to former shareholders:
Variable rate note, lesser of prime rate plus 2% or 9%,
quarterly principal payments beginning January 1, 1996
(9% at December 31, 1997)................................ 3,360 2,560
Fixed rate notes, 8.4% interest rate, due September 1, 1997
and June 1, 2000........................................... 2,046 746
Discount note, 6% imputed interest rate (estimated fair
market rate), quarterly installments, due December 31,
2003....................................................... 2,613 2,239
Fixed note, 8.75% interest rate, due January 1, 2001........ 421 317
Note payable, 11.5% fixed interest rate, monthly principal
payments,
due September 1, 1999...................................... 249 172
Acquisition note payable, 8% imputed interest rate
(estimated fair
market rate), monthly payments, due May 31, 2006........... 1,010 911
------- ------
Total long-term debt.................................... 27,367 6,945
Less: current portion....................................... 4,042 1,550
------- ------
$23,325 $5,395
======= ======
</TABLE>
Credit Agreement and Revolving Credit Facility
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
F-11
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Senior Secured Credit Facility provides for borrowings under (i) a revolving
line of credit and term loan facility and (ii) a revolving working capital
line of credit facility of up to $45,000 and $5,000, respectively. Outstanding
indebtedness under the Senior Secured Credit Facility bears interest at the
Company's option, at a rate equal to the prime rate plus .5% or LIBOR plus
2.5% with the margin over the prime rate and LIBOR decreasing after October
22, 1997 due to the initial public offering of the Company's common stock
(Note 3) to the prime rate less .5% or LIBOR plus 2.0%. The Senior Secured
Credit Facility restricts payments of dividends and other distributions,
restricts the Company from making certain acquisitions and incurring
indebtedness, and requires it to maintain certain financial ratios. The Senior
Secured Credit Facility is secured by pledges of assets of the Parent and its
subsidiaries. The Senior Secured Credit Facility provides for the issuance of
standby letters of credit of up to $15,000 in the aggregate. At December 31,
1997, outstanding letters of credit amounted to $1,302. There is no
outstanding balance on the Senior Secured Credit Facility at December 31,
1997. The interest rate for the Senior Secured Credit Facility at December 31,
1997 was 8.0%.
In connection with the financing of the 1996 Acquisitions (Note 2), the
Company entered into a Credit Agreement with a bank which provided for
borrowings under a Revolving Line of Credit, Working Capital Line of Credit
and Acquisition Line of Credit of up to $14,000, $1,500 and $4,000,
respectively. Borrowings under the Credit Agreement were restricted to
providing working capital requirements of the Company and funding future
acquisitions.
During June 1996, the Company entered into an agreement with a bank which
provided a Revolving Credit Facility with aggregate borrowings of up to
$4,500. As of December 31, 1996, $2,893 was available to be borrowed under the
Revolving Credit Facility. A portion of the proceeds from the Credit Agreement
and the Revolving Credit Facility were used to pay the balance of the Bank
Note and Line of Credit outstanding prior to the refinancing of the Company.
The Credit Agreement and the Revolving Credit Facility provided for the
issuance of standby letters of credit up to $2,200 in the aggregate. At
December 31, 1996, outstanding letters of credit amounted to $1,526.
Borrowings under the 1996 Credit Agreement and the Revolving Credit Facility
bore interest, at the Company's option, at either (1) the banks' prime
interest rate (the "Prime Rate") or (2) 2.5% plus the rate at which certain
Eurodollar deposits were offered in the interbank Eurodollar market (the
"LIBOR Rate") or (3) 2.5% plus the rate at which funds were offered in the
secondary markets (the "Cost of Funds Rate").
Future Payments
As of December 31, 1997, the scheduled future principal payments of long-
term debt are as follows:
<TABLE>
<S> <C>
1998................................................................. $ 1,550
1999................................................................. 1,401
2000................................................................. 2,088
2001................................................................. 887
2002................................................................. 602
Thereafter........................................................... 417
-------
$ 6,945
=======
</TABLE>
10. INCOME TAXES
On October 16, 1997, the Company's S corporation status was automatically
terminated due to the initial public offering (Note 3). As a result, the
current year provision includes a charge of $4,037 to provide for net deferred
tax liabilities resulting from the change in income tax status from an S
corporation to a C corporation,
F-12
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." The following information relates to the
temporary differences at October 16, 1997.
<TABLE>
<S> <C>
Accounts receivable................................................ (627)
Fixed assets....................................................... 16,051
Deferred compensation.............................................. (3,415)
Other.............................................................. (147)
--------
Total............................................................ $ 11,862
========
</TABLE>
Prior to October 16, 1997, the historical income tax provision was
established only to provide for income taxes in states that do not recognize
Subchapter S corporations, using a statutory income tax rate of 6%. The
effective rate differed from the statutory rate in 1996 and 1997 (prior to
October 16, 1997) due to meals and entertainment expenses and goodwill
amortization recorded for book purposes that are not deductible for income tax
purposes. In addition to the aforementioned items, the Company's 1996
effective tax rate differs from the statutory tax rate due to taxable losses
generated by Mac-Gray, L.P. for which only a 10% tax benefit (equivalent to
Mac-Gray Co., Inc.'s general partnership interest in Mac-Gray, L.P.) was
recognized by the Company.
The provision for state and federal income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1995 1996 1997
---- ---- ------
<S> <C> <C> <C>
Current state income tax................................... $305 $405 $ 454
Deferred state income tax.................................. 69 60 505
Current federal income tax................................. -- -- 517
Deferred federal income tax................................ -- -- 3,730
---- ---- ------
Total income taxes....................................... $374 $465 $5,206
==== ==== ======
</TABLE>
The net deferred tax liability in the accompanying balance sheets includes
the following amounts of deferred tax assets and liabilities at December 31:
<TABLE>
<CAPTION>
1996 1997
---- ------
<S> <C> <C>
Deferred tax assets:
Accounts receivable........................................... $ 40 $ 369
Deferred compensation......................................... 202 1,366
Other......................................................... 33 49
---- ------
275 1,784
---- ------
Deferred tax liabilities:
Fixed assets.................................................. 915 6,619
Other......................................................... 7 47
---- ------
922 6,666
---- ------
Net deferred tax liabilities.................................... $647 $4,882
==== ======
</TABLE>
It is not expected that a valuation allowance will be needed for the
deductible differences at December 31, 1997.
As the Company maintained its S corporation election through October 16,
1997, the provision for income taxes recorded for the year ended December 31,
1997 differs significantly from the amount of income taxes
F-13
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income. For the period subsequent to the termination of the S
corporation, the statutory income tax rate differed from the effective rate
primarily as a result of the following differences:
<TABLE>
<CAPTION>
%
----
<S> <C>
Taxes computed at federal statutory rate............................... 34.0%
State income taxes, net of federal benefit............................. 2.3
Other.................................................................. (1.0)
----
Income tax provision................................................. 35.3%
====
</TABLE>
The current provision for income taxes recorded for fiscal 1997 includes
$314 in tax while the Company was an S corporation and $657 in tax for the
period subsequent to the termination of the S corporation election.
11. COMMON STOCK REDEMPTION
On January 1, 1996, the Company redeemed 2,275 shares of its common stock at
$240 per share from minority shareholders. The aggregate redemption price was
$546, consisting of cash in the amount of $125 and the issuance of five-year
promissory notes in the amount of $421, bearing interest at 8.75% per year.
12. COMMITMENTS AND CONTINGENCIES
Leases--The Company leases certain equipment and facilities under non-
cancelable operating leases. The Company also leases certain vehicles under
capital leases.
Future minimum lease payments under non-cancelable operating and capital
leases consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1998................................................... $ 538 $ 379
1999................................................... 389 302
2000................................................... 133 218
2001................................................... -- 66
------ -----
Future lease payments.................................. 1,060 $ 965
=====
Less: amount representing interest (8.5% at December
31, 1997)............................................. 93
------
967
Present value future minimum lease payments less
amounts due within one year........................... 476
------
Amounts due after one year............................. $ 491
======
</TABLE>
Rent expense incurred by the Company under non-cancelable operating leases
totaled $123, $256 and $520 for the years ended December 31, 1995, 1996 and
1997, respectively.
Guaranteed Commission Payments--The Company operates coin laundry routes
under various lease agreements in which the Company is required to make
minimum guaranteed commission payments to the respective property owners. The
following is a schedule by years of future minimum guaranteed commission
F-14
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
payments required under these lease agreements that have initial or remaining
non-cancelable contract terms in excess of one year as of December 31, 1997:
<TABLE>
<S> <C>
1998.................................................................. $1,633
1999.................................................................. 1,395
2000.................................................................. 1,375
2001.................................................................. 826
2002.................................................................. 735
Thereafter............................................................ 1,876
------
$7,840
======
</TABLE>
Guarantee of Indebtedness--At December 31, 1997, Mac-Gray Co., Inc. is a
guarantor on a line-of-credit for a customer in the amount of $706. The
customer has incurred substantial losses. While the guarantee is secured by a
pledge of the borrowing company's assets, it is uncertain if those assets and
profits from continuing operations will be adequate to retire the line-of-
credit. The Company has recorded a reserve of $250 at December 31, 1997 for
estimated losses on this guarantee. In management's opinion, the range of the
estimated loss to be incurred in connection with the Company's guarantee of
the customer's line-of-credit in excess of the amount recorded at December 31,
1997 will not have a material adverse impact on the results of operations or
the financial position of the Company.
Litigation--The Company is involved in various litigation proceedings
arising in the normal course of business. In the opinion of management, the
Company's ultimate liability, if any, under pending litigation would not
materially affect its financial condition or the results of its operations.
13. EMPLOYEE BENEFIT AND STOCK PLANS
Retirement Plans--The Company maintains a qualified profit-sharing/401(k)
plan (the Plan) covering substantially all employees. The Company's
contributions to the Plan are at the discretion of the Board of Directors.
Costs under the Plan amounted to $535, $532 and $285 for the years ended
December 31, 1995, 1996 and 1997, respectively.
1997 Stock Option and Incentive Plans--In December, 1996, the Board of
Directors of Mac-Gray Co. adopted, and the stockholders approved, the Mac-Gray
Co., Inc. 1996 Stock Option and Incentive Plan (the Predecessor Plan). On
April 7, 1997, the Board of Directors adopted and the Company's stockholders
approved the 1997 Stock Option and Incentive Plan for the Company (the 1997
Stock Plan). The 1997 Stock Plan is designed and intended as a performance
incentive for officers, employees, consultants and directors to promote the
financial success and progress of the Company. All officers, employees and
independent directors are eligible to participate in the 1997 Stock Plan.
Awards, when made, may be in the form of stock options, restricted stock,
unrestricted stock options, and dividend equivalent rights.
On December 30, 1996, Mac-Gray Co. granted 556,350 options to purchase
shares of common stock with an exercise price of $9.99 per share pursuant to
the Predecessor Plan. Concurrent with the reorganization of the Company, the
options issued pursuant to the Predecessory Plan were assumed by the Company
under the 1997 Stock Plan, and the Predecessory Plan was terminated. The
options assumed by the Company under the 1997 Plan were reflective of the
exchange of common stock between the Parent and Mac-Gray Co., Inc. The
exercise price of the options was adjusted to $8.80 in August 1997, in order
to restore the economic position of the option holders as a result of the
$9,000 distribution (Note 3). The change in the exercise price of these
options has been
F-15
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
reflected as a cancellation of the $9.99 options and a grant of the $8.80
options on the following option rollforward. Employee options vest so that
twenty percent (20%) of the options will become exercisable on each of the
first through fifth anniversaries of the date of grant of the options. In the
event of termination of the optionees' relationship with the Company, options
not yet exercised terminate within 90 days. The 1997 Stock Plan also provided
for the automatic grant to each of the four independent directors to purchase
1,000 shares of common stock. The non-qualified options granted to independent
directors were exercisable immediately and will terminate on the tenth
anniversary of the grant. The exercise prices were determined by the Board of
Directors to be the fair market value of the shares underlying the options on
the respective dates of the grants. Other than the stock option grants, there
were no other grants of equity-based compensation awards during 1996 and 1997.
The 1997 Stock Plan provides for the issuance of up to the greater of
750,000 shares of common stock or ten percent of the then outstanding shares
of common stock. Subsequent to the initial public offering (Note 3), a total
of 1,157,982 shares of common stock are reserved for issuance under the 1997
Stock Plan, of which 638,590 shares are subject to outstanding options and
519,392 remain available for issuance.
The following is a summary of stock option plan activity.
<TABLE>
<CAPTION>
1996 1997
---------------- ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year........... -- $ -- 556,350 $ 9.99
Granted.................................. 556,350 $ 9.99 649,840 $ 8.88
Exercised................................ -- $ -- -- $ --
Canceled................................. -- $ -- (556,350) $ 9.99
Forfeited................................ -- $ -- (11,250) $ 8.89
------- ------ -------- ------
Outstanding, end of year................. 556,350 $ 9.99 638,590 $ 8.88
======= ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12/31/97 CONTRACTUAL LIFE PRICE AT 12/31/97 PRICE
-------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$8.80--$9.25..... 634,590 9 $ 8.86 109,470 $ 8.80
$11.00--$16.06... 4,000 10 $12.27 4,000 $12.27
------- --- ------ ------- ------
638,590 9 $ 8.88 113,470 $ 8.92
======= === ====== ======= ======
</TABLE>
F-16
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation." The Company continues to measure compensation cost using the
intrinsic value based method of accounting prescribed by APB Opinion 25. If
the Company had elected to recognize compensation cost based on the fair value
of the options granted at grant date as prescribed by SFAS No. 123, net income
and pro forma net income per share would have been reduced to $2,314 in 1997,
or $0.32 per share compared to reported net income of $2,686, or $0.37 per
share and $0.36 per share-assuming dilution.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Fair value of options granted at grant date................ $ 3.10 $ 3.61
Risk free interest rate.................................... 6% 6%
Expected option term--Employees............................ 7 years 7 years
Expected option term--independent directors................ -- 3 years
Expected volatility........................................ -- 50%
Option valuation method.................................... Black-Scholes
option-pricing
model
</TABLE>
In accordance with the provisions of SFAS 123, a volatility assumption was
not used to calculate the fair value of options granted prior to the Company's
initial public offering.
Because the determination of the fair value of all options granted includes
vesting periods over several years and additional option grants are expected
to be made each year, the above pro forma disclosures are not representative
of pro forma effects of reported net income for future periods.
14. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1997
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Pro forma net income per common share:
Net income................................. $2,686 7,263 $0.37
====== ===== =====
Effect of dilutive securities:
Stock options.............................. 128
-----
Pro forma net income per common share-assum-
ing dilution:
Net income................................. $2,686 7,391 $0.36
====== ===== =====
</TABLE>
F-17
<PAGE>
MAC-GRAY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 1996
--------------------------------
PER-
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
<S> <C> <C> <C>
Net income per common share:
Net income................................. $3,595 6,368 $0.56
====== ===== =====
Effect of dilutive securities:
Stock options.............................. --
-----
Net income per common share--assuming dilu-
tion:
Pro forma as adjusted net income........... $3,595 6,368 $0.56
====== ===== =====
</TABLE>
15. UNAUDITED PRO FORMA TAX ADJUSTED DATA
Statement of Income--Unaudited pro forma tax adjusted data reflects
adjustments to the consolidated statement of income for year ended December
31, 1997. Such adjustments consider the effect of the Company's operations as
if the Company was subject to federal and state income taxes on a corporate
level. Accordingly, the pro forma income tax provision and pro forma net
income have been calculated, using an estimated income tax rate of 40%, as if
the Company was subject to income taxation as a C corporation during the
entire year.
16. SUBSEQUENT EVENTS--UNAUDITED
On December 22, 1997, the Company entered into a merger agreement with
Intirion Corporation ("Intirion"), pursuant to which Intirion equity
securities are expected to be exchanged for approximately 1.6 million shares
of the Company's common stock and approximately $1 million in cash. The merger
is expected to be accounted for as a pooling of interests and is expected to
close in early 1998. A prospectus/proxy statement describing the terms of the
proposed merger and containing financial statements of both companies was
prepared subsequent to year end.
On March 4, 1998, the Company entered into a Stock and Asset Purchase
Agreement pursuant to which Mac-Gray will acquire one hundred percent of the
outstanding capital stock of Amerivend Corporation and the assets of Amerivend
Southeast Corporation. The purchase price, which is subject to certain
adjustments, will be approximately $33.5 million. The acquisition is expected
to be accounted for as a purchase transaction and is expected to close in the
second quarter of 1998.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Sun Services of America, Inc. and R. Bodden Coin-Op-
Laundry, Inc.
In our opinion, the accompanying combined balance sheet and the related
combined statement of income, of changes in stockholder's equity and of cash
flows present fairly, in all material respects, the financial position of Sun
Services of America, Inc. and R. Bodden Coin-Op-Laundry, Inc. (the
"Companies") at December 31, 1996, and the results of the Companies'
operations and cash flows for the year ended December 31, 1996 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Companies' management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 2, 1997
F-19
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Trade receivables, net of allowance for doubtful ac-
counts of $16...................................... $ 33 $ 22
Due from shareholder................................ 173 173
Inventory........................................... 164 151
Prepaid expenses and other current assets........... 230 242
------ ------
Total current assets.............................. 600 588
Property and equipment, net........................... 1,693 1,687
Intangible assets, net................................ 1,540 1,651
Prepaid commissions and other assets.................. 787 734
------ ------
Total assets...................................... $4,620 $4,660
====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt................... $ 765 $ 765
Accounts payable.................................... 329 169
Accrued expenses.................................... 383 462
------ ------
Total current liabilities......................... 1,477 1,396
------ ------
Long-term debt........................................ 2,209 2,268
------ ------
Commitments and contingencies (Note 10)............... -- --
Stockholder's equity:
Common stock--Sun Services of America, Inc., $1 par
value; 1,000 shares authorized; 30 shares issued
and outstanding.................................... -- --
Common stock--R. Bodden Coin-Op-Laundry Inc. $1 par
value; 7,000 shares authorized; 1,000 shares issued
and outstanding.................................... 1 1
Additional paid-in capital.......................... 90 90
Retained earnings................................... 843 905
------ ------
Total stockholder's equity........................ 934 996
------ ------
Total liabilities and stockholder's equity........ $4,620 $4,660
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1996 1996 1997
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenue............................................ $6,664 $1,628 $2,032
Cost of revenue:
Commissions...................................... 2,718 723 797
Laundry route expenditures....................... 820 193 183
Depreciation and amortization.................... 655 129 209
Cost of equipment sales.......................... 277 19 164
------ ------ ------
Total cost of revenue.......................... 4,470 1,064 1,353
------ ------ ------
Operating expenses:
General and administration....................... 1,220 292 307
Sales and marketing.............................. 160 30 47
Depreciation..................................... 25 5 6
------ ------ ------
Total operating expenses....................... 1,405 327 360
------ ------ ------
Income from operations............................. 789 237 319
Interest expense................................. (267) (42) (89)
Other expense, net............................... (60) (3) --
------ ------ ------
Net income......................................... $ 462 $ 192 $ 230
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK--SHARES COMMON STOCK--VALUE
---------------------- ----------------------
SUN SERVICES R. BODDEN SUN SERVICES R. BODDEN
OF COIN-OP OF COIN-OP- ADDITIONAL
AMERICA, LAUNDRY, AMERICA, LAUNDRY, PAID-IN RETAINED
INC. INC. INC. INC. CAPITAL EARNINGS TOTAL
------------ --------- ------------ --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 30 1,000 $-- $ 1 $ 90 $ 772 $ 863
Net income............. -- -- -- -- -- 462 462
Dividends.............. -- -- -- -- -- (391) (391)
--- ----- ---- --- ---- ----- -----
Balance, December 31,
1996................... 30 1,000 -- 1 90 843 934
Net income (unau-
dited)................ -- -- -- -- -- 230 230
Dividends (unaudited).. -- -- -- -- -- (168) (168)
--- ----- ---- --- ---- ----- -----
Balance, March 31, 1997
(unaudited)............ 30 1,000 $-- $ 1 $ 90 $ 905 $ 996
=== ===== ==== === ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------
1996 1996 1997
------------ ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Net income....................................... $ 462 $ 192 $ 230
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 680 134 215
Changes in assets and liabilities:
(Increase) decrease in trade receivables,
net......................................... (26) (2) 11
(Increase) in shareholder receivable......... (10) -- --
(Increase) decrease in inventory............. (46) (1) 13
(Increase) decrease in prepaid expenses and
other current assets........................ (329) (185) 1
Increase (decrease) in accounts payable and
accrued expenses............................ 172 (197) (81)
------- ------ ------
Net cash provided by (used in) operating
activities.................................. 903 (59) 389
------- ------ ------
Cash flows from investing activities:
Capital expenditures........................... (444) (105) (15)
Acquisition of businesses (Note 3)............. (1,720) (300) (265)
------- ------ ------
Net cash used in investing activities........ (2,164) (405) (280)
------- ------ ------
Cash flows from financing activities:
Advances under line of credit agreement, net... 116 163 143
Principal payments on long-term debt........... (953) (627) (194)
Proceeds from issuance of long-term debt....... 2,507 984 110
Dividends paid................................. (391) (56) (168)
Cash paid for refinancing of debt.............. (18)
------- ------ ------
Net cash provided by (used in) financing
activities.................................. 1,261 464 (109)
------- ------ ------
Net change in cash and cash equivalents.......... $ -- $ -- $ --
======= ====== ======
Supplemental cash flow information:
Cash paid for interest......................... $ 241 $ 25 $ 64
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND THE BUSINESS
Basis of Presentation--The accompanying combined financial statements
include the accounts of Sun Services of America, Inc. (Sun Services) and R.
Bodden Coin-Op-Laundry, Inc. (Bodden) (collectively, the Companies). The
Companies are 100% owned by the same shareholder and are under common
management.
Nature of Business--The Companies are engaged in the coin operated laundry
business throughout Florida. The majority of the Companies' customers are
apartment complexes and laundromats. The Companies lease coin operated laundry
equipment to their customers for percentages of the monies collected. The
majority of the Companies purchases of coin route laundry equipment are from
one supplier.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Combined Interim Financial Statements--The accompanying combined
financial information as of March 31, 1997 and for the three month periods
ended March 31, 1996 and 1997 is unaudited. The interim financial statements
have been prepared on the same basis as the accompanying annual financial
statements. In the opinion of management, such interim financial information
reflects adjustments consisting of normal and recurring adjustments necessary
for a fair presentation of such financial information. The unaudited results
of operations for the interim periods ended March 31, 1996 and 1997 are not
necessarily indicative of the results of operations to be expected for any
other interim period or for the full year.
Principles of Combined Financial Statements--The combined financial
statements include the accounts of Sun Services and Bodden, including the 1996
Acquisitions (Note 3) from their respective acquisition dates. All significant
intercompany transactions and balances have been eliminated in combination.
Cash and Cash Equivalents--The Companies consider all highly liquid
investments with original maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk--Financial instruments which potentially expose
the Companies to concentrations of credit risk consist principally of trade
receivables generated by the Companies as a result of the selling and leasing
of laundry machines. To minimize this risk, ongoing credit evaluations of
customer's financial condition are performed and reserves are maintained. The
Companies typically do not require collateral.
Inventory--Inventory is stated at the lower of cost or market with cost
determined using the first-in, first-out method.
Property and Equipment--Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense as incurred;
expenditures for renewals and betterments are capitalized. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets.
Intangible Assets--Intangible assets primarily consist of various non-
compete agreements and goodwill recorded in connection with the 1996
Acquisitions (Note 3). The non-compete agreements are amortized using the
straight-line method over the life of the agreements, which range from five to
seven years. Goodwill is amortized over fifteen years from the acquired
companies respective dates of acquisition.
Income Taxes--Sun Services and Bodden have elected to be taxed as "S
corporations" as defined in the Internal Revenue Code. This results in the
pass-through of any taxable income directly to the shareholder. Accordingly,
no taxes are provided on the earnings attributable to the Companies.
F-24
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Earnings Per Share--Given the capital structure of the Companies, historical
earnings per share information is not considered meaningful or relevant and
has not been presented in the accompanying financial statements.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS
During 1996, the Companies acquired certain assets of a number of coin-
operated laundry businesses (the 1996 Acquisitions). The 1996 Acquisitions
were paid in cash, with the exception of the Coin Laundry Leasing acquisition,
which also included a deferred note payable of $350. The 1996 Acquisitions
were accounted for using the purchase method of accounting. Accordingly, the
purchase price assigned to the assets and liabilities assumed was their fair
market values on the respective acquisition dates. Purchase price in excess of
the fair value of net assets acquired was allocated to goodwill. The
Companies' combined financial statements includes the results of the 1996
Acquisitions from their respective acquisition dates. The 1996 Acquisitions
purchase price allocation is summarized as follows:
<TABLE>
<CAPTION>
1996
ACQUISITIONS
------------
<S> <C>
Acquisition price, including non-compete payments and other
direct acquisition costs........................................ $2,070
======
Fair market value of assets acquired:
Inventory...................................................... 110
Coin-route equipment........................................... 485
Other fixed assets............................................. 28
Intangible assets:
Non-compete.................................................. 15
Goodwill..................................................... 1,432
------
Total...................................................... $2,070
======
</TABLE>
In connection with financing the 1996 Acquisitions, the Companies entered
into a Credit Agreement on January 26, 1996 (Note 8).
The pro forma effect of the 1996 Acquisitions was not material to the
results of the Companies' historical operations or the Companies' historical
financial position.
4. PREPAID COMMISSIONS OTHER CURRENT ASSETS
Prepaid commissions other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Prepaid commissions............................................. $140
Other receivables............................................... 40
Prepaid insurance............................................... 29
Other........................................................... 21
----
$230
====
</TABLE>
F-25
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
LIFE DECEMBER 31,
(YEARS) 1996
--------- ------------
<S> <C> <C>
Coin-route equipment.................................. 8 $2,708
Furniture and fixtures................................ 7 140
Vehicles.............................................. 5 189
Computer equipment.................................... 4 49
Leasehold improvements................................ 2-3 15
------
3,101
Less: accumulated depreciation........................ 1,408
------
Property and equipment, net........................... $1,693
======
</TABLE>
Depreciation expense for the year ended December 31, 1996 was approximately
$360.
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Goodwill........................................................ $1,746
Non-compete agreements.......................................... 290
Other........................................................... 18
------
2,054
Less: accumulated amortization.................................. 514
------
Intangible assets, net.......................................... $1,540
======
</TABLE>
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Accrued commissions............................................. $218
Accrued payroll................................................. 28
Accrued interest and loan fees.................................. 63
Other........................................................... 74
----
$383
====
</TABLE>
F-26
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Note payable, 8% fixed interest, semi-annual principal pay-
ments, due
September 1, 1999............................................. $ 300
Credit Agreement
Line of credit............................................... 432
Acquisition note............................................. 773
Term loan A facility......................................... 917
Term loan B facility......................................... 523
Other........................................................ 29
------
Total long-term debt....................................... 2,974
Less: current portion........................................ 765
------
Total...................................................... $2,209
======
</TABLE>
CREDIT AGREEMENT
In connection with the Companies 1996 Acquisitions (Note 3), the Companies
entered into a new Credit Agreement in January of 1996. The Credit Agreement
consists of a $700 Line of Credit; a $850 Acquisition Note; a $1,100 Term A
Facility, payable in thirty-five equal monthly installments beginning March
1996; and a $584 Term Loan B Facility, payable in thirty-seven monthly
installments of $6 beginning March 1996, with a balloon payment due April
1999. Borrowings under the Credit Agreement are restricted to only provide for
working capital requirements of the Companies and fund future permitted
acquisitions and capital expenditures. As of December 31, 1996, $346 was
available to be borrowed under the Credit Agreement. The Credit Agreement
expires in April of 1999.
A portion of the proceeds from the Credit Agreement were used to pay down
the Companies' outstanding debt under the previous credit facilities.
Interest--Borrowings under the Credit Agreement bear interest at 1% above
the banks prime interest rate (the "Prime Rate") (9.25% rate as of December
31, 1996). In addition, the Companies shall pay 3% of annual gross revenues
generated by all permitted acquisitions financed by proceeds from the
Acquisition Note.
Termination--The Credit Agreement may be terminated at any time after the
first two years without a penalty or premium. If borrowings under the Credit
Agreement are pre-paid within the first two years, the Companies must pay a
prepayment penalty of up to 2% of the total amounts available under the Credit
Agreement. In addition, the Companies are required to pay the bank 3% of the
average monthly gross revenues of the permitted acquisition multiplied by the
number of months remaining in the term of the Credit Agreement.
Amendment--In January of 1997, the Credit Agreement was amended to increase
the borrowings available under the line of credit to $850.
As of December 31, 1996, the scheduled future principal payments of long-
term debt are as follows:
<TABLE>
<S> <C>
1997................................................................ $ 765
1998................................................................ 747
1999................................................................ 1,462
------
$2,974
======
</TABLE>
F-27
<PAGE>
SUN SERVICES OF AMERICA, INC. AND
R. BODDEN COIN-OP-LAUNDRY, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
9. EMPLOYEE BENEFIT PLAN
The Companies maintain a qualified profit sharing/401(k) plan (the "Plan")
covering substantially all employees. The Companies' contributions to the Plan
are at the discretion of the Board of Directors. Costs under the Plan amounted
to $4 for the year ended December 31, 1996.
10. COMMITMENT AND CONTINGENCIES
Operating Leases--The Companies lease facilities under three non-cancelable
operating leases. Total lease expense incurred for the year ended December 31,
1996 was approximately $74. These leases expire during fiscal 1998. The future
minimum payments under these leases are $77 and $55 in 1997 and 1998,
respectively.
Guaranteed Commissions--The Companies operate coin laundry routes under
various lease agreements in which the Companies are required to make minimum
guaranteed commission payments to the respective property owners. During 1996,
the Companies made guaranteed commission payments of approximately $150 as
required under certain lease agreements.
Litigation--The Companies are involved in various litigation proceedings
arising in the normal course of business. In the opinion of management, the
Companies ultimate liability, if any, under pending litigation would not
materially affect their financial condition or the results of their
operations.
10. RELATED PARTY
Periodically, the Companies make loans to their sole shareholder. The
balance of these shareholder loans is included on the accompanying balance
sheet as due from shareholder. The due from shareholder balance at December
31, 1996 included approximately $36 of interest imputed at 6%.
11. SUBSEQUENT EVENT (UNAUDITED)
On April 17, 1997, Mac-Gray Corporation acquired all of the outstanding
common stock of Sun Services of America, Inc. and R. Bodden Coin-Op-Laundry,
Inc., in exchange for 612,026 shares of its common stock ($7,797 approximate
value), approximately $2,170 in cash, $850 of a deferred obligation and the
assumption of outstanding indebtedness of the Companies of approximately
$2,787.
F-28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Intirion Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Intirion Corporation and its subsidiary at June 30, 1997 and 1996, and the
results of their operations and their cash flows for the three years in the
period ended June 30, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
August 22, 1997
F-29
<PAGE>
INTIRION CORPORATION
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------- DECEMBER 31,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ -- $ -- $ --
Accounts receivables, net of allowance for
doubtful accounts of $42, $18 and $91 at June
30, 1996 and 1997 and December 31, 1997
(unaudited), respectively.................... 2,981 2,314 2,641
Inventories................................... 3,240 4,322 4,631
Prepaid expenses and other current assets..... 120 87 226
Income tax receivable......................... -- 20 20
Deferred income taxes......................... 23 23 23
------- ------- -------
Total current assets........................ 6,364 6,766 7,541
------- ------- -------
Fixed assets, net............................. 432 645 666
Rental equipment, net......................... 4,547 5,271 6,726
Other assets, net............................. 795 816 928
Deferred income taxes......................... 101 101 101
------- ------- -------
Total assets................................ $12,239 $13,599 $15,962
======= ======= =======
LIABILITIES, REDEEMABLE STOCK AND WARRANTS AND
STOCKHOLDERS' DEFICIT
Current liabilities:
Demand line of credit......................... $ 3,374 $ 2,525 $ 4,742
Amounts due under inventory credit line....... -- 3,694 2,241
Current portion of subordinated notes
payable...................................... 134 153 160
Accounts payable and accrued expenses......... 5,143 3,448 2,325
Deferred rental revenue and customer
deposits..................................... 95 102 2,552
Income taxes payable.......................... 38 -- 5
------- ------- -------
Total current liabilities................... 8,784 9,922 12,025
------- ------- -------
Subordinated notes payable...................... 148 -- --
------- ------- -------
Commitments (Note 16)...........................
Redeemable stock and warrants (Note 10)......... 5,924 6,526 6,963
------- ------- -------
Stockholders' deficit:
Common stock, $.01 par value:
Authorized--2,500,000 shares
Issued--687,868 shares at June 30, 1996 and
1997 and
December 31, 1997
Outstanding--676,173 shares at June 30, 1996
and 1997 and 669,688 shares at December 31,
1997 (unaudited)........................... 7 7 7
Additional paid-in capital.................. 899 899 899
Accumulated deficit......................... (3,354) (3,586) (3,734)
Notes receivable from stock issuance........ (52) (52) --
------- ------- -------
(2,500) (2,732) (2,828)
Less--cost of 11,695 shares of common stock
held in treasury at June 30, 1996 and 1997
and 18,180 shares at December 31, 1997
(unaudited)................................ (117) (117) (198)
------- ------- -------
(2,617) (2,849) (3,026)
------- ------- -------
Total liabilities, redeemable stock and
warrants, and stockholders' deficit............ $12,239 $13,599 $15,962
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
F-30
<PAGE>
INTIRION CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net product sales............... $13,573 $15,036 $20,034 $ 12,736 $ 11,789
Rental revenue.................. 2,069 2,797 3,443 1,286 1,566
------- ------- ------- -------- --------
15,642 17,833 23,477 14,022 13,355
------- ------- ------- -------- --------
Cost of product sales........... 9,296 10,247 13,870 8,824 7,908
Cost of rental revenue.......... 556 832 1,271 430 563
------- ------- ------- -------- --------
9,852 11,079 15,141 9,254 8,471
------- ------- ------- -------- --------
Gross profit.................... 5,790 6,754 8,336 4,768 4,884
Selling, general and
administrative expenses........ 5,735 6,168 7,490 3,938 4,272
Restructuring expenses.......... 276 -- -- -- --
------- ------- ------- -------- --------
Income (loss) from operations... (221) 586 846 830 612
Interest expense, net........... 153 398 454 200 314
------- ------- ------- -------- --------
Income (loss) before income
taxes.......................... (374) 188 392 630 298
Income tax expense.............. 26 49 22 19 9
------- ------- ------- -------- --------
Net income (loss)............. $ (400) $ 139 $ 370 $ 611 $ 289
------- ------- ------- -------- --------
Accretion and dividends
accrued on redeemable stock.. (456) (486) (602) (301) (437)
------- ------- ------- -------- --------
Income (loss) available to
common stockholders.......... $ (856) $ (347) $ (232) $ 310 $ (148)
======= ======= ======= ======== ========
Income Per Share Data:
Basic income (loss) per common
share (Note 14).............. $ (1.31) $ (.48) $ (.30) $ .40 $ (.19)
======= ======= ======= ======== ========
Dilutive income (loss) per
common share
(Note 14).................... $ (1.31) $ (.48) $ (.30) $ .34 $ (.19)
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
INTIRION CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- NOTE
ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAR PAID-IN FROM STOCK ACCUMULATED TREASURY STOCKHOLDERS'
SHARES VALUE CAPITAL ISSUANCE DEFICIT STOCK DEFICIT
--------- ----- ---------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30,
1994................... 644,068 $ 6 $752 $ -- (2,151) $ -- $(1,393)
Accretion and dividends
accrued on redeemable
stock.................. (456) (456)
Issuance of common stock
pursuant to the
exercise of options.... 21,400 1 61 (62)
Net loss................ (400) (400)
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1995................... 665,468 7 813 (62) (3,007) (2,249)
Accretion and dividends
accrued on redeemable
stock.................. (486) (486)
Issuance of common stock
pursuant to the
exercise of options.... 13,400 52 (52)
Issuance of common stock
pursuant to the
exercise of warrants... 9,000 34 34
Purchase of treasury
stock.................. 62 (117) (55)
Net income.............. 139 139
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1996................... 687,868 7 899 (52) (3,354) (117) (2,617)
Accretion and dividends
accrued on redeemable
stock.................. (602) (602)
Net income.............. 370 370
------- --- ---- ----- ------- ----- -------
Balance at June 30,
1997................... 687,868 7 899 (52) (3,586) (117) (2,849)
Accretion and dividends
accrued on redeemable
stock (unaudited)...... (437) (437)
Purchase of treasury
stock (unaudited)...... 52 (81) (29)
Net income (unaudited).. 289 289
------- --- ---- ----- ------- ----- -------
Balance at December 31,
1997 (unaudited)....... 687,868 $ 7 $899 $ -- $(3,734) $(198) $(3,026)
======= === ==== ===== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
INTIRION CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA )
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
------------------------- ------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIV-
ITIES:
Net income (loss)............... $ (400) $ 139 $ 370 $ 611 $ 289
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization.. 740 1,079 1,343 784 777
Net (gain) loss on sale of
rental equipment.............. (61) (32) 68 (171) (133)
Proceeds from sales of rental
equipment..................... 210 107 656 516 371
Noncash interest income........ -- (5) -- -- --
Noncash interest expense....... -- -- -- 17 7
Changes in operating assets and
liabilities, net of the ef-
fects of acquisitions:
(Increase) decrease in accounts
receivable.................... 1,043 (1,630) 667 (78) (327)
(Increase) decrease in invento-
ries.......................... (2,600) 603 (1,082) 940 (309)
(Increase) decrease in prepaid
expenses and other current as-
sets.......................... (89) 74 33 (95) (168)
Increase in income tax receiv-
able.......................... -- -- (20) (78) --
Increase in other assets....... (5) (51) (122) (44) (170)
Increase (decrease) in accounts
payable and accrued expenses.. 1,260 1,954 (1,695) (4,072) (1,123)
Increase (decrease) in income
taxes payable................. 22 (4) (38) (33) 5
Increase in deferred rental
revenue and customer depos-
its........................... 37 41 7 2,212 2,450
------- ------- ------- -------- --------
Net cash provided by operating
activities................... 157 2,275 187 509 1,669
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIV-
ITIES:
Purchase of fixed assets........ (226) (284) (404) (269) (136)
Purchases of rental equipment... (3,474) (2,091) (2,499) (2,375) (2,297)
Acquisition of business......... (357) -- -- -- --
------- ------- ------- -------- --------
Net cash used for investing
activities................... (4,057) (2,375) (2,903) (2,644) (2,433)
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIV-
ITIES:
Advances (payments) under demand
line of credit, net............ 3,080 294 (849) 89 2,217
Borrowings (payments) under in-
ventory credit line............ -- -- 3,694 2,046 (1,453)
Amounts advanced under employee
notes.......................... -- (50) -- -- --
Repayments of capital lease ob-
ligations...................... (9) -- -- -- --
Repayments of subordinated notes
payable........................ (111) (122) (129) -- --
Proceeds from issuance of common
stock.......................... -- 34 -- -- --
Payment of dividends on Series A
redeemable convertible
preferred stock................ -- (72) -- -- --
------- ------- ------- -------- --------
Net cash provided by financing
activities................... 2,960 84 2,716 2,135 764
------- ------- ------- -------- --------
Net decrease in cash............ (940) (16) -- -- --
Cash, beginning of period....... 956 16 -- -- --
------- ------- ------- -------- --------
Cash, end of period............. $ 16 $ -- $ -- $ -- $ --
======= ======= ======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest......... $ 160 $ 387 $ 388 $ 152 $ 363
======= ======= ======= ======== ========
Cash paid for income taxes..... $ -- $ 53 $ 80 $ 230 $ 4
======= ======= ======= ======== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
During the year ended June 30, 1995, the Company issued 21,400 shares of
common stock pursuant to the exercise of stock options in exchange for a
promissory note in the amount of $62 (Note 11).
During the year ended June 30, 1996, the Company issued 13,400 shares of
common stock pursuant to the exercise of stock options in exchange for
promissory notes in the amount of $52. The Company accepted 11,695 shares of
common stock as payment for certain promissory notes and accrued interest in
the amount of $117. (Note 11). The Company issued 90,000 shares of common
stock subject to redemption pursuant to the exercise of warrants using a
cashless exercise feature.
During the six months ended December 31, 1997 (unaudited), the Company
accepted 6,485 shares of common stock as payment for certain promissory notes
and accrued interest in the amount of $81 (Note 11).
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS
Originally incorporated as MicroFridge, Inc., Intirion Corporation (the
"Company") is engaged in the development, distribution, rental and sale of
multi-purpose appliances to commercial and residential markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of these
financial statements are as follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Intirion
Corporation and its wholly owned subsidiary, MFI Leasing, Inc. All significant
intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Revenue Recognition, Accounts Receivable and Concentration of Credit Risk
Revenue from product sales is recognized upon shipment of the product.
Rental revenue is recognized ratably over the related contractual period,
which is less than one year. The Company offers limited duration warranties
for its products and, at time of sale, provides reserves for all estimated
warranty costs.
The Company sells its products primarily to academic institutions and the
U.S. government. The Company rents its products primarily to academic
institutions and students at academic institutions. Ongoing credit evaluations
of customers' financial condition are performed, and collateral is not
required. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market and consist primarily of finished goods.
Fixed Assets and Rental Equipment
Fixed assets and rental equipment are recorded at cost and depreciated using
the straight-line method over their estimated useful lives. Tooling costs are
depreciated using the units-of-production method. Repair and maintenance costs
are expensed as incurred.
Intangible Assets
Included in other assets are intangible assets (primarily customer lists) of
$901 and $1,008 at June 30, 1996 and 1997, respectively, that were acquired by
the Company. These intangible assets are being amortized on a straight-line
basis ranging from 5 to 10 years. Accumulated amortization totaled $185 and
$286 at June 30, 1996 and 1997, respectively.
Marketing Costs
The Company's marketing costs relating to rental revenue include direct
response advertising campaigns conducted by the Company's marketing group
which include payments for printing, postage and other costs
F-34
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
incurred to originate accounts. Based on the criteria established in SOP 93-7
"Reporting on Advertising Costs," the Company has expensed these costs as
incurred. Amounts charged to advertising expense and included in selling,
general and administrative expenses totaled $136, $444 and $698 for the fiscal
years 1995, 1996 and 1997, respectively.
Stock-based Compensation
The Company accounts for stock-based compensation awards to employees in
accordance with Accounting Principles Board Opinion No. 25 ("APB No. 25"),
"Accounting for Stock Issued to Employees", and related interpretations. Since
it is the Company's policy to grant options with an exercise price equal to
the fair value of the underlying stock on the grant date, no compensation cost
has been recognized for employee options under the Company's stock option
plan. In June 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-based Compensation" (Note 12).
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
of deferred taxes for the difference between the financial statement and tax
bases of assets and liabilities utilizing current tax rates. Deferred tax
assets are recognized, net of any valuation allowance, for deductible
temporary differences and operating loss carryforwards. Deferred tax expense
represents the change in the deferred tax asset or liability balances.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income (Loss) Per Common Share
The Company accounts for income (loss) per share in accordance with
Statement of Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 requires the presentation of basic income per share and diluted
income per share ("EPS"). Basic EPS includes no dilution and is computed by
dividing net income or loss available to common shareholders by the weighted-
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution of securities that could share in the earnings
of an entity. Diluted EPS has been calculated using the treasury stock method.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation. These reclassifications had no impact
on net income for prior years.
Unaudited Interim Financial Statements
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of the financial position of the Company at December 31, 1997 and
the results of operations and cash flows of the Company for the six months
ended December 31, 1996 and 1997 as presented in the accompanying financial
statements. Results of operations for interim periods are not necessarily
indicative of results of operations for the full fiscal year.
F-35
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of accounts receivable, demand line of credit, amounts
due under inventory credit line, accounts payable and accrued expenses, and
subordinated debt approximate fair value, because of their short maturity or
holding period.
4. RESTRUCTURING EXPENSE
During the year ended June 30, 1995, the Company recorded a restructuring
charge of approximately $276. The restructuring charge consisted primarily of
termination payments paid to thirteen employees and other costs incurred as a
part of the Company's plan to restructure its sales force. All amounts
recorded in conjunction with this restructuring were paid prior to June 30,
1995.
5. FIXED ASSETS AND RENTAL EQUIPMENT
Fixed assets, net consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
DEPRECIABLE ------------
LIVES 1996 1997
------------- ----- -----
<S> <C> <C> <C>
Furniture and fixtures........................... 2-7 years $ 192 $ 336
Computer software and equipment.................. 3-5 years 458 539
Tooling costs.................................... 250,000 units 212 271
Vehicles......................................... 5 years 10 10
----- -----
872 1,156
Less--Accumulated depreciation................... (440) (511)
----- -----
$ 432 $ 645
===== =====
</TABLE>
The Company has entered into agreements to provide rental appliances to
various customers. Rental equipment of $4,547 and $5,271 at June 30, 1996 and
1997, respectively, net of accumulated amortization of $1,437 and $2,168,
respectively, represents equipment rented to various academic institutions and
individuals under renewable contracts of various lengths. Rental equipment is
being depreciated over the estimated useful life of the equipment of 7 years.
Depreciation expense totaled $693, $988 and $1,242 for fiscal years 1995,
1996 and 1997, respectively. During 1997, the Company changed its estimate on
the useful lives on furniture and fixtures to properly reflect the lives of
newer assets purchased in 1996 and 1997. The effect of this change resulted in
a reduction of 1997 depreciation expense of $81.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
JUNE 30,
-------------
1996 1997
------ ------
<S> <C> <C>
Accounts payable............................................... $4,485 $2,823
Bonus.......................................................... 156 254
Commission..................................................... 98 109
Warranty....................................................... 131 128
Other.......................................................... 273 134
------ ------
$5,143 $3,448
====== ======
</TABLE>
F-36
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
7. DEMAND LINE OF CREDIT
At June 30, 1996 and 1997 and December 31, 1997 (unaudited), the Company had
outstanding borrowings of $3,374, $2,525 and $4,742, respectively, pursuant to
a secured demand line of credit agreement with a bank that allows for maximum
borrowings of $6,300 at June 30, 1997 and $7,500 at December 31, 1997
(unaudited). At June 30, 1996 and 1997, under the working capital component of
the agreement, borrowings are restricted to the lesser of (i) $4,800 or (ii)
the sum of (a) 80% of the eligible accounts receivable, as defined, and 50% of
eligible inventory, as defined, and (b) 50% of issued and undrawn documentary
purchase letters of credit advanced by the bank. The working capital component
bears interest at 1% plus the greater of (i) the bank's base rate or (ii) the
sum of (a) .5% and (b) the average rate on overnight Federal funds
transactions (9.25%, 9.5% and 9.5% at June 30, 1996 and 1997 and December 31,
1997 (unaudited), respectively). At June 30, 1996 and 1997, under the rental
asset component of the agreement, borrowings are restricted to the lesser of
(i) $1,500 or (ii) 70% of the eligible rental equipment, as defined, plus 50%
of outstanding rental letters of credit advanced by the bank. The rental asset
component bears interest at 1.5% plus the greater of (i) the bank's base rate
or (ii) the sum of (a) .5% and (b) the average rate on overnight Federal funds
transactions (9.75%, 10.0% and 10.0% at June 30, 1996 and 1997 and December
31, 1997 (unaudited), respectively). Interest expense in 1995, 1996 and 1997
totaled $124, $393 and $330, respectively. Borrowings under the line of credit
agreement are secured by substantially all assets of the Company. On November
28, 1997, the Company amended the secured demand line of credit agreement to
increase the borrowing bases to $5,500 and $2,000 relating to the working
capital and rental asset components, respectively.
8. INVENTORY CREDIT LINE
At June 30, 1997 and December 31, 1997 (unaudited), the Company had
outstanding borrowings of $3,694 and $2,241, pursuant to a secured demand line
with the Company's primary supplier relating to the purchase of finished
goods. The line bears interest on balances greater than 30 days at prime rate
plus 1% (9.5%) at June 30, 1997 and December 31, 1997 (unaudited). Interest
expense totaled $93 for fiscal year 1997.
9. SUBORDINATED NOTES PAYABLE
In connection with the acquisition of certain assets in 1994, the Company
issued three non-interest bearing notes with an aggregate amount payable of
$650. The notes are payable in four annual installments of $163, commencing in
March 1995. As the notes are non-interest bearing, they were recorded by the
Company at their present value on the date of acquisition using an interest
rate of 10%. These notes are subordinate to the demand line of credit (see
Note 7).
F-37
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
10. REDEEMABLE STOCK AND WARRANTS
Redeemable stock and warrants consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------- DECEMBER 31
1996 1997 1997
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Preferred stock, $.01 par value;
Authorized--200,000 shares
Issued and outstanding--100,000 senior redeemable
preferred shares, at issuance cost plus accumulated
accretion and accrued dividends of $480, $800 and
$1,088 at June 30, 1996 and 1997 and December 31,
1997 (unaudited), respectively.................... $4,187 $4,507 $4,795
Issued and outstanding--40,000 Series A redeemable
convertible preferred shares, at issuance cost
plus accumulated accretion and accrued dividends
of $912, $1,194 and $1,343 at June 30, 1996 and
1997 and December 31, 1997 (unaudited),
respectively...................................... 1,467 1,749 1,898
Common stock put warrants.......................... 75 75 75
Common stock subject to redemption, $.01 par value,
90,000 shares issued and outstanding at June 30,
1996 and 1997 and December 31, 1997, respectively,
at issuance cost plus accumulated accretion....... 195 195 195
------ ------ ------
$5,924 $6,526 $6,963
====== ====== ======
</TABLE>
Senior Redeemable Preferred Stock
In April 1994, the Company issued 100,000 shares of Senior Redeemable
Preferred Stock ("Senior Stock") with detachable common stock warrants to
purchase 267,284 shares of common stock at $12.50 per share.
The Company is required to redeem one third of the outstanding Senior Stock
annually, over a three-year period beginning in April 1999 at a redemption
price equal to $40.00 per share, plus accrued but unpaid dividends (the
"Liquidation Value"). This redemption obligation is being accreted through
April 2001 by charges to accumulated deficit. In the event of an initial
public offering of the common stock of the Company subsequent to January 1,
1997 which yields gross underwriting proceeds of $10,000 (a "Qualified IPO"),
the Company is required to redeem the Senior Stock at a redemption price per
share equal to $40 per share plus all accrued and unpaid dividends. The
Company may also be required to redeem the Senior Stock prior to April 1999 at
the Liquidation Value upon the occurrence of certain defined events.
Holders of the Senior Stock are initially entitled to one vote for each
share of common stock which may be purchased by the common stock warrants held
by the holders of the Senior Stock, subject to certain adjustments in the
event the Senior Stock is redeemed. An affirmative vote of not less than two-
thirds of the outstanding Senior Stock is required to approve certain actions,
as defined in the Senior Stock agreement, by the Company.
In the event of dissolution, liquidation or winding up of the Company, the
holders of Senior Stock have liquidation preference over all other preferred
and common stockholders and are entitled to $40.00 per share, plus accrued but
unpaid dividends.
Cumulative dividends of 6.0% per annum are payable when and if declared by
the Board of Directors, upon mandatory redemption or upon liquidation. The
Senior Stock Purchase Agreement requires the maintenance of certain financial
and non-financial covenants, the more restrictive of which require the
maintenance of specific levels of tangible net worth and limit the annual
amount of common stock the Company may repurchase. Since
F-38
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
June 30, 1996, the Company has not been in compliance with certain covenants.
Under the terms of the Senior Stock Purchase Agreement, the dividend rate
increased by 2%. The Senior Stock has dividend preference over all other
classes of stock. Cash dividends not to exceed $36 per year may be paid to the
holders of the Series A Redeemable Convertible Preferred Stock under certain
conditions, so long as a like dividend is paid to the holders of the Senior
Stock. During 1996, cash dividends of $72 were paid to the holders of the
Series A Redeemable Convertible Preferred Stock. The holders of the Senior
Stock waived their rights to payment of a like dividend. No dividends were
paid in 1997.
Series A Redeemable Convertible Preferred Stock
In connection with the issuance of the Senior Stock, the holders of the
Series A Redeemable Convertible Preferred Stock ("Preferred Stock") agreed to
extend the redemption period of the Preferred Stock. As a result, the holders
of the Preferred Stock may require the Company to repurchase up to one third
of the preferred shares per year during the period from April 22, 2002 through
April 22, 2004. The repurchase price of such shares shall be: (i) the greater
of (a) ten times the earnings per share (on a fully diluted basis) for the
four quarters preceding the quarter such repurchase occurs or (b) if the
Company has cumulative net income for the period January 1, 1992 through the
redemption date of at least $1,000, $15.00 per share, plus interest compounded
at 17% per annum plus (ii) any accrued but unpaid dividends. This redemption
obligation has been calculated using an interest rate of 17%, compounded
annually, plus accrued, but unpaid dividends and is being accreted through the
redemption dates by charges to accumulated deficit.
Each share of Preferred Stock may be converted at any time at the option of
the stockholder into six shares of common stock of the Company. At June 30,
1997, the Company has reserved 240,000 shares of common stock for the
conversion of all shares of the Preferred Stock.
The holders of the Preferred Stock are entitled to the number of votes equal
to the number of whole shares of common stock into which the shares of
Preferred Stock could be converted. In addition, certain decisions and
transactions, as described in the Preferred Stock agreement, require the
approval of at least two-thirds of the preferred stockholders.
In the event of the liquidation of the Company, the holders of the Preferred
Stock will be entitled to receive, in preference to any distribution to the
holders of common stock, an amount equal to the greater of (i) $15.00 per
share, plus any accrued but unpaid dividends or (ii) an amount per share which
would have been payable had each share been converted to common stock
immediately prior to the dissolution of the Company.
The holders of the Preferred Stock are entitled to receive cumulative
dividends at an annual rate of $.90 per share.
COMMON STOCK PUT WARRANTS AND COMMON STOCK SUBJECT TO REDEMPTION
In connection with the issuance of the Preferred Stock, the Company issued
warrants for the purchase of 120,000 shares of common stock with an exercise
price of $2.50 per share. These warrants were exercised in 1996 using a
cashless exercise feature. The holders of this stock can require the Company
to repurchase up to one third of the shares per year during the period from
April 22, 2002 through April 22, 2004. The repurchase price of such shares is
the greater of (a) ten times earnings per share (on a fully diluted basis) for
the four quarters preceding the quarter such repurchase occurs or (b) the
amount that would be paid as a liquidation distribution on the Preferred
Stock, plus any accrued but unpaid dividends on the Preferred Stock. The
Company's maximum future redemption obligation at June 30, 1997 is $370, which
is being accreted through the redemption dates by charges to accumulated
deficit.
F-39
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
In connection with the issuance of the Senior Stock, the Company issued
warrants for the purchase of 267,284 shares of common stock (the "Warrant
Shares"). The warrants are exercisable at an initial price of $12.50 per
share, subject to reduction upon the occurrence of certain events. For
financial accounting purposes, a value of $75 was ascribed to the warrants.
The holders of the warrants may require the Company to repurchase up to one
third of the Warrant Shares per year during the period from April 22, 1999
through April 22, 2001. The repurchase price of such shares shall be the
greater of (a) the book value of the Warrant Shares, as defined, (b) the
average daily closing price for twenty days prior to the repurchase, if the
common stock is publicly traded or (c) a third party sale value, less the
exercise price of the warrant. In certain circumstances, the Company may also
call the warrants prior to the repurchase period. At June 30, 1997, the
Company had no future redemption obligation as management believed that the
repurchase price of the Warrant Shares was approximately zero. In the event a
redemption obligation arises, this redemption obligation will be accreted
through the repurchase dates by charges to accumulated deficit.
11. STOCKHOLDERS' DEFICIT
Common Stock Warrants
In connection with the issuance of common stock during 1990, the Company
issued warrants for the purchase of 9,000 shares of common stock at an
exercise price of $3.75. These warrants were exercised during 1996.
In connection with the issuance of subordinated debt in 1993, the Company
issued warrants for the purchase of 37,500 shares of common stock. The
warrants are exercisable at $5.00 per share and expire in March 1998. The
value ascribed to the warrants was not significant.
On April 26, 1994, the Company issued a warrant in conjunction with the
acquisition of a business to purchase a total of 800 shares of its common
stock. The warrant is exercisable at $8.00 per share and expires in April
2004. The value ascribed to the warrant was not significant.
On April 30, 1997, the Company issued a warrant in conjunction with a sales
agreement to purchase a total of 5,000 shares of its common stock at a price
of $12.50 per share. The warrant is exercisable at the option of the holder
over a vesting period of five years. The value ascribed to the warrant was not
significant.
Nonqualified Stock Options
During 1989, the Company granted options to consultants of the Company to
purchase 20,000 shares of common stock. The options are exercisable at $2.50
per share and expire on March 31, 1999. At June 30, 1997, all such options are
exercisable. The value ascribed to the nonqualified stock options was not
significant.
At June 30, 1997, the Company has reserved 330,584 shares of common stock
for issuance upon the exercise of the nonqualified options and the common
stock warrants for common stock.
Notes Receivable for Stock Issuance
During 1995, the Company accepted a note receivable as consideration for the
purchase of 21,400 shares of common stock, pursuant to the exercise of
previously granted stock options. The note bears interest at 8% per annum and
is secured on a full-recourse basis by all of the holder's personal assets.
The Company accepted 6,295 shares with a value of $10.00 as payment of the
note, plus accrued interest. These shares are included in treasury stock.
During 1996, the Company accepted notes receivable as consideration for the
purchase of 13,400 shares of common stock, pursuant to the exercise of
previously granted stock options. The notes bear interest at 10% per
F-40
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
annum and are secured on a full-recourse basis by all of the holders' personal
assets. During the six months ended December 31, 1997, the Company accepted
4,716 shares (unaudited) with a value of $12.50 per share as payment of these
notes, plus accrued interest. These shares are included in treasury stock.
Treasury Stock
In addition to the item noted previously, treasury stock includes 5,400
shares of common stock with a value of $10.00 which were accepted as payment
for an outstanding loan, plus accrued interest, to a former employee. During
the six months ended December 31, 1997, the Company accepted 1,769 shares
(unaudited) with a value of $12.50 per share as payment for an outstanding
loan, plus accrued interest, to a former employee.
12. STOCK PLAN
During 1989, the Board of Directors adopted the 1989 Stock Plan (the
"Plan"). Under the Plan, directors, officers, employees and certain other
individuals may be awarded shares of common stock or granted options and
rights to purchase up to 200,000 shares of common stock of the Company.
Options granted may be either incentive stock options or non-qualified
options. In 1997, the Company amended the Plan to increase the number of
shares of common stock available for grant to 225,000.
Incentive stock options may be granted to any officer or employee at an
exercise price per share of not less than the fair market value per common
share on the date of such grant as determined by the Board of Directors (not
less than 110% of such value in the case of holders of 10% or more of the
total combined voting power of all classes of the Company's stock).
Non-qualified options may be granted to any employee, officer, director or
consultant at an exercise price per share of not less than the lesser of book
value per common share or fifty percent of the fair market value per common
share on the date of grant.
Options under the Plan are exercisable over periods determined by the Board
of Directors, not to exceed ten years from the date of grant. In the event of
termination of the optionee's relationship with the Company, vested options
not yet exercised terminate 90 days from the optionee's termination date.
Option activity under the Plan during the years ended June 30, 1996 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------------------
1996 1997
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
period..................... 136,900 $ 6.07 148,950 $ 7.04
Granted................... 37,200 10.00 51,750 11.14
Exercised................. (13,400) 3.91 -- --
Cancelled................. (11,750) 8.54 (26,700) 9.68
-------- --------
Outstanding at period end... 148,950 7.04 174,000 7.82
======== ========
Options exercisable at pe-
riod end................... 66,600 4.45 81,390 5.21
-------- --------
Weighted average fair value
of options granted during
the period................. $ 2.42 $ 2.90
======== ========
Options available for future
grants..................... 15,650 15,600
======== ========
</TABLE>
F-41
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
The following table summarizes information about employee options
outstanding and exercisable at June 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING
RANGE OF NUMBER CONTRACTUAL NUMBER
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE
--------------- ----------- ------------ -----------
<S> <C> <C> <C>
$ 0.25.................................. 6,000 3 6,000
$ 2.50.................................. 22,000 3 16,760
$ 3.75.................................. 24,000 5 27,440
$ 8.00.................................. 29,700 7 17,220
$10.00.................................. 68,800 9 13,970
$12.50.................................. 23,500 10 --
------- ------
174,000 81,390
======= ======
</TABLE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Company's option plan been determined based on
the fair value at the grant dates, as prescribed in SFAS 123, the Company's
net income on a pro forma basis would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
-----------
1996 1997
----- -----
<S> <C> <C>
Net income
As reported.................................................... $ 139 $ 370
Pro forma...................................................... 125 326
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1996 and
1997: dividend yield of 0.0% for both years; risk-free interest rates of 5.7%
and 6.2% for 1996 and 1997, respectively; and a weighted-average expected
option term of 5 years for both years. Because additional option grants are
expected to be made each year and options vest over several years, the above
pro forma results are not representative of pro forma effects of reported net
income for future years.
13. INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current
Federal..................................................... $16 $38 $16
State....................................................... 10 11 6
Deferred
Federal..................................................... -- -- --
State....................................................... -- -- --
--- --- ---
$26 $49 $22
=== === ===
</TABLE>
F-42
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
--------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $1,037 $1,080
Alternative minimum tax credit carryforwards............... 106 50
Bad debt reserve........................................... 17 7
Inventory reserve.......................................... -- 37
Rental asset reserve....................................... 17 --
Amortization............................................... 53 53
------ ------
1,230 1,227
Deferred tax liabilities
Depreciation and amortization.............................. (597) (722)
Deferred revenue........................................... (6) (11)
------ ------
(603) (733)
Gross deferred tax assets.................................... 627 494
Deferred tax asset valuation allowance....................... (503) (370)
------ ------
Net deferred tax asset....................................... $ 124 $ 124
====== ======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. Statutory federal rate to pretax
income as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
------------------
1995 1996 1997
----- ---- -----
<S> <C> <C> <C>
Income tax provision (benefit) at the Statutory U.S.
tax rates............................................ $(127) $ 64 $ 134
Increase (decrease) in rates resulting from:
Change in valuation allowance....................... 133 (16) (133)
Nondeductible items................................. 13 (8) 15
State taxes, net.................................... 7 9 6
----- ---- -----
Income tax provision at the effective tax rates..... $ 26 $ 49 $ 22
===== ==== =====
</TABLE>
At June 30, 1997, the Company has the following net operating loss
carryforwards available to reduce future federal taxable income:
<TABLE>
<S> <C>
Net operating loss carryforwards relating to losses incurred prior to
November 30, 1990, utilization limited to $170 per year............. $ 386
Net operating loss carryforwards relating to losses incurred in the
year ending December 31, 1994 and June 30, 1997, utilization not re-
stricted............................................................ 330
Net operating loss carryforwards relating to losses incurred in the
six months ended June 30, 1995, utilization limited to $304 through
2001................................................................ 1,826
------
$2,542
======
</TABLE>
Subsequent ownership changes could further affect the limitations in future
years.
F-43
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
14. INCOME (LOSS) PER SHARE DISCLOSURES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------------------
1995 1996 1997
-------------------------------- -------------------------------- --------------------------------
PER PER PER
LOSS SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income
(loss)........... $(400) $ 139 $ 370
Less accretion and
dividends accrued
on redeemable
stock............ (456) (486) (602)
----- ----- -----
Loss available to
common
stockholders..... $(856) 653,629 $(1.31) $(347) 725,647 $(0.48) $(232) 777,872 $(.30)
===== ======= ====== ===== ======= ====== ===== ======= =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1997
-------------------------------- --------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net income ............. $ 611 $ 289
Less accretion and divi-
dends accrued on
redeemable stock....... (301) (437)
----- -----
Income (loss) available
to common
stockholders........... $ 310 777,872 $.40 $(148) 777,872 $(.19)
===== ======= ==== ===== ======= =====
EFFECT OF DILUTIVE SECU-
RITIES
Put warrants............ 66,821
Nonqualified options.... 27,408
Warrants................ 18,910
Incentive stock op-
tions.................. 16,592
-------
Income available to
common stockholders
plus assumed
conversions............ $ 310 907,603 $.34
===== ======= ====
</TABLE>
Preferred Stock (Note 10) was not included in the computation of dilutive
income (loss) per share for all periods presented because the effect of such
inclusion would be anti-dilutive.
Incentive and nonqualified stock options, put warrants and warrants to
purchase an aggregate of 590,284, 494,334, 512,384, and 522,084 shares of
common stock at June 30, 1995, 1996 and 1997 and December 31, 1997 (unaudited)
at various exercises prices ranging from $.25 to $12.50 were outstanding at
those dates but were not included in the computation of dilutive income (loss)
per common shares because the effect of such inclusion would be anti-dilutive.
15. SIGNIFICANT CUSTOMER
Net sales to a single customer totaled approximately $3,860 and $6,143 for
years ended June 30, 1996 and June 30, 1997, respectively, or approximately
26% and 31%, respectively, of the Company's net product revenues. There was no
one single customer which accounted for more than 10% of the Company's net
product revenues during the year ended June 30, 1995.
16. LEASE COMMITMENTS
The Company conducts a major part of its operations from leased facilities.
These facility leases are classified as operating leases for financial
accounting purposes. Rent expense under all of its operating leases
F-44
<PAGE>
INTIRION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
approximated $157, $113 and $155 for the years ended June 30, 1995, 1996 and
1997, respectively. Future minimum lease payments under all noncancellable
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDED AGGREGATE
JUNE 30, ANNUAL RENTAL
---------- -------------
<S> <C>
1998.................................................... $229
1999.................................................... 233
2000.................................................... 238
2001.................................................... 177
Thereafter.............................................. 89
</TABLE>
17. RETIREMENT SAVINGS PLAN
In 1993, the Company adopted a defined contribution savings plan under
Section 401(k) of the Internal Revenue Code. This plan covers substantially
all employees who meet minimum age and service requirements and allows
participants to defer a portion of their annual compensation on a pre-tax
basis. Company contributions to the plan may be made at the discretion of the
Board of Directors. There were no contributions made to the plan by the
Company through June 30, 1997.
18. SUBSEQUENT EVENT (UNAUDITED)
On December 22, 1997, the Company signed an Agreement and Plan of Merger
with Mac-Gray Corporation. The merger is subject to applicable regulatory and
stockholder approvals. Management expects the merger to be consummated in
early 1998.
F-45
<PAGE>
APPENDIX A
----------
AGREEMENT AND PLAN OF MERGER
by and among
MAC-GRAY CORPORATION
("Parent"),
MI ACQUISITION CORP.
("Sub"),
INTIRION CORPORATION
("Company")
and
ROBERT P. BENNETT
Dated as of December 22, 1997
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
INDEX
-----
<TABLE>
<S> <C>
SECTION 1. THE MERGER......................................................................... A-5
1.1 The Merger.................................................................... A-5
1.2 Closing....................................................................... A-6
1.3 Effective Time................................................................ A-6
1.4 Effects of the Merger......................................................... A-6
1.5 Certificate of Incorporation and By-laws of the Surviving Corporation......... A-6
1.6 Board of Directors and Officers of Surviving Corporation...................... A-6
1.7 Income Tax Treatment of the Merger............................................ A-6
1.8 Conversion of Company Capital Stock, Warrants and Options..................... A-6
1.9 Merger Consideration.......................................................... A-8
1.10 Exchange of Certificates...................................................... A-10
1.11 Dissenters' Rights............................................................ A-11
1.12 Escrow of Shares.............................................................. A-12
1.13 Accounting Consequences....................................................... A-12
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................... A-12
2.1 Making of Representations and Warranties...................................... A-12
2.2 Organization and Qualifications of the Company................................ A-12
2.3 Capital Stock of the Company; Beneficial Ownership............................ A-12
2.4 Subsidiaries.................................................................. A-13
2.5 Authority of the Company...................................................... A-13
2.6 Leased Real Property.......................................................... A-14
2.7 Financial Statements.......................................................... A-14
2.8 Taxes......................................................................... A-15
2.9 Collectibility of Accounts Receivable......................................... A-16
2.10 Inventories................................................................... A-16
2.11 Absence of Certain Changes.................................................... A-17
2.12 Ordinary Course............................................................... A-18
2.13 Banking Relations............................................................. A-18
2.14 Intellectual Property......................................................... A-18
2.15 Contracts..................................................................... A-19
2.16 Litigation.................................................................... A-20
2.17 Compliance with Laws.......................................................... A-21
2.18 Insurance..................................................................... A-21
2.19 Warranty or Other Claims...................................................... A-21
2.20 Powers of Attorney............................................................ A-21
2.21 Finder's Fee.................................................................. A-21
2.22 Permits; Burdensome Agreements................................................ A-21
2.23 Corporate Records; Copies of Documents........................................ A-21
2.24 Transactions with Interested Persons.......................................... A-22
2.25 Employee Benefit Programs..................................................... A-22
2.26 Environmental Matters......................................................... A-24
2.27 List of Directors and Officers................................................ A-25
2.28 Net Operating Loss............................................................ A-25
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
2.29 Non-Foreign Status............................................................ A-25
2.30 Backlog....................................................................... A-25
2.31 Employees; Labor Matters...................................................... A-25
2.32 Customers, Distributors and Suppliers......................................... A-26
2.33 Transfer of Shares............................................................ A-26
2.34 Stock Repurchase.............................................................. A-26
2.35 Pooling Matters............................................................... A-26
2.36 Disclosure.................................................................... A-26
2.37 Government Contracts.......................................................... A-26
SECTION 3. [Intentionally Omitted]............................................................ A-27
SECTION 4. COVENANTS OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER............................. A-27
4.1 Making of Covenants and Agreements............................................ A-27
4.2 Conduct of Business........................................................... A-27
4.3 Authorization from Others..................................................... A-28
4.4 Notice of Default............................................................. A-28
4.5 Consummation of Agreement..................................................... A-28
4.6 Cooperation of the Company and Principal Stockholder.......................... A-28
4.7 No Solicitation of Other Offers............................................... A-28
4.8 Confidentiality............................................................... A-29
4.9 Company Stockholder Meeting................................................... A-29
4.10 Tax-Free Treatment............................................................ A-29
4.11 Tax Returns................................................................... A-29
4.12 Filing Cooperation............................................................ A-30
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT........................................... A-30
5.1 Making of Representations and Warranties...................................... A-30
5.2 Organization and Qualifications of Parent..................................... A-30
5.3 Capital Stock of Parent....................................................... A-30
5.4 Authority of Parent........................................................... A-30
5.5 Financial Statements.......................................................... A-31
5.6 SEC Filings................................................................... A-31
5.7 Pooling Matters............................................................... A-31
5.8 Absence of Certain Changes.................................................... A-32
5.9 Litigation.................................................................... A-32
5.10 Finder's Fee.................................................................. A-32
5.11 Disclosure.................................................................... A-32
SECTION 6. COVENANTS OF PARENT................................................................ A-32
6.1 Making of Covenants and Agreement............................................. A-32
6.2 Public Announcements and Confidentiality...................................... A-32
6.3 Tax-Free Treatment............................................................ A-33
6.4 Authorization from Others..................................................... A-33
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.5 Notice of Default............................................................ A-33
6.6 Consummation of Agreement.................................................... A-33
6.7 Cooperation of Parent........................................................ A-33
6.8 Prior Service Credit......................................................... A-33
SECTION 7. ADDITIONAL AGREEMENTS.............................................................. A-33
7.1 Regulatory Matters........................................................... A-33
7.2 Affiliates and Related Agreements; Registration Rights Agreement; Publication
of Combined Financial Results................................................ A-34
7.3 Filings Under Hart-Scott-Rodino Act.......................................... A-35
7.4 Pooling Accounting Treatment................................................. A-35
SECTION 8. CONDITIONS......................................................................... A-35
8.1 Conditions to the Obligations of the Parties................................. A-35
8.2 Conditions to the Obligations of Parent and Sub.............................. A-36
8.3 Conditions to Obligations of the Company..................................... A-38
SECTION 9. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED........................................ A-38
9.1 Termination.................................................................. A-38
9.2 Effect of Termination........................................................ A-39
9.3 Right to Proceed............................................................. A-39
SECTION 10. INDEMNIFICATION.................................................................... A-39
10.1 Survival..................................................................... A-39
10.2 Obligation of the Stockholders to Indemnify.................................. A-39
10.3 Limitations on Indemnification by Stockholders............................... A-40
10.4 Indemnification by Parent.................................................... A-40
10.5 Limitation on Indemnification by Parent...................................... A-41
10.6 Notice; Defense of Claims.................................................... A-41
10.7 Sole Remedy.................................................................. A-42
SECTION 11. MISCELLANEOUS...................................................................... A-42
11.1 Alternative Structure........................................................ A-42
11.2 Fees and Expenses............................................................ A-42
11.3 Governing Law................................................................ A-42
11.4 Notices...................................................................... A-42
11.5 Entire Agreement............................................................. A-42
11.6 Assignability; Binding Effect................................................ A-43
11.7 Captions and Gender.......................................................... A-44
11.8 Execution in Counterparts.................................................... A-44
11.9 Amendments................................................................... A-44
11.10 Publicity and Disclosures.................................................... A-44
11.11 Consent to Jurisdiction...................................................... A-44
11.12 Specific Performance......................................................... A-44
11.13 Company's Knowledge.......................................................... A-44
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
---------
into as of December 22, 1997 by and among Mac-Gray Corporation, a Delaware
corporation ("Parent"), MI Acquisition Corp., a newly-formed Delaware
------
corporation and wholly-owned subsidiary of Parent ("Sub"), Intirion Corporation,
---
a Delaware corporation (the "Company"), and Robert P. Bennett (the "Principal
------- ---------
Stockholder").
- -----------
WHEREAS, the equityholders of the Company set forth on Exhibit A hereto
---------
(the "Stockholders") own all of the issued and outstanding capital stock of the
------------
Company (the "Company Capital Stock"), all of the outstanding warrants to
---------------------
purchase shares of Company Capital Stock (the "Warrants") and all of the
--------
outstanding options to purchase shares of Company Capital Stock (the "Options").
-------
WHEREAS, the Board of Directors of the Company has determined that the
merger of Sub with and into Company (the "Merger"), upon the terms and subject
------
to the conditions set forth herein, is fair to and in the best interests of the
Stockholders, and such Board of Directors has resolved to approve this Agreement
and the transactions contemplated hereby and to recommend approval and adoption
of this Agreement and approval of the Merger by the Stockholders;
WHEREAS, the Board of Directors of Parent has determined that the Merger,
upon the terms and subject to the conditions set forth herein, is fair to and in
the best interests of the stockholders of Parent and has approved this Agreement
and the transactions contemplated hereby, including the Merger;
WHEREAS, the Board of Directors of Sub has determined that the Merger, upon
the terms and subject to the conditions set forth herein, is fair to and in the
best interests of the stockholder of Sub and such Board of Directors has
approved and such stockholder has approved this Agreement and the transactions
contemplated hereby;
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements, and upon the terms and subject to the conditions, herein set
forth, the parties hereto hereby agree as follows:
SECTION 1. THE MERGER.
1.1 The Merger. Upon the terms and subject to the conditions set
----------
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Sub shall be merged with and into the
----
Company at the Effective Time (as defined in Section 1.3). At the Effective
Time, the separate existence of Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation").
---------------------
1.2 Closing. Unless this transaction shall have been terminated in
-------
accordance with Section 9 hereof or otherwise abandoned, the closing of the
Merger (the "Closing") shall take place at the offices of Goodwin, Procter &
-------
Hoar LLP, commencing at 9:00 a.m. on the date that is three (3) business days
after the conditions to closing set forth in Section 8 hereof are satisfied or,
if applicable, waived, or as otherwise mutually agreed to by the Company and
Parent (the "Closing Date"). Except as otherwise expressly provided in this
------------
Agreement or in any document contemplated by this Agreement, all matters at the
Closing shall be considered to take place simultaneously and no delivery of any
documents shall be deemed complete until all transactions and deliveries of
documents are completed.
A-5
<PAGE>
1.3 Effective Time. As soon as practicable on the Closing Date, the
--------------
parties hereto shall file with the Secretary of State of the State of Delaware a
certificate of merger in the form prepared by or on behalf of Parent, subject to
the reasonable approval of the Company and consistent with this Agreement (the
"Merger Certificate"). The Merger shall become effective at such time as the
- -------------------
Merger Certificate has been duly filed with the Secretary of State of the State
of Delaware (the "Effective Time").
--------------
1.4 Effects of the Merger. The Merger shall have the effects set forth in
---------------------
the applicable provisions of the DGCL (or any successor provisions thereof).
1.5 Certificate of Incorporation and By-laws of the Surviving Corporation.
---------------------------------------------------------------------
(a) Except as otherwise provided in the Merger Certificate, at the
Effective Time, the Certificate of Incorporation of Sub as in effect at the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation until duly amended in accordance with applicable law and such
Certificate of Incorporation.
(b) At the Effective Time, the By-laws of Sub as in effect at the
Effective Time shall be the By-laws of the Surviving Corporation until duly
amended in accordance with applicable law, the Certificate of Incorporation of
the Surviving Corporation and such By-laws.
1.6 Board of Directors and Officers of Surviving Corporation. From and
--------------------------------------------------------
after the Effective Time, the Board of Directors of the Surviving Corporation
will consist of such persons as will have been designated by Parent in the
Merger Certificate, each such Director to hold office, subject to the applicable
provisions of the Certificate of Incorporation and the By-laws of the Surviving
Corporation, until the next annual meeting of stockholders of the Surviving
Corporation and until his or her successor shall be duly elected or appointed
and qualified. From and after the Effective Time, the officers of the Surviving
Corporation will consist of such persons as will have been designated by Parent
in the Merger Certificate, such persons to hold office until their respective
successors are duly elected or appointed and qualified. If, at or after the
Effective Time, a vacancy shall exist in the Board of Directors or in any of the
offices of the Surviving Corporation by reason of death or inability to act, or
for any other reason, such vacancy may be filled in the manner provided in the
By-laws of the Surviving Corporation.
1.7 Income Tax Treatment of the Merger. It is intended that the Merger
----------------------------------
will be treated as a tax-free reorganization described in (S)368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code"). All parties to this
----
Agreement agree to report the aforementioned transactions, for all purposes,
consistently with the foregoing.
1.8 Conversion of Company Capital Stock, Warrants and Options. Except as
---------------------------------------------------------
otherwise provided herein, at the Effective Time, the manner and the basis of
converting the Company Capital Stock, the Warrants, the Options and the Sub
Common Stock (as defined below) shall be as provided below in this Section 1.8:
(a) Each share of the Company's Senior Redeemable Preferred Stock,
par value $.01 per share (the "Senior Stock"), issued and outstanding
------------
immediately prior to the Effective Time (other than (i) shares of the Senior
Stock held in the Company's treasury or directly or indirectly by Parent or the
Company or any of their respective Subsidiaries (as defined in Section 2.4),
which shares shall be canceled pursuant to Section 1.8(j), and (ii) Dissenting
Shares (as defined in Section 1.11 hereof)) shall, by virtue of the Merger and
without any action on the part of the Sub, the Company or the Stockholders, be
canceled and be converted automatically into and represent solely the right to
receive (x) that fraction of common stock, par value $.01 per share, of Parent
("Parent Common Stock") the numerator of which is the Senior Stock
-------------------
Consideration (as
A-6
<PAGE>
defined in Section 1.9(a) hereof) and the denominator of which equals the
aggregate number of shares of Senior Stock issued and outstanding immediately
prior to the Effective Time and (y) an amount in cash equal to Senior Cash
Consideration (as defined in Section 1.9(a) hereof) divided by the aggregate
number of shares of Senior Stock issued and outstanding immediately prior to the
Effective Time.
(b) Each share of the Company's Series A Redeemable Convertible
Preferred Stock, par value $.01 per share (the "Series A Stock"), issued and
--------------
outstanding immediately prior to the Effective Time (other than (i) shares of
the Series A Stock held in the Company's treasury or directly or indirectly by
Parent or the Company or any of their respective Subsidiaries, which shares
shall be canceled pursuant to Section 1.8(j) and (ii) Dissenting Shares) shall,
by virtue of the Merger and without any action on the part of the Sub, the
Company or the Stockholders, be canceled and be converted automatically into and
represent solely the right to receive that fraction of Parent Common Stock the
numerator of which equals the Series A Consideration (as defined in Section
1.9(b)(i) hereof) and the denominator of which equals the aggregate number of
shares of Series A Stock issued and outstanding immediately prior to the
Effective Time.
(c) Each share of common stock, par value $.01 per share, of the
Company (the "Common Stock") issued and outstanding immediately prior to the
------------
Effective Time (other than (i) shares of the Common Stock held in the Company's
treasury or directly or indirectly by Parent or the Company or any of their
respective Subsidiaries, which shares shall be canceled pursuant to Section
1.8(j), and (ii) Dissenting Shares) shall, by virtue of the Merger and without
any action on the part of the Sub, the Company or the Stockholders, be canceled
and be converted automatically into and represent solely the right to receive
that fraction of Parent Common Stock the numerator of which equals the Common
Stock Consideration (as defined in Section 1.9(b)(ii) hereof) and the
denominator of which equals the aggregate number of shares of Common Stock
issued and outstanding immediately prior to the Effective Time.
(d) Each Warrant to purchase one or more shares of Common Stock at a
price of $12.50 per share (the "$12.50 Warrants") issued and outstanding
---------------
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the Sub, the Company or the Stockholders, be
canceled and be converted automatically into and represent solely the right to
receive that number of shares of Parent Common Stock equal to the $12.50 Warrant
Consideration (as defined in Section 1.9(b)(iii) hereof) multiplied by a
fraction, the numerator of which is the total number of shares of Common Stock
for which such $12.50 Warrant is exercisable, and the denominator of which is
equal to the aggregate number of shares of Common Stock for which all of the
$12.50 Warrants are exercisable, in each case immediately prior to the Effective
Time.
(e) Each Warrant to purchase one or more shares of Common Stock at a
price of $5.00 per share (the "$5.00 Warrants") issued and outstanding
--------------
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the Sub, the Company or the Stockholders, be
canceled and be converted automatically into and represent the right to receive
that number of shares of Parent Common Stock equal to the $5.00 Warrant
Consideration (as defined in Section 1.9(b)(iv) hereof) multiplied by a
fraction, the numerator of which is the total number of shares of Common Stock
for which such $5.00 Warrant is exercisable and the denominator of which is
equal to the aggregate number of shares of Common Stock for which all of the
$5.00 Warrants are exercisable, in each case immediately prior to the Effective
Time.
(f) [Intentionally Omitted]
(g) Each outstanding Warrant, other than the $12.50 Warrants and the
$5.00 Warrants (the "Miscellaneous Warrants"), and Option that is convertible or
----------------------
exercisable, as the case may be, into one or more shares of Common Stock
immediately prior to or at the Effective Time shall, by virtue of the Merger and
A-7
<PAGE>
without any action on the part of the Sub, the Company or the Stockholders, be
canceled and be converted automatically into and represent solely the right to
receive that number of shares of Parent Common Stock equal to the Option/Warrant
Consideration (as defined in Section 1.9(b)(v) hereof) multiplied by a fraction,
the numerator of which is the Individual Option/Warrant Value (as defined below)
of such Option or Miscellaneous Warrant, as the case may be, and the denominator
of which is the Total Option/Warrant Value (as defined below), in each case
immediately prior to or at the Effective Time. For purposes of this Section
1.8(g), (i) "Individual Option/Warrant Value" means, with respect to each
-------------------------------
Miscellaneous Warrant and Option that is convertible or exercisable, as the case
may be, into one or more shares of Common Stock immediately prior to or at the
Effective Time, an amount equal to the product of (A) the remainder of 16.4806
minus the conversion or exercise price per share, as the case may be, of such
Miscellaneous Warrant or Option multiplied by (B) the number of shares of Common
Stock for which such Miscellaneous Warrant or Option is then convertible or
exercisable, as the case may be, and (ii) "Total Option/Warrant Value" means an
--------------------------
amount equal to the sum of all of the Individual Option/Warrant Values.
(h) Each issued and outstanding share of common stock, par value $.01
per share, of Sub (the "Sub Common Stock") shall, by virtue of the Merger and
----------------
without any action on the part of Parent or Sub, be converted into one (1) fully
paid and nonassessable share of common stock of the Surviving Corporation. From
and after the Effective Time, each outstanding certificate theretofore
representing shares of Sub Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of common stock of
the Surviving Corporation into which such shares of Sub Common Stock shall have
been converted. Promptly after the Effective Time, the Surviving Corporation
shall issue to Parent a stock certificate representing 1,000 shares of common
stock, par value $.01 per share, of the Surviving Corporation in exchange for
the certificate or certificates which formerly represented 1,000 shares of Sub
Common Stock, which certificate or certificates shall thereupon be canceled.
(i) All of the certificates and agreements representing shares of
Company Capital Stock, Warrants or Options (collectively, "Certificates"), by
------------
virtue of the Merger and without any action on the part of the Stockholders or
the Company, shall be deemed to be no longer outstanding, shall not be
transferable on the books of the Surviving Corporation, and shall represent
solely the right to receive the consideration determined pursuant to this
Section 1.8.
(j) Each share of Company Capital Stock held in the Company's
treasury or directly or indirectly owned by the Company, Parent or by any of
their respective subsidiaries shall automatically be canceled and retired and
shall cease to exist, and no cash or other consideration shall be delivered or
deliverable in exchange therefor.
(k) No fractions of a share of Parent Common Stock shall be issued in
the Merger, but, in lieu thereof, each Stockholder shall, upon surrender of such
Stockholder's Certificate or Certificates, be entitled to receive an amount of
cash (without interest and rounded to the nearest cent) equal to $15.00
multiplied by the fractional share interest to which such Stockholder would
otherwise be entitled.
(l) The actual number of shares of Parent Common Stock deliverable at
or after the Effective Time to the Stockholders shall be subject to the escrow
of shares of Parent Common Stock referred to in Section 1.12 hereof.
1.9 Merger Consideration.
--------------------
(a) At the Effective Time, Parent shall (i) subject to Sections
1.8(k), 1.11 and 1.12 hereof, issue to the Stockholders, other than the holders
of the Senior Stock, 1,317,837 shares of Parent Common
A-8
<PAGE>
Stock, which shares shall be allocated pursuant to Section 1.9 below and (ii)
issue and pay to the holders of the Senior Stock a combination of shares of
Parent Common Stock (based on a price per share equal to $15.00) and cash that
together shall have an aggregate value equal to the product of (x) $51.6045
multiplied by (y) the aggregate number of shares of Senior Stock issued and
outstanding immediately prior to the Effective Time, provided that such value
shall not exceed $5,160,450 ((i) and (ii) together, the "Merger Consideration").
--------------------
The amount of cash to be paid to the holders of the Senior Stock pursuant to
clause (ii) above shall be the lesser of (I) $1,032,090 or (II) 68,806
multiplied by the per share closing price of Parent Common Stock on the NYSE on
the trading day immediately preceding the Closing Date as reported in The Wall
Street Journal (the "Senior Cash Consideration"), and the number of shares of
-------------------------
Parent Common Stock to be issued to the holders of the Senior Stock pursuant to
clause (ii) above shall, subject to Sections 1.8(k) and 1.12 hereof, be equal to
the remainder of 344,030 less the quotient that is obtained when the Senior Cash
----
Consideration is divided by 15 (the "Senior Stock Consideration").
--------------------------
(b) At least one business day prior to the Closing Date, Parent and
the Company shall jointly calculate the allocation of the Merger Consideration
among the holders of Series A Stock, Common Stock, $12.50 Warrants, $5.00
Warrants, Miscellaneous Warrants and Options in accordance with subsections (i)
through (vi) below.
(i) The number of shares of Parent Common Stock allocated to
the Series A Stock shall be 1,317,837 multiplied by a fraction, the
numerator of which is the number of shares of Common Stock into which the
shares of Series A Stock issued and outstanding immediately prior to the
Effective Time are convertible multiplied by 16.4806 (such numerator, the
"Series A Stock Value") and the denominator of which is the Total Intirion
--------------------
Common Equivalent Value (as defined in subsection 1.9(b)(vi) hereof) (the
"Series A Consideration").
----------------------
(ii) The number of shares of Parent Common Stock allocated to
the Common Stock shall be 1,317,837 multiplied by a fraction, the numerator
of which is the number of shares of Common Stock issued and outstanding
immediately prior to the Effective Time multiplied by 16.4806 (such
numerator, the "Common Stock Value") and the denominator of which is the
------------------
Total Intirion Common Equivalent Value (the "Common Stock Consideration").
--------------------------
(iii) The number of shares of Parent Common Stock allocated to
the $12.50 Warrants shall be 1,317,837 multiplied by a fraction, the
numerator of which is 3.9806 multiplied by the number of shares of Common
Stock into which the $12.50 Warrants issued and outstanding immediately
prior to the Effective Time are convertible (such numerator, the "$12.50
------
Warrant Value") and the denominator of which is the Total Intirion Common
-------------
Equivalent Value (the "$12.50 Warrant Consideration").
----------------------------
(iv) The number of shares of Parent Common Stock allocated to
the $5.00 Warrants shall be 1,317,837 multiplied by a fraction, the
numerator of which is 11.4806 multiplied by the number of shares of Common
Stock into which the $5.00 Warrants issued and outstanding immediately
prior to the Effective Time are convertible (such numerator, the "$5.00
-----
Warrant Value") and the denominator of which is the Total Intirion Common
-------------
Equivalent Value (the "$5.00 Warrant Consideration").
---------------------------
(v) The number of shares of Parent Common Stock allocated to
the Miscellaneous Warrants and the Options shall be 1,317,837 multiplied by
a fraction, the numerator of which is the Total Option/Warrant Value and
the denominator of which is the Total Intirion Common Equivalent Value (the
"Option/Warrant Consideration").
----------------------------
A-9
<PAGE>
(vi) For purposes of this Agreement, "Total Intirion Common
---------------------
Equivalent Value" means the sum of the following: (A) the Series A Stock
----------------
Value, (B) the Common Stock Value, (C) the $12.50 Warrant Value, (D) the
$5.00 Warrant Value and (E) the Total Option/Warrant Value immediately
prior to the Effective Time.
(c) If, between the date of this Agreement and the Effective Time,
the outstanding shares of Parent Common Stock are changed into a different
number of shares or a different class by reason of any reclassification,
recapitalization, split-up, stock dividend, stock combination, exchange of
shares or readjustment, the Merger Consideration and the allocation thereof
pursuant to this Section 1.9 shall be correspondingly adjusted.
1.10 Exchange of Certificates.
------------------------
(a) As of the Effective Time, Parent shall deposit, or shall cause to
be deposited, with a bank or trust company selected by Parent, which may be the
Parent's transfer agent (the "Exchange Agent"), for the benefit of the holders
--------------
of Certificates, for exchange in accordance with this Section 1.10, (i)
certificates representing shares of Parent Common Stock issuable pursuant to
Section 1.8 hereof (as reduced on a pro rata basis by the number of shares of
Parent Common Stock placed in escrow pursuant to Section 1.12 hereof) in
exchange for the outstanding shares of the Company Capital Stock, the Warrants
and the Options and (ii) cash sufficient to meet Parent's obligations under
Section 1.8 with respect to the Senior Stock and fractional shares (such cash
and certificates being referred to herein as the "Exchange Fund").
-------------
(b) As soon as practicable after the Effective Time, and in no event
later than five business days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificate shall pass, only upon delivery of the Certificate to the Exchange
Agent) and instructions for use in effecting the surrender of the Certificate in
exchange for (i) the number of shares of Parent Common Stock and (ii) the amount
of cash representing payment for any shares of Senior Stock represented by such
Certificate and the payment for fractional shares pursuant to Section 1.8
hereof, which, together constitute the Merger Consideration into which the
shares of the Company Capital Stock, Warrant or Option represented by such
Certificate shall have been converted pursuant to this Agreement. Upon
surrender of a Certificate for exchange and cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive in respect of the Certificate surrendered
pursuant to the provisions of Section 1.8 hereof (as reduced on a pro rata basis
by the number of shares of Parent Common Stock placed in escrow pursuant to
Section 1.12 hereof) and (y) a check representing the amount of cash (1) for any
shares of Senior Stock represented by such Certificate and (2) in lieu of any
fractional share interest, if any, in accordance with Section 1.8 hereof, and
the Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued to or for the benefit of holders of Certificates on the cash
representing the Merger Consideration.
(c) If any certificate representing shares of Parent Common Stock is
to be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Parent Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or required
for any other reason, or shall establish to the reasonable satisfaction of the
Exchange Agent that such tax has been paid or is not payable. Until surrendered
A-10
<PAGE>
as contemplated by this Section, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration. Any fractional share checks which a holder
of Company Capital Stock shall be entitled to receive in exchange for a
Certificate will be delivered to such stockholder only upon delivery of the
Certificate to the Exchange Agent. No interest will be paid or accrued on any
such fractional share checks to which the holder of such shares of Company
Capital Stock may be entitled to receive upon such delivery.
(d) After the Effective Time, the stock transfer books of the Company
shall be closed and there shall be no further transfers on the stock transfer
books of the Company of the shares of the Company Capital Stock, the Warrants or
the Options which were issued and outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates representing such shares of
the Company Capital Stock, the Warrants or the Options are presented for
transfer to the Exchange Agent, they shall be canceled and exchanged for the
Merger Consideration into which the shares of the Company Capital Stock, the
Warrants or the Options represented by such Certificates shall have been
converted pursuant to this Agreement.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for nine months after the Effective Time shall be
paid to Parent. Any stockholders of the Company who have not theretofore
complied with this Section 1.10 shall thereafter look only to Parent for
delivery of the Merger Consideration deliverable in respect of each share of the
Company Capital Stock, Warrants or Options that such stockholder holds as
determined pursuant to this Agreement, without any interest thereon.
Notwithstanding the foregoing, none of the Parent, the Company, the Exchange
Agent nor any other person shall be liable to any former holder of shares of the
Company Capital Stock or of Warrants or Options for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent or
the Exchange Agent, upon the posting by such person of a bond in such amount as
Parent or the Exchange Agent may direct as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate, the Merger
Consideration deliverable in respect thereof pursuant to this Agreement.
1.11 Dissenters' Rights.
------------------
(a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, shares of Senior Stock, Series A
Stock and Common Stock that are issued and outstanding immediately prior to the
Effective Time and that are owned by Stockholders who in accordance with Section
262 of the DGCL have properly exercised and perfected their rights of appraisal
(the "Dissenting Shares"), shall not be converted into the right to receive the
-----------------
Merger Consideration, unless and until such Stockholders shall have failed to
perfect or shall have effectively withdrawn or lost their right of appraisal and
payment under applicable law. If any such Stockholder shall have failed to
perfect or shall have effectively withdrawn or lost such right of appraisal,
each share of Senior Stock, Series A Stock and Common Stock held by such
Stockholder shall thereupon be deemed to have been converted into the right to
receive and become exchangeable for, at the Effective Time, the Merger
Consideration pursuant to Section 1.8 hereof. Holders of shares of Senior
Stock, Series A Stock and Common Stock who become entitled pursuant to the
provisions of the DGCL to payment for such shares under the provisions thereof
shall receive payment from the Surviving Corporation and such shares shall be
canceled.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received
A-11
<PAGE>
by the Company, withdrawals of such demands, and any other instruments served in
connection with such demands pursuant to the DGCL and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL consistent with the obligations of the
Company thereunder. The Company shall not, except with the prior written consent
of Parent, (x) make any payment with respect to any demands for appraisal, (y)
offer to settle or settle any such demands or (z) waive any failure to timely
deliver a written demand for appraisal in accordance with the DGCL.
1.12 Escrow of Shares. At the Effective Time, Parent shall deposit 10% of
----------------
the total number of shares of Parent Common Stock comprising the Merger
Consideration (after subtracting (i) the shares that would otherwise be
allocable to holders of Dissenting Shares and (ii) the fractional shares of
Parent Common Stock paid in cash pursuant to Section 1.8(k)) with State Street
Bank and Trust Company, as escrow agent (the "Escrow Agent"), to be held and
------------
disbursed by such agent in accordance with the form of escrow agreement (the
"Escrow Agreement") attached hereto as Exhibit B. Such shares shall be deducted
- ----------------- ---------
pro rata from the shares allocable to each former holder of Company Capital
Stock, Warrants and Options.
1.13 Accounting Consequences. It is intended by the parties hereto that
-----------------------
the Merger shall qualify for accounting treatment as a pooling of interests
transaction.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
2.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
Parent and Sub to enter into this Agreement and consummate the transactions
contemplated hereby, the Company hereby makes to Parent and Sub the
representations and warranties contained in this Section 2.
2.2 Organization and Qualifications of the Company. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of State of Delaware with full corporate power and authority to own or lease its
properties and to conduct its business in the manner and in the places where
such properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of the Company's Certificate of
Incorporation, as amended to date (the "Company Certificate of Incorporation"),
------------------------------------
and of the Company's by-laws, as amended to date, and heretofore delivered to
Parent's counsel, are complete and correct, and no amendments thereto are
pending. The Company is not in violation of any term of the Company Certificate
of Incorporation or By-laws. The Company is duly qualified to do business as a
foreign corporation in each jurisdiction where the nature of its properties or
the conduct of its business makes its qualification so necessary, except where
the failure to be so qualified would not have a material adverse effect on the
business, assets, properties, results of operations or condition (financial or
otherwise) (a "Material Adverse Effect") of the Company.
-----------------------
2.3 Capital Stock of the Company; Beneficial Ownership.
--------------------------------------------------
(a) The authorized capital stock of the Company consists of (i)
200,000 shares of Preferred Stock of which 100,000 shares have been designated
Senior Stock and 40,000 shares have been designated Series A Stock and (ii)
2,500,000 shares of Common Stock. As of the date hereof 100,000 shares of
Senior Stock, 40,000 shares of Series A Stock and 759,688 shares of Common Stock
are issued, outstanding, fully paid and non assessable and 18,180 shares of
Common Stock are held in treasury. No shares of capital stock of the Company
are reserved for issuance upon exercise of outstanding Options, Warrants or
otherwise except as set forth on Schedule 2.3 attached hereto. The names of
------------
the warrantholders and optionees, the date of each Warrant or Option, the number
of shares subject to each such Warrant or Option, the expiration date of each
such Warrant or Option and the price at which each such Warrant or Option may be
exercised are set forth on
A-12
<PAGE>
Schedule 2.3 hereto. Except as set forth above and on Schedule 2.3 attached
- ------------ ------------
hereto, there are no outstanding Options, Warrants, rights, commitments,
preemptive rights or agreements of any kind for the issuance or sale of, or
outstanding securities convertible into, any additional shares of capital stock
of the Company. None of the Company Capital Stock has been issued in violation
of any federal or state law. Except as set forth in the Schedule 2.3 attached
------------
hereto, there are no voting trusts, voting agreements, proxies or other
agreements, instruments or undertakings with respect to the voting of the
Company Capital Stock to which the Company or any of the Stockholders is a
party.
(b) Exhibit A hereto sets forth a true and correct list of all of the
---------
holders of record of all of the issued and outstanding shares of Company Capital
Stock and all of the outstanding Warrants and Options, including the numbers and
class of shares held by each holder and the number of shares subject to each
Warrant and Option held by each holder.
2.4 Subsidiaries. The Company has no Subsidiaries (as hereinafter
------------
defined) and, except for MFI Leasing, Inc., a Delaware corporation ("MFI"), has
never had any Subsidiary or owned a direct or indirect interest in any trust,
partnership, corporation or other business organization. Except for certain
assets acquired by MFI that were held for no more than five days and were all
transferred to the Company, MFI has never owned any assets and MFI has never
conducted any business or operations of any kind. As used in this Agreement,
the term "Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of such party do not constitute a majority of the voting interest in such
partnership) or (ii) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with respect to such
corporation or other organizations is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries.
2.5 Authority of the Company. The Company has full right, authority and
------------------------
power to enter into this Agreement and each agreement, document and instrument
to be executed and delivered by the Company pursuant to this Agreement and to
carry out the transactions contemplated hereby. The execution, delivery and
performance by the Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of the
Company and no other action on the part of the Company is required in connection
therewith.
This Agreement and each agreement, document and instrument executed and
delivered by the Company pursuant to this Agreement constitutes, or when
executed and delivered will constitute, valid and binding obligations of the
Company enforceable in accordance with their terms, except as the enforceability
of the Agreement and such other agreements may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
generally the enforcement of creditors' rights and except as the remedy of
specific performance and other injunctive relief may be unavailable in certain
cases. The execution, delivery and performance by the Company of this Agreement
and each such agreement, document and instrument:
(i) does not and will not violate any provision of the
Company's Certificate of Incorporation or by-laws, each as amended;
(ii) except as set forth on Schedule 2.5, does not and will not
------------
violate any laws of the United States, or any state or other jurisdiction
applicable to the Company or require the Company to obtain any approval,
consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made, except for
the filing of the Merger
A-13
<PAGE>
Certificate with the Secretary of State of the State of Delaware and except
as contemplated by Sections 7.1(a), 7.3 and 8.1(a) of this Agreement; and
(iii) does not and will not (A) result in a breach of, constitute
a default under, accelerate any obligation under, or give rise to a right
of termination of any indenture or loan or credit agreement or any other
material agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Company is a party or by which the property
of the Company is bound or affected, except for such breaches, defaults,
accelerations or rights of termination which, individually or in the
aggregate could not reasonably be expected to have a Material Adverse
Effect on the Company or hinder the consummation of the transactions
contemplated by this Agreement, or (B) result in the creation or imposition
of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any of the Company's assets or the Company Capital Stock,
Warrants or Options, except as specifically identified on Schedule 2.5.
------------
2.6 Leased Real Property and Personal Property.
------------------------------------------
(a) Real Property. The Company owns no real property. All of the
-------------
real property leased by the Company is referred to herein as the "Leased Real
-----------
Property." To the knowledge of the Company, the lessors of Leased Real Property
- --------
have good, clear, record and marketable title to the Leased Real Property. All
leases of Leased Real Property which are material to the Company's business
(including the lease of the Company's corporate offices at Ten Walpole Park
South, Walpole, Massachusetts) and all leases which provide for annual rental
payments in excess of $10,000 are identified on Schedule 2.6(a), and true and
---------------
complete copies thereof have been delivered to Parent. Each of said leases has
been duly authorized and executed by the parties and is in full force and
effect. The Company is not in default under any material provision of any such
lease, nor has any event occurred which, with notice or the passage of time, or
both, would give rise to such a default. To the Company's knowledge, the other
party to each of said leases is not in default under any material provision of
any such lease and there is no event which, with notice or the passage of time,
or both, would give rise to such a default. All improvements located on or
constituting part of the Leased Real Property and their use and operation by the
Company and MFI were and are now in compliance in all material respects with all
applicable laws, ordinances, regulations, licenses, permits and authorizations,
expect as set forth in Schedule 2.6(a). Neither the Company nor MFI has
---------------
received any notice of any material real estate tax deficiency or assessment
which has not been satisfied or is aware of any proposed material deficiency,
claim or assessment with respect to any of the Leased Real Property, or any
pending or threatened condemnation thereof.
(b) Personal Property. Each piece of machinery, equipment and other
-----------------
personal property purchased by the Company since July 1, 1994 with a value in
excess of $5,000 is listed on Schedule 2.6(b) hereto. Except as specifically
---------------
disclosed in said Schedule or in the Base Balance Sheet (as hereinafter
defined), the Company has good and marketable title to all of its personal
property. None of the Company's personal property or assets is subject to any
mortgage, pledge, lien, conditional sale agreement, security title, encumbrance
or other charge except as specifically disclosed in said Schedule or in the Base
Balance Sheet. The Base Balance Sheet reflects all personal property of the
Company to the extent required by generally accepted accounting principles.
Except as otherwise specified in Schedule 2.6(b) hereto, all leasehold
---------------
improvements, furnishings, machinery and equipment of the Company are in good
repair, have been well maintained, and substantially comply with all applicable
laws, ordinances and regulations, and such machinery and equipment is in good
working order.
2.7 Financial Statements.
--------------------
A-14
<PAGE>
(a) The Company has delivered to Parent consolidated balance sheets of
the Company and MFI as of June 30, 1997, June 30, 1996 and June 30, 1995 and
statements of income, retained earnings and cash flows for the fiscal years then
ended, all of which have been certified by Price Waterhouse LLP, independent
public accountants (the "Audited Financial Statements"). The Company has
delivered to Parent an unaudited balance sheet of the Company and MFI as of
November 30, 1997 and a statement of income and cash flows for the five-month
period then ended (the "Unaudited Financial Statements" and, together with the
Audited Financial Statements, the "Financial Statements"). The Company's
audited consolidated balance sheet as of June 30, 1997, together with the
footnotes thereto, is referred to herein as the "Base Balance Sheet." The
------------------
Financial Statements are attached hereto as Schedule 2.7.
------------
The Financial Statements have been prepared in accordance with generally
accepted accounting principles applied consistently during the periods covered
thereby and present fairly in all material respects the (consolidated, in the
case of the Audited Financial Statements) financial condition of the Company at
the dates of said statements and the results of operations, retained earnings
and cash flows of the Company for the periods covered thereby.
(b) As of the date of the Base Balance Sheet, neither the Company nor
MFI had any liabilities (which liabilities, when taken individually or in the
aggregate, were material) of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown (including, without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others, liabilities for taxes due or then accrued or to become due, or
contingent or potential liabilities relating to activities of the Company or MFI
or the conduct of their business prior to the date of the Base Balance Sheet
regardless of whether claims in respect thereof had been asserted as of such
date), except liabilities (i) stated or adequately reserved against on the Base
Balance Sheet or (ii) reflected in Schedules furnished to Parent hereunder as of
the date hereof or (iii) incurred in the ordinary course of business of the
Company and its Subsidiaries and which are not required to be reflected in the
Base Balance Sheet or the notes thereto under generally accepted accounting
principles.
(c) The Company has no liabilities (which liabilities, when taken
individually or in the aggregate, are material) of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation, liabilities as guarantor or otherwise with
respect to obligations of others, or liabilities for taxes due or then accrued
or to become due or contingent or potential liabilities relating to activities
of the Company or MFI or the conduct of their business prior to the date hereof
or the Closing, as the case may be, regardless of whether claims in respect
thereof had been asserted as of such date), except liabilities (i) stated or
adequately reserved against on the Base Balance Sheet or the notes thereto, (ii)
reflected in Schedules furnished to Parent hereunder on the date hereof, or
(iii) incurred in the ordinary course of business of the Company after the date
of the Base Balance Sheet consistent with the terms of this Agreement.
2.8 Taxes.
-----
(a) Each of the Company and MFI has paid or caused to be paid all
material federal, state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes, excise
taxes, sales taxes, use taxes, value-added taxes, gross receipts taxes,
franchise taxes, capital stock taxes, employment and payroll-related taxes,
withholding taxes, stamp taxes, transfer taxes, windfall profit taxes,
environmental taxes and property taxes, whether or not measured in whole or in
part by net income, and all deficiencies, or other additions to tax, interest,
fines and penalties owed by it (collectively, "Taxes"), required to be paid by
-----
it through the date hereof whether disputed or not.
(b) Each of the Company and MFI has in accordance with applicable law
filed all federal,
A-15
<PAGE>
state, local and foreign tax returns required to be filed by it through the date
hereof, and all such returns correctly and accurately set forth the amount of
any Taxes relating to the applicable period. A list of all federal, state, local
and foreign income tax returns filed with respect to the Company for taxable
periods ended on or after June 30, 1992 is set forth in Schedule 2.8 attached
------------
hereto, and said Schedule indicates those returns that have been audited or
currently are the subject of an audit. For each taxable period of the Company
ended on or after June 30, 1992, the Company has delivered to Parent correct and
complete copies of all federal, state, local and foreign income tax returns,
examination reports and statements of deficiencies assessed against or agreed to
by the Company. MFI has never filed any federal, state, local or foreign tax
returns.
(c) Except as set forth on Schedule 2.8, neither the Internal Revenue
------------
Service nor any other governmental authority is now asserting or, to the
knowledge of the Company, threatening to assert against the Company or MFI any
deficiency or claim for additional Taxes. No claim which remains unresolved has
ever been made by an authority in a jurisdiction where the Company or MFI does
not file reports and returns that the Company or MFI is or may be subject to
taxation by that jurisdiction. There are no security interests on any of the
material assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Taxes. Neither the Company nor MFI has ever entered
into a closing agreement pursuant to Section 7121 of the Code.
(d) There has not been any audit of any tax return filed by the
Company or MFI, no such audit is in progress, and neither the Company nor MFI
has been notified by any tax authority that any such audit is contemplated or
pending. Except as set forth in Schedule 2.8, no extension of time with respect
------------
to any date on which a tax return was or is to be filed by the Company or MFI is
in force, and no waiver or agreement by the Company or MFI is in force for the
extension of time for the assessment or payment of any Taxes.
(e) Other than the Company's ownership of MFI, neither the Company nor
MFI has ever been a member of an "affiliated group" (as defined in Section
1504(a) of the Code). Except as set forth in Schedule 2.8, neither the Company
------------
nor MFI has ever filed, and has ever been required to file, a consolidated,
combined or unitary tax return with any other entity. The Company is not a
party to any tax sharing agreement.
(f) For purposes of this Agreement, all references to Sections of the
Code shall include any predecessor provisions to such Sections and any similar
provisions of federal, state, local or foreign law.
2.9 Collectibility of Accounts Receivable. All of the accounts receivable
-------------------------------------
of the Company shown or reflected on the Base Balance Sheet or existing at the
date hereof (less the reserve for bad debts set forth on the Base Balance Sheet)
are and will be at the Closing valid and enforceable claims and subject to no
setoff or counterclaim. Except as disclosed on Schedule 2.9 hereto, the Company
------------
has no accounts or loans receivable from any person, firm or corporation which
is affiliated with the Company or from any director, officer or employee of the
Company. Except as set forth in Schedule 2.9 hereto, all accounts and loans
------------
receivable from any such person, firm or corporation shall be paid in cash prior
to the Closing. The note receivable from Michael Hanson to the Company in the
amount of $40,000, together with all accrued and unpaid interest thereon, is a
valid, enforceable claim, subject to no setoff or counterclaim and fully
collectible by the Company no later than the date thirty (30) days prior to the
Expiration Date (as defined in Section 10.3(b)).
2.10 Inventories. All items in the inventories of the Company and MFI
-----------
shown in the Base Balance Sheet or existing at the date hereof (net of reserves
for obsolete or discontinued items as reflected in the Base Balance Sheet) are
of a quality and quantity saleable in the ordinary course of business of the
Company. Except as disclosed in Schedule 2.10, said inventories reflect write-
-------------
downs to realizable values in the case of items which are below standard quality
or have become obsolete or unsaleable (except at prices less than cost) through
regular distribution channels in the ordinary course of the business of the
Company. No such write-downs since
A-16
<PAGE>
July 1, 1994 have had a Material Adverse Effect on the consolidated financial
condition or results of operations of the Company. The values of the inventories
stated in the Base Balance Sheet and any subsequent financial statements of the
Company or MFI reflect the normal inventory valuation policies of the Company
and were determined at the lower of cost or market in accordance with generally
accepted accounting principles, practices and methods consistently applied.
Purchase commitments for raw materials and parts are not in excess of normal
requirements and none are at prices materially in excess of current market
prices. Except as disclosed in Schedule 2.10, all inventory items are located on
-------------
the Leased Real Property. Since the date of the Base Balance Sheet, no inventory
items have been sold or disposed of except through sales or rentals in the
ordinary course of business and all sales commitments for the products of the
Company are at prices not less than inventory values plus selling expenses.
2.11 Absence of Certain Changes. Except as disclosed in Schedule 2.11
-------------------------- -------------
attached hereto, since the date of the Base Balance Sheet there has not been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of the Company or MFI, which change by
itself or in conjunction with all other such changes, whether or not arising in
the ordinary course of business, has had a Material Adverse Effect on the
Company or MFI;
(b) Any contingent liability incurred by the Company or MFI as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or claim owing to, or waiver of any material
right of, the Company or MFI;
(c) Any mortgage, encumbrance or lien placed on any of the properties
of the Company or MFI which remains in existence on the date hereof or will
remain on the Closing Date;
(d) Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including without limitation liabilities for Taxes due or to become due or
contingent or potential liabilities relating to products or services provided by
the Company or MFI the conduct of the business of the Company or MFI since the
date of the Base Balance Sheet regardless of whether claims in respect thereof
have been asserted), incurred by the Company or MFI other than obligations and
liabilities incurred in the ordinary course of business consistent with the
terms of this Agreement (it being understood that product or service liability
claims shall not be deemed to be incurred in the ordinary course of business);
(e) Any purchase, sale or other disposition, or any agreement or other
arrangement for the purchase, sale or other disposition, of any of the
properties or assets of the Company or MFI other than in the ordinary course of
business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect on the Company or MFI;
(g) Any declaration, setting aside or payment of any dividend by the
Company or MFI, or the making of any other distribution in respect of the
capital stock of the Company or MFI, or any direct or indirect redemption,
purchase or other acquisition by the Company or MFI of its own capital stock;
(h) Any labor trouble or claim of unfair labor practices involving the
Company or MFI; any change in the compensation payable or to become payable by
the Company or MFI to any of its officers, employees, agents or independent
contractors other than normal merit increases in accordance with its usual
A-17
<PAGE>
practices; or any bonus payment or arrangement made to or with any of such
officers, employees, agents or independent contractors;
(i) Any change with respect to the officers or management of the
Company or MFI;
(j) Any payment or discharge of a material lien or liability of the
Company or MFI which was not shown on the Base Balance Sheet or incurred in the
ordinary course of business thereafter;
(k) Any obligation or liability incurred by the Company or MFI to any
of its officers, directors, stockholders or employees, or any loans or advances
made by the Company or MFI to any of its officers, directors, stockholders or
employees, except normal compensation, draws and expense allowances payable to
officers or employees;
(l) Any change in accounting methods or practices, credit practices or
collection policies used by the Company or MFI; or
(m) Any agreement or understanding whether in writing or otherwise,
for the Company or MFI to take any of the actions specified in paragraphs (a)
through (l) above.
2.12 Ordinary Course. Since the date of the Base Balance Sheet, each of
---------------
the Company and MFI has conducted its business only in the ordinary course and
consistently with its prior practices.
2.13 Banking Relations. All of the arrangements which the Company has with
-----------------
any banking institution are completely and accurately described in Schedule 2.13
-------------
attached hereto, indicating with respect to each of such arrangements the type
of arrangement maintained (such as checking account, borrowing arrangements,
safe deposit box, etc.) and the person or persons authorized in respect thereof.
2.14 Intellectual Property.
---------------------
(a) Except as described in Schedule 2.14, the Company has exclusive
-------------
ownership of, or exclusive license to use, all patent, copyright, trade secret,
trademark, or other proprietary rights (collectively, "Intellectual Property")
------------ --------
used or to be used in the business of the Company as presently conducted and
proposed to be conducted prior to the Effective Time, which Intellectual
Property that is material to the Company's business is listed in Schedule 2.14.
-------------
All of the rights of the Company in Intellectual Property are freely
transferable. There are no written claims or demands of any other person
pertaining to any of such Intellectual Property and no proceedings have been
instituted, or are pending or, to the Company's knowledge, threatened, which
challenge the rights of the Company in respect thereof. Except as described in
Schedule 2.14, the Company has the right to use, free and clear of claims or
- -------------
rights of other persons, all customer lists, designs, manufacturing or other
processes, computer software, systems, data compilations, research results and
other information required for or incident to its products or its business as
presently conducted and proposed to be conducted prior to the Effective Time.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to the Company or used or to be used by the Company in its businesses
as presently conducted and proposed to be conducted prior to the Effective Time,
and all other items of Intellectual Property which are material to the business
or operations of the Company, are listed in Schedule 2.14. All of such patents,
-------------
patent applications, trademark registrations, trademark applications and
registered copyrights have been duly registered in, filed in or issued by the
United States Patent and Trademark Office, the United States Register of
Copyrights, or the corresponding offices of other
A-18
<PAGE>
jurisdictions as identified on said Schedule, and have been properly maintained
and renewed in accordance with all applicable provisions of law and
administrative regulations of the United States and each such jurisdiction.
(c) All licenses or other agreements under which the Company or MFI is
granted rights in Intellectual Property are listed in Schedule 2.14. All said
-------------
licenses or other agreements are in full force and effect, there is no material
default by any party thereto, and all of the rights of the Company thereunder
will continue in full force and effect upon consummation of the transactions
contemplated hereby. To the knowledge of the Company, the licensors under said
licenses and other agreements have and had all requisite power and authority to
grant the rights purported to be conferred thereby. True and complete copies of
all such licenses or other agreements, and any amendments thereto, have been
provided to Parent.
(d) All licenses or other agreements under which the Company or MFI
has granted rights to others in Intellectual Property owned or licensed by the
Company or MFI are listed in Schedule 2.14. All of said licenses or other
-------------
agreements are in full force and effect, there is no material default by any
party thereto, and all of the rights of Company thereunder will continue in full
force and effect upon consummation of the transactions contemplated hereby.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to Parent.
(e) Each of the Company and MFI has taken all steps required in
accordance with sound business practice to establish and preserve its ownership
of all Intellectual Property rights with respect to its products, services and
technology. Neither the Company nor MFI has ever made any valuable non-public
information of the Company available to any person other than employees of the
Company and MFI, unless (i) such person entered into a written agreement
requiring such person to maintain the confidentiality of such information and
appropriately restricting the use thereof or (ii) such person was otherwise
under a legal obligation to maintain the confidentiality of such information.
The Company has no knowledge of any infringement by others of any Intellectual
Property rights of the Company.
(f) The present business, activities and products of the Company do
not infringe any Intellectual Property of any other person. No proceeding
charging the Company or MFI with infringement of any adversely held Intellectual
Property has been filed or, to the Company's knowledge, is threatened to be
filed. To the Company's knowledge, there exists no unexpired patent or patent
application which includes claims that would be infringed by or otherwise
adversely affect the products, activities or business of the Company. The
Company is not making unauthorized use of any confidential information or trade
secrets of any person, including without limitation, to the Company's knowledge,
any former employer of any past or present employee of Company or MFI. Except
as set forth in Schedule 2.14, neither the Company nor, to the knowledge of the
-------------
Company, any of its employees have any agreements or arrangements with any
persons other than the Company related to confidential information or trade
secrets of such persons or restricting any such employee's ability to engage in
business in the Company's or Parent's respective industries. The activities of
their employees on behalf of the Company do not violate any such agreements or
arrangements known to the Company.
2.15 Contracts. Except for contracts, commitments, plans, agreements and
---------
licenses described in Schedule 2.15 (true and complete copies of which have been
-------------
delivered to Parent), the Company is not a party to or subject to:
(a) any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
A-19
<PAGE>
(b) any employment contract or contract for services which is not
terminable within 30 days by the Company without liability for any penalty or
severance payment;
(c) any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than $25,00 each, such orders not exceeding $50,000 in the aggregate;
(d) any other contracts or agreements creating any obligations of the
Company of $25,000 or more with respect to any such contract or agreement not
specifically disclosed elsewhere under this Agreement;
(e) any contract or agreement pursuant to which the Company purchases
all or substantially all of its requirements of a particular product from a
supplier;
(f) any contract or agreement involving more than $25,000 which by its
terms does not terminate or is not terminable without penalty by the Company or
its successors within one year after the date hereof;
(g) any contract or agreement for the sale or lease of its products
not made in the ordinary course of business;
(h) any contract with any sales agent or distributor of products of
the Company;
(i) any contract containing covenants limiting the freedom of the
Company to compete in any line of business or with any person or entity;
(j) any contract or agreement for the purchase of any fixed asset for
a price in excess of $25,000 whether or not such purchase is in the ordinary
course of business;
(k) any license agreement (as licensor or licensee);
(l) any indenture, mortgage, promissory note, loan agreement, guaranty
or other agreement or commitment for the borrowing of money (including in such
schedule, if applicable, a description on any prepayment penalties or similar
obligations); or
(m) any contract or agreement with any officer, employee, director or
stockholder of the Company or with any persons or organizations controlled by or
affiliated with any of them.
The Company is not in material default under any contract, commitment,
plan, agreement or license listed or described in said Schedule, nor does it
have any knowledge of conditions or facts which with notice or passage of time,
or both, would constitute such a default. To the Company's knowledge, no third
party under any contract, commitment, plan, agreement or license described in
Schedule 2.15 is in default thereunder and there is no event which, with notice
- -------------
or the passage of time, or both, would give rise to such a default. Each
contract, commitment, plan, agreement or license described in Schedule 2.15 has
-------------
been duly authorized and executed by the parties, is in full force and effect
and is enforceable by the Company in accordance with its terms.
2.16 Litigation. Schedule 2.16 hereto lists all currently pending
---------- -------------
litigation and governmental or administrative proceedings or investigations to
which the Company is a party or subject. Except for matters
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<PAGE>
described in Schedule 2.16, there is no litigation or governmental or
-------------
administrative proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or its affiliates which may
have, either individually or in the aggregate, a Material Adverse Effect on the
Company, or which would prevent or hinder the consummation of the transactions
contemplated by this Agreement. With respect to each matter set forth therein,
Schedule 2.16 sets forth a description of the matter, the forum (if any) in
- -------------
which it is being conducted, the parties thereto and the type and amount of
relief sought.
2.17 Compliance with Laws. Except as set forth in Schedule 2.17 hereto,
-------------------- -------------
the Company is in compliance in all material respects with all applicable
statutes, ordinances, orders, judgements, decrees, rules and regulations
promulgated by any federal, state, municipal entity, agency, court or other
governmental authority which apply to the Company or to the conduct of its
business, and the Company has not received notice of a material violation or
alleged material violation of any such statute, ordinance, order, rule or
regulation.
2.18 Insurance. The physical properties and assets of the Company are
---------
insured to the extent disclosed in Schedule 2.18 attached hereto and all such
-------------
insurance policies and arrangements are disclosed in said Schedule. Said
insurance policies and arrangements are in full force and effect, all premiums
with respect thereto are currently paid, and the Company is in compliance in all
material respects with the terms thereof. Said insurance is adequate and
customary for the business engaged in by the Company, is sufficient for
compliance by the Company with all requirements of law and all agreements and
leases to which the Company is a party and will, if Parent so chooses, remain in
full force and effect after the consummation of the transactions contemplated
hereby.
2.19 Warranty or Other Claims. There are no existing or, to the Company's
------------------------
knowledge, threatened product liability, warranty or other similar claims, or
any facts upon which a material claim of such nature could be based, against the
Company or MFI for products or services which are defective or fail to meet any
product or service warranties except as disclosed in Schedule 2.19 hereto. No
-------------
claim has been asserted against the Company or MFI for renegotiation or price
redetermination of any business transaction, and there are no facts upon which
any such claim could be based.
2.20 Powers of Attorney. Except as set forth on Schedule 2.20, the Company
------------------ -------------
has no outstanding power of attorney.
2.21 Finder's Fee. The Company has not incurred or become liable for any
------------
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
2.22 Permits; Burdensome Agreements. Schedule 2.22 lists all material
------------------------------ -------------
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for the Company to conduct its business. The Company has
obtained all such Approvals, which are valid and in full force and effect, and
is operating in material compliance therewith. The Company is not subject to or
bound by any agreement, judgment, decree or order which may have, either
individually or in the aggregate, a Material Adverse Effect on the Company.
Schedule 2.22 lists all registrations, certifications and similar approvals
- -------------
(e.g., Underwriter Laboratories) necessary or customary in the Company's
---- ------------------------
business for use in the manufacture, marketing, sales and distribution of the
Company's products.
2.23 Corporate Records; Copies of Documents. The corporate record books of
--------------------------------------
the Company and MFI accurately record all corporate action taken by their
respective stockholders and board of directors and committees. The copies of
the corporate records of the Company and MFI, as made available to Parent for
A-21
<PAGE>
review, are true and complete copies of the originals of such documents. The
Company has made available for inspection and copying by Parent and its counsel
true and correct copies of all documents referred to in this Section or in the
Schedules delivered to Parent pursuant to this Agreement.
2.24 Transactions with Interested Persons. Except as set forth in Schedule
------------------------------------ --------
2.24 hereto and except for investments of less than 1% of the outstanding shares
- ----
of a company whose stock is listed on a national securities exchange or is
regularly traded in the over-the-counter markets, neither the Company, any
officer or director of the Company, the Principal Stockholder or, to the
knowledge of Company, any supervisory employee of the Company or any of their
respective spouses or family members, (i) owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of
Company, or any organization which has a material contract or arrangement with
the Company or (ii) has directly or indirectly engaged in any transaction
involving the transfer of any material (measured at the time of such transaction
or as of the date hereof) cash, property or rights to or from the Company from,
to or for the benefit of any affiliate or former affiliate of the Company.
2.25 Employee Benefit Programs
-------------------------
(a) Schedule 2.25 sets forth a list of every Employee Program that has
-------------
been maintained by the Company or an Affiliate at any time during the six-year
period ending on the Closing Date.
(b) Each Employee Program which has ever been maintained by the
Company or an Affiliate and which has been intended to qualify under Section
401(a) or 501(c)(9) of the Code has received a favorable determination or
approval letter from the Internal Revenue Service ("IRS") regarding its
qualification under such section and has, in fact, been qualified under the
applicable section of the Code from the effective date of such Employee Program
through and including the Closing Date (or, if earlier, the date that all of
such Employee Program's assets were distributed). No event or omission has
occurred which would cause any such Employee Program to lose its qualification
under the applicable Code section.
(c) Neither the Company nor any Affiliate knows, nor should any of
them reasonably know, of any failure of any party to comply with any laws
applicable with respect to the Employee Programs that have ever been maintained
by the Company or any Affiliate. With respect to any Employee Program ever
maintained by the Company or any Affiliate, there has been no (i) "prohibited
transaction," as defined in Section 406 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or Code Section 4975, (ii) failure to
comply with any provision of ERISA, other applicable law, or any agreement, or
(iii) non-deductible contribution, which, in the case of any of (i), (ii), or
(iii), could subject the Company or any Affiliate to liability either directly
or indirectly (including, without limitation, through any obligation of
indemnification or contribution) for any damages, penalties, or taxes, or any
other loss or expense. No litigation or governmental administrative proceeding
(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or threatened with respect to any such Employee
Program.
(d) Neither the Company nor any Affiliate (i) has ever maintained any
Employee Program which has been subject to title IV of ERISA or Code Section
412, including, but not limited to, any Multiemployer Plan or (ii) has ever
provided health care or any other non-pension benefits to any employees after
their employment is terminated (other than as required by part 6 of subtitle B
of title I of ERISA) or has ever promised to provide such post-termination
benefits.
(e) With respect to each Employee Program maintained by the Company
within the six years preceding the Closing Date, complete and correct copies of
the following documents (if applicable to such Employee Program) have previously
been delivered to Melinda J. Kent of Goodwin, Procter & Hoar LLP:
A-22
<PAGE>
(i) all documents embodying or governing such Employee Program, and any funding
medium for the Employee Program (including, without limitation, trust
agreements) as they may have been amended to the date hereof; (ii) the most
recent IRS determination or approval letter with respect to such Employee
Program under Code Section 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) all IRS Forms
5500, with all applicable schedules and accountants' opinions attached thereto
filed by the Company in the last three (3) years; (iv) all actuarial valuation
reports completed with respect to such Employee Program filed by the Company in
the last three (3) years; (v) the summary plan description for such Employee
Program (or other descriptions of such Employee Program provided to employees)
and all modifications thereto; (vi) any insurance policy (including any
fiduciary liability insurance policy or fidelity bond) related to such Employee
Program; (vii) any registration statement or other filing made pursuant to any
federal or state securities law and (viii) all correspondence to and from any
state or federal agency within the last three (3) years.
(f) Each Employee Program required to be listed on Schedule 2.25 may
-------------
be amended, terminated, or otherwise modified by the Company to the greatest
extent permitted by applicable law, including the elimination of any and all
future benefit accruals under any Employee Program, and no employee
communications or provision of any Employee Program document purports to limit
the Company's or any Affiliate's right to so amend, terminate or otherwise
modify such Employee Program.
(g) Each Employee Program ever maintained by the Company (including
each non-qualified deferred compensation arrangement) has been maintained in
compliance with all applicable requirements of federal and state securities laws
including (without limitation, if applicable) the requirements that the offering
of interests in such Employee Program be registered under the Securities Act of
1933 and/or state "Blue Sky" laws.
(h) Each Employee Program ever maintained by the Company or an
Affiliate has complied with the applicable notification and other applicable
requirements of the Health Insurance Portability and Accounting Act of 1996, the
Newborns' and Mothers' Health Protection Act of 1996, and the Mental Health
Parity Act of 1996.
(i) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited
to, multiple employer welfare arrangements (within the meaning of
ERISA Section 3(40)), plans to which more than one unaffiliated
employer contributes and employee benefit plans (such as foreign or
excess benefit plans) which are not subject to ERISA; and (B) all
stock option plans, bonus or incentive award plans, severance pay
policies or agreements, deferred compensation agreements, supplemental
income arrangements, vacation plans, and all other employee benefit
plans, agreements, and arrangements not described in (A) above,
including without limitation, any arrangement intended to comply with
Section 120, 125, 127 or 129 of the Code. In the case of an Employee
Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a
reference to such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides benefits under such Employee
Program, or has any obligation (by agreement or under applicable law)
to contribute to or provide benefits under such Employee Program, or
if such Employee Program provides benefits to or otherwise covers
employees of such entity (or their spouses, dependents, or
beneficiaries).
A-23
<PAGE>
(iii) An entity is an "Affiliate" of the Company if it would
have ever been considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer plan" means a (pension or non-pension)
employee benefit plan to which more than one unaffiliated employer
contributes and which is maintained pursuant to one or more collective
bargaining agreements.
2.26 Environmental Matters.
---------------------
(a) Except as set forth in Schedule 2.26 hereto, (i) neither the
-------------
Company nor MFI has ever generated, transported, used, stored, treated, disposed
of, or managed any Hazardous Waste (as defined below); (ii) to the Company's
knowledge, no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released, or disposed of at any site presently or
formerly owned, operated, leased, or used by the Company or MFI, or has ever
been located in the soil or groundwater at any such site; (iii) to the Company's
knowledge, no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased, or used by the Company or MFI for
treatment, storage, or disposal at any other place; (iv) to the Company's
knowledge, the Company does not presently own, operate, lease, or use, nor has
it previously owned, operated, leased, or used any site on which underground
storage tanks are or were located; and (v) no lien has ever been imposed by any
governmental agency on any property, facility, machinery, or equipment owned,
operated, leased, or used by the Company or MFI in connection with the presence
of any Hazardous Material.
(b) Except as set forth in Schedule 2.26 hereto, (i) neither the
-------------
Company nor MFI has any material liability under, nor has it ever violated, any
Environmental Law (as defined below); (ii) the Company and any property owned,
operated, leased, or used by any it, and any facilities and operations thereon,
are presently in compliance with all applicable Environmental Laws; (iii)
neither the Company nor MFI has ever entered into or been subject to any
judgment, consent decree, compliance order, or administrative order with respect
to any environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry, or formal or
informal complaint or claim with respect to any environmental or health and
safety matter or the enforcement of any Environmental Law; and (iv) the Company
has no reason to believe that any of the items enumerated in clause (iii) of
this subsection will be forthcoming.
(c) To the Company's knowledge, no site owned, operated, leased, or
used by the Company contains any asbestos or asbestos-containing material, any
polychlorinated biphenyls (PCBs) or equipment containing PCBs, or any urea
formaldehyde foam insulation.
(d) The Company has provided to Parent copies of all documents,
records, and information available to the Company concerning any environmental
or health and safety matter relevant to the Company or MFI, whether generated by
the Company, MFI or others, including without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding off-
site disposal of Hazardous Materials, spill control plans, and reports,
correspondence, permits, licenses, approvals, consents, and other authorizations
related to environmental or health and safety matters issued by any governmental
agency.
(e) For purposes of this Section 2.26, (i) "Hazardous Material" shall
------------ ------------------
mean and include any hazardous waste, hazardous material, hazardous substance,
petroleum product, oil, toxic substance, pollutant, contaminant, or other
substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
---------
Waste" shall mean and include any hazardous waste as defined or regulated under
- -----
any Environmental Law; (iii) "Environmental Law" shall
-----------------
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<PAGE>
mean any environmental or health and safety-related law, regulation, rule,
ordinance, or by-law at the foreign, federal, state, or local level, whether
existing as of the date hereof, previously enforced, or subsequently enacted;
and (iv) "Company" shall mean and include Company, MFI and all other entities
-------
for whose conduct the Company or MFI is or may be held responsible under any
Environmental Law.
2.27 List of Directors and Officers. Schedule 2.27 hereto contains a true
------------------------------ -------------
and complete list of all current directors and officers of the Company. In
addition, Schedule 2.27 hereto contains a list of all managers, employees and
-------------
consultants (other than attorneys and accountants) of the Company and MFI who,
individually, have received or are scheduled to receive compensation from the
Company or MFI for the fiscal year ended June 30, 1997, in excess of $50,000.
In each case such Schedule includes the current job title and aggregate annual
compensation of each such individual.
2.28 Net Operating Loss. Except as set forth on Schedule 2.28, there has
------------------ -------------
been no change in ownership of the Company that would limit Parent's ability to
utilize the net operating losses of the Company
2.29 Non-Foreign Status. Neither the Company nor any of its Subsidiaries
------------------
is a "foreign person" within the meaning of Section 1445 of the Code and
Treasury Regulations Section 1.1445-2.
2.30 Backlog. Schedule 2.30 hereto sets forth (i) the Company's backlog of
------- -------------
firm orders for the sale of products or services for which revenues had not been
recognized by the Company as of November 30, 1997 and (ii) the Company's rental
contracts for which it had not recognized revenues as of November 30, 1997.
2.31 Employees; Labor Matters. The Company employs a total of approximately
50 full-time employees and two part-time employees and generally enjoys good
employer-employee relationships. The Company does not employ a total of 100 or
more employees (excluding employees who work less than 20 hours per week or who
have worked for the Company less than six months of the last fiscal year) and
will not have employed 100 or more employees at any point during the 90 days
prior to and including the Closing Date. The Company is not delinquent in
payments to any of its employees for any wages, salaries, commissions, bonuses
or other direct compensation for any services performed for it to the date
hereof or amounts required to be reimbursed to such employees. Upon termination
of the employment of any of said employees, neither the Company nor Parent will
by reason of the transactions contemplated under this Agreement or anything done
prior to the Closing be liable to any of said employees for so-called "severance
pay" or any other payments, except as set forth in Schedule 2.31. The Company
-------------
has no policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment, except
as set forth in said Schedule. The Company is in compliance in all material
respects with all applicable laws and regulations respecting labor, employment,
fair employment practices, work place safety and health, terms and conditions of
employment, and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work, or any other concerted interference with normal operations
which are existing, pending or threatened against or involving the Company. No
question concerning representation exists respecting any employees of the
Company. There are no grievances, complaints or charges that have been filed
against the Company under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might have a Material Adverse Effect on
the Company, and there is no arbitration or similar proceeding pending and no
claim therefor has been asserted. No collective bargaining agreement is in
effect or is currently being or is about to be negotiated by the Company. The
Company has not received any information indicating that any of its employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency. The Company is, and each of the Company and
MFI has at all times since its incorporation been, in material compliance with
the requirements of the Immigration Reform Control Act of 1986.
A-25
<PAGE>
2.32 Customers, Distributors and Suppliers. Schedule 2.32 sets forth each
------------------------------------- -------------
customer, sales representative and distributor (whether pursuant to a
commission, royalty or other arrangement) which accounted for more than 1% of
the sales of the Company and MFI on a consolidated basis for the fiscal year
ended June 30, 1997 or the fiscal year ended June 30, 1996 (collectively, the
"Customers and Distributors"). Schedule 2.32 lists all of the suppliers of the
-------------
Company and MFI to whom during the fiscal year ended June 30, 1997 or the fiscal
year ended June 30, 1996 the Company or MFI made payments aggregating $50,000 or
more showing, with respect to each, the name and dollar volume involved (the
"Suppliers"). The relationships of the Company with its Customers and
- ----------
Distributors and Suppliers are good commercial working relationships. Except as
set forth on Schedule 2.32, (i) no Supplier listed on Schedule 2.32 has
------------- -------------
canceled, materially modified, or otherwise terminated its relationship with the
Company or MFI, or has during the last twelve months decreased materially its
services, supplies or materials to the Company or MFI nor, to the knowledge of
Company, does any Supplier have any plan or intention to do any of the foregoing
and (ii) no Customer or Distributor listed on Schedule 2.32 has indicated that
-------------
it will not do business in the future with the Company consistent with the
manner in which it has done business with the Company in the past.
2.33 Transfer of Shares. No holder of stock of the Company has at any time
------------------
transferred any of such stock to any employee of the Company, which transfer
constituted or could be viewed as compensation for services rendered to the
Company by said employee.
2.34 Stock Repurchase. Except as set forth on Schedule 2.34, neither the
---------------- -------------
Company nor MFI has redeemed or repurchased any of its capital stock after July
1, 1995.
2.35 Pooling Matters. Neither the Company, MFI nor any of their
---------------
affiliates has taken or agreed to take any action that is reasonably likely to
adversely affect the ability of Parent to account for the business combination
to be effected by the Merger as a pooling of interests.
2.36 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and the Exhibits and Schedules attached hereto and in the
certificates documents and other instruments required to be delivered by the
Company to Parent pursuant to this Agreement do not contain any untrue statement
of a material fact, and, when taken together, do not omit to state a material
fact required to be stated therein or necessary in order to make such
representations, warranties or statements not misleading in light of the
circumstances under which they were made. There are no facts known to the
Company which presently are or may in the future be reasonably likely to have a
Material Adverse Effect on the Company which have not been specifically
disclosed herein or in a Schedule furnished herewith, other than general
economic conditions affecting the industries in which the Company operates.
2.37 Government Contracts. A list of each contract and arrangement that
--------------------
the Company has with any federal, state or local governmental entity (each, a
"Governmental Entity") and each subcontract or arrangement that the Company has
-------------------
with a prime contractor that has a contract or arrangement with a Governmental
Entity (collectively, the "Governmental Contracts") is set forth on Schedule
---------------------- --------
2.37 hereto. The Company has not been, nor, as a result of the consummation of
- ----
the transactions contemplated by this Agreement will the Company be, suspended
or debarred from bidding on contracts or subcontracts for any Governmental
Entity, nor has any action for suspension or debarment been commenced, nor, to
the Company's knowledge, has any such suspension or debarment been threatened.
Except with respect to routine audits and investigations undertaken in the
industry in which the Company has operated, the Company has not been and is not
now being audited or investigated by any Governmental Entity or any prime
contractor, nor, to the Company's knowledge, has such audit or investigation
been threatened. There is no valid basis for the suspension or debarment of the
Company from bidding on contracts or subcontracts for any Governmental Entity.
The Company has not had a contract or subcontract terminated for default or been
determined to be nonresponsible by any Governmental
A-26
<PAGE>
Entity, and there are no facts existing which could result in any such action.
The Company has never had, and does not currently have, any outstanding
agreements, contracts or commitments which require it to obtain or maintain a
government security clearance.
SECTION 3. [Intentionally Omitted]
SECTION 4. COVENANTS OF THE COMPANY AND THE PRINCIPAL STOCKHOLDER.
4.1 Making of Covenants and Agreements. The Company and the Principal
----------------------------------
Stockholder jointly and severally hereby make the covenants and agreements set
forth in this Section 4 and the Principal Stockholder agrees to cause the
Company to comply with such agreements and covenants. The Principal Stockholder
shall not have any right of indemnity or contribution from the Company with
respect to the breach of any covenant or agreement hereunder.
4.2 Conduct of Business. Between the date of this Agreement and the
-------------------
Closing Date, the Company will:
(a) Conduct its business only in the ordinary course and refrain from
changing or introducing any method of management or operations except in the
ordinary course of business and consistent with prior practices;
(b) Refrain from making any purchase, sale, lease or disposition of
any product, asset or property other than in the ordinary course of business,
from purchasing any capital asset costing more than $25,000 and from mortgaging,
pledging, subjecting to a lien or otherwise encumbering any of its properties or
assets other than in the ordinary course of business;
(c) Refrain from incurring any contingent liability as a guarantor or
otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(d) Refrain from making any change or incurring any obligation to
make a change in its Certificate of Incorporation, By-laws or authorized or
issued capital stock;
(e) Refrain from declaring, setting aside or paying any dividend,
making any other distribution in respect of its capital stock or making any
direct or indirect redemption, purchase or other acquisition of its stock,
except as set forth in Schedule 4.2 hereto;
------------
(f) Refrain from making any change in the compensation payable or to
become payable to any of its officers, employees, agents or independent
contractors other than increases in the ordinary course of business consistent
with past practices, provided that no compensation payable to any of the
Company's officers, employees, agents, or independent contractors shall be
increased by more than 5% of the compensation received by such person for the
calendar year ending December 31, 1997;
(g) Refrain from prepaying any loans (if any) from its stockholders,
officers or directors or making any change in its borrowing arrangements;
(h) Use commercially reasonable efforts to prevent any change with
respect to its management and supervisory personnel and banking arrangements;
A-27
<PAGE>
(i) Use commercially reasonable efforts to keep intact its business
organization, to keep available its present officers and employees and to
preserve the goodwill of all suppliers, customers, independent contractors and
others having business relations with it;
(j) Have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers set forth in the Schedule 2.18 hereto
-------------
or equivalent insurance with any substitute insurers approved in writing by
Parent;
(k) Furnish Parent with unaudited monthly balance sheets and
statements of income and retained earnings and cash flows of the Company on a
consolidated basis within ten (10) business days after each month end for each
month ending more than ten (10) days before the Closing; and
(l) Permit Parent and its authorized representatives to have full
access to all its properties, assets, records, tax returns, contracts and
documents and furnish to Parent or its authorized representatives such financial
and other information with respect to its business or properties as Parent may
from time to time reasonably request.
4.3 Authorization from Others. Prior to the Closing Date, the Principal
-------------------------
Stockholder and the Company will use their respective best efforts to obtain all
authorizations, consents and permits of others required to permit the
consummation by the Principal Stockholder and the Company of the transactions
contemplated by this Agreement.
4.4 Notice of Default. Promptly upon the occurrence of, or promptly upon
-----------------
the Company or the Principal Stockholder becoming aware of the impending or
threatened occurrence of, any event which would cause or constitute a breach or
default, or would have caused or constituted a breach or default had such event
occurred or been known to the Company or the Principal Stockholder prior to the
date hereof, of any of the representations, warranties or covenants of the
Company or the Principal Stockholder contained in or referred to in this
Agreement or in any Schedule or Exhibit referred to in this Agreement, the
Company or the Principal Stockholder shall give detailed written notice thereof
to Parent and the Company and the Principal Stockholder shall use their best
efforts to prevent or promptly remedy the same.
4.5 Consummation of Agreement. The Company and the Principal Stockholder
-------------------------
shall use their respective best efforts to perform and fulfill all conditions
and obligations on their parts to be performed and fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be fully carried out. To this end, the Company will obtain prior to the Closing
all necessary authorizations or approvals of its stockholders and Board of
Directors.
4.6 Cooperation of the Company and Principal Stockholder. The Company and
----------------------------------------------------
the Principal Stockholder shall cooperate with all reasonable requests of Parent
and Parent's counsel in connection with the consummation of the transactions
contemplated hereby.
4.7 No Solicitation of Other Offers. Unless and until this Agreement
-------------------------------
shall have been terminated, neither the Company nor the Principal Stockholder
shall, nor shall the Company permit any of its directors, officers, employees or
agents to, directly or indirectly, (i) take any action to solicit, initiate
submission of or encourage, proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) a portion of the assets of, or any equity interest in, the Company,
any merger or business combination with the Company or any public or private
offering of interests in the Company (an "Acquisition Proposal"), (ii)
--------------------
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Parent and its representatives, (iii)
furnish any information or afford access
A-28
<PAGE>
to the properties, books or records of the Company to any person or entity that
may consider making or has made an offer with respect to an Acquisition Proposal
other than Parent and its representatives, or (iv) otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do any of the foregoing. The Company will
promptly notify Parent upon receipt of any offer or indication that any person
is considering making an offer with respect to an Acquisition Proposal or any
request for information relative to the Company or for access to the properties,
books and records of the Company, and will promptly reject any such offer or
request.
4.8 Confidentiality. The Company and the Principal Stockholder agree
---------------
that, unless and until the Closing has been consummated, each of the Company,
the Principal Stockholder and their officers, directors, agents and
representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from Parent with
respect to its business or financial condition except for the purpose of
evaluating, negotiating and completing the transaction contemplated hereby.
Information generally known in Parent's industry or which has been disclosed to
the Company or the Principal Stockholder by third parties which have a right to
do so shall not be deemed confidential or proprietary information for purposes
of this agreement. If the transaction contemplated by this Agreement is not
consummated, the Company and the Principal Stockholder will return to Parent (or
certify that they have destroyed) all copies of such data and information,
including but not limited to financial information, customer lists, business and
corporate records, worksheets, test reports, tax returns, lists, memoranda, and
other documents prepared by or made available to the Company or the Principal
Stockholder in connection with the transaction.
4.9 Company Stockholder Meeting. The Company shall, in accordance with
---------------------------
applicable law and the Company Certificate of Incorporation and by-laws:
(a) duly hold a meeting of the Stockholders (the "Special Meeting") as
---------------
soon as practicable after the effective date of the Registration Statement (as
defined in Section 7.1(a) hereof) for the purpose of considering and acting on
this Agreement and the transactions contemplated hereby;
(b) include in the Proxy Statement (as defined in Section 7.1(a)
hereof) the recommendation of its Board of Directors that the holders of Company
Capital Stock vote in favor of the adoption of this Agreement and the
transactions contemplated hereby; and
(c) obtain and furnish the information required to be included by
it in the Proxy Statement (as defined in Section 7.1(a) hereof), cooperate with
Parent in responding promptly to any comments made by the Securities and
Exchange Commission (the "SEC") with respect to the Proxy Statement or any
---
preliminary version thereof, cause the Proxy Statement to be mailed to the
Stockholders so as to ensure that the Special Meeting will be held at the
earliest practicable time after the effective date of the Registration Statement
and obtain the necessary approvals by the Stockholders of this Agreement and the
transactions contemplated hereby.
4.10 Tax-Free Treatment. Neither the Company nor the Principal Stockholder
------------------
shall intentionally take or cause to be taken any action, whether before or
after Closing, which would disqualify the Merger as being tax-free under the
Code as to the Company, Parent, Sub and each Stockholder exchanging shares of
Company Capital Stock solely for Parent Common Stock pursuant to the Merger.
4.11 Tax Returns. The Company and the Principal Stockholders shall
-----------
cooperate with Parent to permit the Company in accordance with applicable law to
promptly prepare and file on or before the due date or any extension thereof all
federal, state and local tax returns required to be filed by the Company with
respect to taxable periods ending on or before the Closing.
A-29
<PAGE>
4.12 Filing Cooperation. In connection with any filings to be made by
------------------
Parent under the Securities Act of 1933, as amended (the "Securities Act"), or
--------------
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (i)
------------
provide for inclusion therein or filing therewith the financial, business and
other information and documents reasonably requested for inclusion therein by
Parent, (ii) consider promptly Parent's reasonable requests for any additional
information or documents and use commercially reasonable efforts to make such
available, (iii) use its best efforts to cause Price Waterhouse LLP, its
independent public accountants, to deliver such consents, reports and comfort
letters in connection therewith as Parent may reasonably request, and (iv)
generally cooperate with Parent and its representatives and agents in connection
therewith.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF PARENT.
5.1 Making of Representations and Warranties. As a material inducement to
----------------------------------------
the Company and the Principal Stockholder to enter into this Agreement and
consummate the transactions contemplated hereby, Parent hereby makes the
representations and warranties to the Company and the Principal Stockholder
contained in this Section 5.
5.2 Organization and Qualifications of Parent. Parent is a corporation
-----------------------------------------
duly organized, validly existing and in good standing under the laws of State of
Delaware with full corporate power and authority to own or lease its properties
and to conduct its business in the manner and in the places where such
properties are owned or leased or such business is currently conducted or
proposed to be conducted. The copies of Parent's Amended and Restated
Certificate of Incorporation, as amended to date (the "Certificate of
Incorporation"), and of Parent's by-laws, as amended to date, and heretofore
delivered to Company's counsel, are complete and correct, and no amendments
thereto are pending. Parent is not in violation of any term of its Certificate
of Incorporation or By-laws. Parent is duly qualified to do business as a
foreign corporation in each jurisdiction where the nature of its properties or
the conduct of its business makes its qualification so necessary, except where
the failure to be so qualified would not have a Material Adverse Effect on
Parent and its Subsidiaries taken as a whole.
5.3 Capital Stock of Parent. The authorized capital stock of Parent
-----------------------
consists of (i) 5,000,000 shares of preferred stock and (ii) 30,000,000 shares
of Parent Common Stock. As of the date hereof, 11,579,826 shares of Parent
Common Stock, are issued, outstanding, fully paid and non assessable. No shares
of Parent Common Stock are reserved for issuance upon exercise of outstanding
stock options, warrants or otherwise except for shares of Parent Common Stock
reserved for issuance pursuant to Parent's 1997 Stock Option and Incentive Plan.
Except as set forth in Schedule 5.3, there are no outstanding options, warrants,
------------
rights, commitments, preemptive rights or agreements of any kind for the
issuance or sale of, or outstanding securities convertible into, any additional
shares of capital stock of any class of Parent. Except as set forth in Schedule
--------
5.3, there are no voting trusts, voting agreements, proxies or other agreements,
- ---
instruments or undertakings with respect to the voting of Parent Common Stock to
which Parent or any of its stockholders is a party.
5.4 Authority of Parent. Parent has full right, authority and power to
-------------------
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by Parent pursuant to this Agreement and to carry out the
transactions contemplated hereby. The execution, delivery and performance by
Parent of this Agreement and each such other agreement, document and instrument
have been duly authorized by all necessary action of Parent and no other action
on the part of Parent or its stockholders is required in connection therewith.
This Agreement and each agreement, document and instrument executed and
delivered by Parent pursuant to this Agreement constitutes, or when executed and
delivered will constitute, valid and binding
A-30
<PAGE>
obligations of Parent enforceable in accordance with their terms, except as the
enforceability of the Agreement and such other agreements may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting generally the enforcement of creditors' rights and except as the
remedy of specific performance and other injunctive relief maybe unavailable in
certain cases. The execution, delivery and performance by Parent of this
Agreement and each such agreement, document and instrument:
(i) does not and will not violate any provision of the
Certificate of Incorporation or by-laws of Parent;
(ii) does not and will not violate any laws of the United States,
or any state or other jurisdiction applicable to Parent or require Parent
to obtain any approval, consent or waiver of, or make any filing with, any
person or entity (governmental or otherwise) that has not been obtained or
made, except for the filing of the Merger Certificate with the Secretary of
State of the State of Delaware and except as contemplated by Sections
7.1(a), 7.3 and 8.1(e) of this Agreement; and
(iii) does not and will not (A) result in a breach of, constitute
a default under, accelerate any obligation under, or give rise to a right
of termination of any indenture or loan or credit agreement or any other
material agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which Parent is a party or by which the property of
Parent is bound or affected, except for such breaches, defaults,
accelerations or rights of termination which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect on Parent and its Subsidiaries taken as a whole or hinder the
consummation of the transaction contemplated by this Agreement, or (B)
result in the creation or imposition of any mortgage, pledge, lien,
security interest or other charge or encumbrance on any of Parent's assets
or its capital stock.
5.5 Financial Statements. Parent has delivered to the Company, combined
--------------------
balance sheets of the Mac-Gray Co., Inc. and Mac-Gray L.P. (the "Predecessors")
------------
for the years ended on December 31, 1996, December 31, 1995 and December 31,
1994 and statements of income, retained earnings and cash flows for the years
then ended, which statements are certified by Price Waterhouse LLP, independent
public accountants. Said financial statements have been prepared in accordance
with generally accepted accounting principles applied consistently during the
periods covered thereby and present fairly in all material respects the
financial condition of the Predecessors at the dates of said statements and the
results of its operations for the periods covered thereby. Parent has delivered
to the Company unaudited consolidated balance sheets of Parent and its
Subsidiaries for the quarterly periods ended March 31, June 30 and September 30,
1997 and statements of income and cash flows for the periods then ended.
5.6 SEC Filings. As of their respective dates, Parent's registration
-----------
statement on Form S-1, as amended, in the form as declared effective by the SEC
on October 17, 1997 and Parent's Form 10-Q for the fiscal quarter ended
September 30, 1997 filed with the SEC on November 14, 1997 (the "SEC Documents")
-------------
complied in all material respects with applicable requirements of the SEC and
when taken together, did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. There is no material fact directly relating to the
business, operations or condition of Parent (other than facts which relate to
general economic trends or conditions) that is reasonably likely to have a
Material Adverse Effect on Parent and its Subsidiaries taken as a whole, that
has not been set forth in the SEC Documents. True and complete copies of the
SEC Documents have been delivered to the Company.
5.7 Pooling Matters. Neither Parent nor any of its affiliates has taken
---------------
or agreed to take any action
A-31
<PAGE>
that is reasonably likely to adversely affect the ability of Parent to account
for the business combination to be effected by the Merger as a pooling of
interests.
5.8 Absence of Certain Changes. Since December 31, 1996 there has not
--------------------------
been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of Parent, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had a Material Adverse Effect on Parent and its
Subsidiaries taken as a whole; provided that no decrease in the reported price
of Parent Common Stock shall in any event constitute a Material Adverse Effect;
or
(b) Any material obligation or material liability of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown, incurred by Parent, other than obligations and liabilities (i)
incurred in the ordinary course of business or (ii) disclosed in the SEC
Documents.
5.9 Litigation. There is no litigation or governmental or administrative
----------
proceeding or investigation pending or, to the knowledge of Parent, threatened
against Parent or its Subsidiaries which, either individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on Parent and
its Subsidiaries taken as a whole, or which would prevent or hinder the
consummation of the transactions contemplated by this Agreement.
5.10 Finder's Fee. Parent has not incurred or become liable for any
------------
broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
5.11 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the certificates, exhibits and schedules delivered by
Parent pursuant to this Agreement (including the SEC Documents) to the Company
do not contain any untrue statement of a material fact, and, when taken
together, do not omit to state a material fact required to be stated therein or
necessary in order to make such representations, warranties or statements not
misleading in light of the circumstances under which they were made. There are
no facts known to Parent which presently are or may in the future be reasonably
likely to have a Material Adverse Effect on Parent and its Subsidiaries taken as
a whole, which have not been specifically disclosed herein, in a Schedule
furnished herewith or in the SEC Documents, other than general economic
conditions affecting the industries in which Parent and its Subsidiaries
operate.
SECTION 6. COVENANTS OF PARENT.
6.1 Making of Covenants and Agreement. Parent hereby makes the covenants
---------------------------------
and agreements set forth in this Section 6.
6.2 Public Announcements and Confidentiality. Parent agrees that, unless
----------------------------------------
and until the Closing has been consummated, Parent and its officers, directors,
agents and representatives will hold in strict confidence, and will not use any
confidential or proprietary data or information obtained from the Company or the
Principal Stockholder with respect to the business or financial condition of the
Company except for the purpose of evaluating, negotiating and completing the
transaction contemplated hereby and except as contemplated by Section 7.1 of
this Agreement. Information generally known in the industries of the Company or
which has been disclosed to Parent by third parties which have a right to do so
shall not be deemed confidential or proprietary information for purposes of this
agreement. If the transaction contemplated by this Agreement is not
consummated, Parent will return to the Company (or certify that it has
destroyed) all copies of such data and information, including but not limited to
financial information, customer lists, business and
A-32
<PAGE>
corporate records, worksheets, test reports, tax returns, lists, memoranda, and
other documents prepared by or made available to Parent in connection with the
transaction. Notwithstanding the foregoing, Parent shall be permitted, without
the prior consent of the other parties to this Agreement, to issue such press
release or make such public disclosure about the Company, its stockholders and
the transactions contemplated hereby as may, upon the advice of outside counsel,
be required by law or the rules and regulations of the New York Stock Exchange.
6.3 Tax-Free Treatment. Neither Parent nor Sub shall intentionally take
------------------
or cause to be taken any action, whether before or after Closing, which would
disqualify the Merger as being tax-free under the Code as to Parent, Sub, the
Company and each Stockholder exchanging shares of Company Capital Stock solely
for Parent Common Stock pursuant to the Merger.
6.4 Authorization from Others. Prior to the Closing Date, Parent will use
-------------------------
its best efforts to obtain all authorizations, consents and permits of others
required to permit the consummation by Parent of the transactions contemplated
by this Agreement.
6.5 Notice of Default. Promptly upon the occurrence of, or promptly upon
-----------------
Parent becoming aware of the impending or threatened occurrence of, any event
which would cause or constitute a breach or default, or would have caused or
constituted a breach or default had such event occurred or been known to Parent
prior to the date hereof, of any of the representations, warranties or covenants
of Parent contained in or referred to in this Agreement or in any Schedule or
Exhibit referred to in this Agreement, Parent shall give detailed written notice
thereof to the Company and Parent shall use its best efforts to prevent or
promptly remedy the same.
6.6 Consummation of Agreement. Parent shall use its best efforts to
-------------------------
perform and fulfill all conditions and obligations on its parts to be performed
and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out. To this end, Parent
will obtain prior to the Closing all necessary authorizations or approvals of
its Board of Directors.
6.7 Cooperation of Parent. Parent shall cooperate with all reasonable
---------------------
requests of the Company and the Company's counsel in connection with the
consummation of the transactions contemplated hereby.
6.8 Prior Service Credit. Each full-time employee of the Company
--------------------
immediately prior to the Effective Time who continues his or her full-time
employment with the Surviving Corporation after the Effective Time will receive
prior service credit under (i) Parent's vacation benefits program, (ii) Parent's
sick day policy, (iii) Parent's 401(k) plan and (iv) each other benefit program
of Parent in which such employee is eligible to participate and which has a
prior service requirement, in each case equal to the amount of time such
employee was a full-time employee of the Company prior to the Effective Time.
Nothing herein expressed or implied shall confer upon any employee of the
Company or any legal representative thereof any rights or remedies, including
any right to employment or continued employment for any specified period, of any
nature or kind whatsoever, under or by reason of this Agreement.
SECTION 7. ADDITIONAL AGREEMENTS.
7.1 Regulatory Matters.
------------------
(a) The parties hereto shall cooperate in the preparation and filing
with the SEC of a Registration Statement on Form S-4 (the "Registration
------------
Statement") under the Securities Act as soon as practicable after the date
- ---------
hereof with respect to Parent Common Stock to be issued in the Merger and will
use all reasonable efforts to have the Registration Statement declared effective
by the SEC as promptly as practicable
A-33
<PAGE>
and to mail the Proxy Statement and the prospectus included in the Registration
Statement to the Stockholders promptly thereafter. The prospectus in the
Registration Statement will also constitute a proxy statement (the "Proxy
-----
Statement") of the Company for its stockholder meeting referred to in Section
- ---------
4.10. Parent agrees to consult with the Company prior to responding to any
comment from the SEC regarding the Proxy Statement. Prior to the Effective Time,
Parent shall use all reasonable efforts to qualify the shares of Parent Common
Stock to be issued in the Merger under the securities or "blue sky" laws of any
state of the United States in which a Stockholder resides; provided, however,
-------- -------
that Parent shall not be obligated to qualify such shares in any state with
respect to which counsel for Parent has determined that such qualification is
not required under the securities or "blue sky" laws of such state, and in no
event shall Parent be obligated to qualify as a foreign corporation or to
execute a general consent to service of process in any state in which it has not
previously so qualified or has not previously so consented.
(b) The parties hereto shall cooperate with each other and use
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and governmental entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger). In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and governmental entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to the
completion of the transactions contemplated hereby.
(c) The parties hereto shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with any statement, filing, notice or application made
by or on behalf of the parties hereto or any of their respective Subsidiaries to
any governmental entity in connection with the Merger and the other transactions
contemplated by this Agreement.
(d) The parties hereto shall promptly furnish each other with copies
of written communications delivered by any governmental entity in respect of the
transactions contemplated hereby.
7.2 Affiliates and Related Agreements; Registration Rights Agreement;
-----------------------------------------------------------------
Publication of Combined Financial Results.
-----------------------------------------
(a) Within five (5) business days following the date of this
Agreement, the Company shall identify to Parent all persons who, at the time of
the vote of the Stockholders on the Merger, the Company believes may be
"affiliates of the Company within the meaning of Rule 145 under the Securities
Act. The Company shall use all reasonable efforts to provide Parent with such
information as Parent shall reasonably request for purposes of making its own
determination of persons who may be deemed to be affiliates of the Company. The
Company shall deliver from each of the affiliates specified by Parent on or
prior to the earlier of (i) the date which is five (5) business days after
Parent specifies such affiliates or (ii) the thirtieth day prior to the
Effective Time, a letter in the form attached hereto as Exhibit C (an "Affiliate
--------- ---------
Letter").
- ------
(b) Parent shall enter into a registration rights agreement (the
"Registration Rights Agreement") with Robert P. Bennett, Gelco Corporation
("GECC"), Eastech II Limited Partnership ("Eastech II") and Eastech III Limited
- ------ ----------
Partnership ("Eastech III") in substantially the form set forth as Exhibit D
----------- ---------
hereto.
(c) Parent shall use commercially reasonable efforts to publish no
later than forty-five (45)
A-34
<PAGE>
days after the end of the first calendar month after the Effective Time in which
there are at least thirty (30) days of post-Merger combined operations (which
calendar month may be the calendar month in which the Effective Time occurs),
combined sales and net income figures as contemplated by and in accordance with
the terms of SEC Accounting Series Release No. 135.
(d) Each of Robert P. Bennett, Eastech II and Eastech III shall
execute and deliver to Parent on the date of this Agreement a voting agreement
in the form attached hereto as Exhibit E-1 and GECC shall execute and deliver to
-----------
Parent on the date of this Agreement a voting agreement in the form attached
hereto as Exhibit E-2.
-----------
7.3 Filings Under Hart-Scott-Rodino Act. As soon as practicable, each of
-----------------------------------
Parent and the Company shall, if required, file with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
---
(the "Antitrust Division") a premerger notification form and any supplemental
------------------
information (other than privileged information) which may be requested in
connection therewith pursuant to the Hart-Scott-Rodino Act, which filings and
supplemental information will comply in all material respects with the
requirements of the Hart-Scott-Rodino Act. Each of Parent and the Company shall
cooperate fully with the other in connection with the preparation of any such
filings and shall use their respective best efforts to respond to any requests
for supplemental information from the FTC or the Antitrust Division and to
obtain early termination of any waiting period applicable to the Merger under
the Hart-Scott-Rodino Act. Any and all filing fees required to be paid in
connection with the premerger notification pursuant to the Hart-Scott-Rodino Act
shall be borne and paid by one half by Parent and one half by the Company.
7.4 Pooling Accounting Treatment. Each of Parent and the Company agrees
----------------------------
not to take any action that to its knowledge could reasonably be expected to
adversely affect the ability of Parent to treat the Merger as a pooling of
interests, and each of Parent and the Company agrees to take such action as may
be reasonably required to negate the impact of any past actions which to its
knowledge could reasonably be expected to adversely impact the ability of Parent
to treat the Merger as a pooling of interests.
SECTION 8. CONDITIONS.
8.1 Conditions to the Obligations of the Parties. The obligations of
---------------------------------------------
each party hereto to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing, of the
following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the affirmative vote of at least such percentage of
the Company's outstanding shares of capital stock (including any class vote) as
is required by law and by the Company Certificate of Incorporation.
(b) No Injunctions or Restraints; Illegality. No statute, rule,
----------------------------------------
regulation, executive order, decree, ruling, temporary restraining order,
preliminary or permanent injunction or other order shall have been enacted,
entered, promulgated, enforced or issued by any court or governmental authority
of competent jurisdiction or shall otherwise be in effect that prohibits,
restrains, enjoins or restricts the consummation of the Merger.
(c) Hart-Scott-Rodino. All required filings under the Hart-Scott-
-----------------
Rodino Act shall have been completed and all applicable time limitations under
such Act shall have expired without a request for further information by the
relevant federal authorities under such Act, or in the event of such a request
for further information, the expiration of all applicable time limitations under
the Act shall have occurred without the objection of such federal authorities.
A-35
<PAGE>
(d) Registration Statement. The Registration Statement shall have
----------------------
become effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC.
(e) Listing of Parent Common Stock. The shares of Parent Common Stock
------------------------------
which shall be issued to the Stockholders upon the consummation of the Merger
shall have been authorized for listing and/or trading on the New York Stock
Exchange, subject to official notice of issuance.
(f) Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by the parties thereto.
8.2 Conditions to the Obligations of Parent and Sub. The obligation of
-----------------------------------------------
Parent and Sub to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment, prior to or at the Closing, of the
following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of the Company contained in Section 2 shall be
true and correct in all material respects (except for such representations and
warranties that are qualified by their terms as to materiality, which
representations and warranties as so qualified shall be true in all respects) as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing; and the Company and the Principal Stockholder shall, on or
before the Closing, have performed in all material respects all of their
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
(b) No Material Change. There shall have been no material adverse
------------------
change in the financial condition, properties, assets, liabilities, business or
operations of the Company since the date hereof, whether or not in the ordinary
course of business.
(c) Certificate from Officers. The Company shall have delivered to
-------------------------
Parent a certificate of the Company's President and Chief Financial Officer
dated as of the Closing to the effect that the statements set forth in paragraph
(a) and (b) above in this Section 8.2 are true and correct.
(d) Approval of Parent's Counsel. All actions, proceedings,
----------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP as
counsel for Parent, and such counsel shall have received on behalf of Parent
such other certificates, opinions, and documents in form satisfactory to such
counsel, as Parent may reasonably require from the Company and the Principal
Stockholder to evidence compliance with the terms and conditions hereof as of
the Closing.
(e) Opinion of Counsel. On the Closing Date, Parent shall have
------------------
received from White & McDermott, P.C., counsel for the Company and the Principal
Stockholder, an opinion as of said date, in form attached hereto as Exhibit F.
---------
(f) [Intentionally Omitted]
(g) Pooling of Interests. Parent shall have received a letter, in
--------------------
form and substance satisfactory to it, from Price Waterhouse LLP addressed to
Parent, to the effect that the Merger will qualify for pooling of interests
accounting treatment.
(h) Consents. The Company and the Stockholders shall have made all
--------
filings with and
A-36
<PAGE>
notifications of governmental authorities, regulatory agencies and other
entities required to be made by the Company and the Stockholders in connection
with the execution and delivery of this Agreement, the performance of the
transactions contemplated hereby and the continued operation of the business of
the Company by Parent subsequent to the Closing, except where the failure to
make such filings and notifications would not, either individually or in the
aggregate, materially and adversely affect the consummation of the transactions
contemplated hereby or have a Material Adverse Effect on the Company. The
Company, the Stockholders and Parent shall have received all authorizations,
waivers, consents and permits, in form and substance reasonably satisfactory to
Parent, including any and all notices, consents and waivers required by the
terms of any securities that are convertible or exercisable into Common Stock,
from all third parties, including, without limitation, applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the continuation of the business of the Company and the
consummation of the transactions contemplated by this Agreement, and to avoid a
breach, default, termination, acceleration or modification of any indenture,
loan or credit agreement or any other material agreement, contract, instrument,
mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction,
decree, determination or arbitration award as a result of, or in connection
with, the execution and performance of this Agreement except where the failure
to have so received such authorizations, waivers, consents and permits would
not, either individually or in the aggregate, materially and adversely affect
the consummation of the transactions contemplated hereby or have a Material
Adverse Effect on the Company.
(i) Non-Competition Agreements. Robert P. Bennett shall have executed
--------------------------
and delivered to Parent a Non-Competition Agreement in substantially the form
attached hereto as Exhibit G.
---------
(j) Merger Certificate. The Company shall have executed and delivered
------------------
the Merger Certificate referred to in Section 1.3 hereof.
(k) Comfort Letter. Parent shall have received letters, dated as of
--------------
the date the Registration Statement is declared effective and as of the Closing
Date, from Price Waterhouse LLP, relating to the financial statements and other
financial data with respect to the Company included in the Proxy Statement and
Registration Statement and such other matters as may be reasonably requested by
Parent.
(l) Resignations. The Company shall have delivered to Parent the
------------
resignations of all of the Directors of the Company and of such officers of the
Company as may be requested by Parent at least five days prior to the Closing,
such resignations to be effective at the Closing.
(m) Releases. The Company shall have delivered to Parent general
--------
releases signed by Robert P. Bennett, GECC, Eastech II, Eastech III and each
Stockholder who is an officer or director of the Company in the form attached
hereto as Exhibit H.
---------
(n) Dissenting Stockholders. The aggregate number of shares of the
-----------------------
Common Stock owned by Stockholders who have perfected and not abandoned
dissenters' rights of appraisal (consistent with the terms of Section 1.12
hereof) shall not constitute more than ten percent (10%) of the shares of the
Common Stock, Senior Stock or Series A Stock, in each case outstanding
immediately prior to the Effective Time.
(o) Affiliate Letters. Parent shall have received the executed
-----------------
Affiliate Letters required by Section 7.2(a) hereof.
(p) Consents and Estoppels. Parent shall have received consents from
----------------------
each of the lessors (the "Lessors") of each Leased Real Property described in
-------
paragraphs 1 and 2 of Schedule 2.6(a) hereto to the Merger and the transactions
---------------
contemplated thereby. Parent shall also have received estoppel certificates
A-37
<PAGE>
addressed to Parent from the Lessors, dated within 15 days of the Closing Date,
in a form reasonably satisfactory to Parent.
(q) Termination of Certain Agreements. Each of the agreements listed
---------------------------------
on Exhibit I hereto shall have been terminated on terms satisfactory to Parent.
---------
8.3 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to consummate this Agreement and the transactions contemplated hereby is
subject to the fulfillment, prior to or at the Closing, of the following
conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of Parent contained in Section 5 shall be true
and correct in all material respects (except for such representations and
warranties that are qualified by their terms as to materiality, which
representations and warranties as so qualified shall be true in all respects) as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing; and Parent shall, on or before the Closing, have performed in
all material respects all of its obligations hereunder which by the terms hereof
are to be performed on or before the Closing.
(b) No Material Change. There shall have been no material adverse
------------------
change in the financial condition, properties, assets, liabilities, business or
operations of Parent and its Subsidiaries taken as a whole since the date
hereof, whether or not in the ordinary course of business, provided that no
decrease in the reported price of Parent Common Stock shall in any event
constitute a material adverse change.
(c) Certificate from Officers. Parent shall have delivered to the
-------------------------
Company a certificate of Parent's President and Chief Financial Officer dated as
of the Closing to the effect that the statements set forth in paragraph (a) and
(b) above in this Section 8.3 are true and correct.
(d) Approval of the Company's Counsel. All actions, proceedings,
---------------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this agreement shall have been approved by White & McDermott, P.C., as counsel
for the Company and the Principal Stockholders, and such counsel shall have
received on behalf of the Company and the Principal Stockholders such other
certificates, opinions and documents in form satisfactory to such counsel as the
Company may reasonably require from Parent to evidence compliance with the terms
and conditions hereof as of the Closing.
(e) Opinion of Counsel. On the Closing Date, the Company and the
------------------
Stockholders shall have received from Goodwin, Procter & Hoar LLP, counsel for
Parent, an opinion as of said date, in form attached hereto as Exhibit J.
---------
(f) Pooling of Interests. The Company shall have received a letter,
--------------------
in form and substance satisfactory to it, from Price Waterhouse LLP addressed to
Parent, to the effect that the Merger will qualify for pooling of interests
accounting treatment.
(g) Registration Rights. Parent, Robert P. Bennett, GECC, Eastech
-------------------
II and Eastech III shall have entered into the Registration Rights Agreement.
SECTION 9. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
9.1 Termination. At any time prior to the Closing, this Agreement may be
-----------
terminated as follows:
A-38
<PAGE>
(a) by mutual written consent of all of the parties to this Agreement;
(b) by the Company, provided that neither the Company nor any of the
Principal Stockholders is in material breach of this Agreement, (i) if Parent is
in material breach of this Agreement and such breach shall remain uncured for a
period of ten (10) business days after the Company shall have given written
notice of such breach to Parent, or (ii) if Parent shall have explicitly or by
conduct repudiated this Agreement and such repudiation shall have remained
uncured for a period of ten (10) business days after the Company shall have
given written notice thereof to Parent, or (iii) if by April 30, 1998, any of
the conditions in Section 8.1 or Section 8.3 shall not have been satisfied,
complied with or performed in all material respects (unless such failure of
satisfaction, noncompliance or nonperformance is the result directly or
indirectly of any action or failure to act on the part of the Company or any
Principal Stockholder) and the Company shall not have waived such failure of
satisfaction, noncompliance or nonperformance; or
(c) by Parent, provided that Parent is not in material breach of this
Agreement, (i) if the Company or any Principal Stockholder is in material breach
of this Agreement and such breach shall remain uncured for a period of ten (10)
business days after Parent shall have given written notice of such breach to the
Company and, if applicable, such Stockholder, (ii) if the Company or any
---
Principal Stockholder shall have explicitly or by conduct repudiated this
Agreement and such repudiation shall have remained uncured for a period of ten
(10) business days after Parent shall have given written notice thereof to the
Company, or (iii) if by April 30, 1998, any of the conditions in Section 8.1 or
Section 8.2 shall not have been satisfied, complied with or performed in all
material respects (unless such failure of satisfaction, noncompliance or
nonperformance is the result directly or indirectly of any action or failure to
act on the part of Parent) and Parent shall not have waived such failure of
satisfaction, noncompliance or nonperformance.
9.2 Effect of Termination. All obligations of the parties hereunder
---------------------
shall cease upon any termination pursuant to Section 9.1; provided, however,
-------- -------
that (i) the provisions of this Section 9, Section 4.8, Section 6.2, Section
11.2 and Section 11.10 hereof shall survive any termination of this Agreement;
(ii) nothing herein shall relieve any party from any liability for any material
breach of this Agreement and (iii) any party may proceed as further set forth in
Section 9.3 below.
9.3 Right to Proceed. Anything in this Agreement to the contrary
----------------
notwithstanding, (i) if any of the conditions specified in Section 8.1 or
Section 8.2 hereof have not been satisfied, Parent shall have the right to
proceed with the transactions contemplated hereby without waiving any of its
rights hereunder, and (ii) if any of the conditions specified in Section 8.1 or
Section 8.3 hereof have not been satisfied, the Company and the Principal
Stockholders shall have the right to proceed with the transactions contemplated
hereby without waiving any of their rights hereunder.
SECTION 10. INDEMNIFICATION.
10.1 Survival. Notwithstanding any right of any party to investigate
--------
fully the affairs of the other party and notwithstanding any knowledge of facts
determined or determinable by such party pursuant to such investigation or right
of investigation, each party has the right to rely fully upon the
representations, warranties, covenants and agreements of each other party in
this Agreement or in any certificate, financial statement or other document
delivered by any party pursuant hereto. All such representations, warranties,
covenants and agreements shall survive the execution and delivery hereof and the
Closing hereunder, subject to the limitations set forth in Sections 10.3 and
10.5.
10.2 Obligation of the Stockholders to Indemnify. Subsequent to
-------------------------------------------
the Effective Time, the Stockholders shall jointly and severally indemnify and
hold harmless Parent and the Surviving Corporation (and
A-39
<PAGE>
their respective directors, officers, employees, agents, affiliates and assigns)
from and against all losses, liabilities, damages, deficiencies, costs or
expenses, including interest and penalties imposed or assessed by any judicial
or administrative body and reasonable attorneys' fees, whether or not arising
out of third-party claims and including all amounts paid in investigation,
defense or settlement of the foregoing pursuant to this Section 10 ("Losses")
based upon, arising out of or otherwise in respect of (a) any breach of any
representation, warranty or covenant of the Company and/or the Principal
Stockholder under this Agreement or in any certificate, schedule or exhibit
delivered pursuant hereto, or by reason of any claim, action or proceeding
asserted or instituted growing out of any matter or thing constituting a breach
of such representations, warranties or covenants and (b) any liability or
obligation of or loss by the Company for or with respect to (i) social security
taxes for the year ended December 31, 1994; (ii) Pennsylvania state taxes in
excess of $2,000 in the aggregate for the years ended December 31, 1989, 1990,
1991, 1992 and 1993 and (iii) the failure of the Company to file any Annual
Reports on Form 5500 with respect to any Employee Program.
10.3 Limitations on Indemnification by Stockholders. Notwithstanding the
----------------------------------------------
foregoing, the rights to indemnification under Section 10.2 shall be subject to
the following:
(a) No indemnification shall be payable with respect to claims
asserted pursuant to Section 10.2(a) unless and until the amount of all claims
for indemnification under such Section exceeds $300,000 in the aggregate,
whereupon the full amount of such claims shall be recoverable in accordance with
the terms hereof. For purposes of the preceding sentence, breaches of
representations and warranties shall be determined without references to any
qualifications in such representations or warranties using the words "material,"
"materiality" or words of similar import.
(b) No indemnification shall be payable with respect to claims
asserted pursuant to Sections 10.2(a) or (b) after the earlier of (i) the first
anniversary of the Closing Date or (ii) the date of issuance of the first
audited financial statements of Parent for the fiscal year ending December 31,
1998 (such earlier date, the "Expiration Date"); provided, however, that if on
--------------- -------- -------
or prior to the Expiration Date a specific state of facts shall have become
known which may, in the good faith judgment of Parent, give rise to a claim for
indemnification under Sections 10.2(a) or (b) and Parent shall have given
written notice (a "Contingent Claim Notice") to the Escrow Agent of such facts
-----------------------
known by Parent at such time, then the right to indemnification with respect to
such claim shall remain in effect without regard to when such matter shall be
finally determined and disposed of.
(c) All indemnification claims asserted under Section 10.2(a) and
(b) shall be satisfied solely from the shares of Parent Common Stock held in
escrow pursuant to the Escrow Agreement, provided that claims asserted under
Section 10.2(a) which involve a fraudulent or intentional misrepresentation made
by the Company to Parent or an intentional breach of this Agreement by the
Company or the Principal Stockholder may also be satisfied from the Principal
Stockholder.
(d) The limitations of Sections 10.3(a) and (b) shall not apply in
the case of a fraudulent or intentional misrepresentation made by the Company to
Parent or an intentional breach of this Agreement by the Company or the
Principal Stockholder, and the limitations of Section 10.3(a) shall not apply in
the case of claims asserted under Section 10.2(b).
10.4 Indemnification by Parent. Parent agrees to indemnify and hold the
-------------------------
Stockholders harmless from and against all Losses based upon, arising out of or
otherwise in respect of any inaccuracy in, or breach of, any representation,
warranty or covenant of Parent contained herein or in any certificate delivered
pursuant hereto, or by reason of any claim, action or proceeding asserted or
instituted growing out of any matter or thing constituting a breach of such
representations, warranties or covenants.
A-40
<PAGE>
10.5 Limitation on Indemnification by Parent. Notwithstanding the
---------------------------------------
foregoing, the Stockholders' right to indemnification under Section 10.4 shall
be subject to the following provisions:
(a) No indemnification shall be payable with respect to claims
asserted pursuant to Section 10.4, unless and until the total of all claims for
indemnification under such Section shall exceed $300,000 in the aggregate,
whereupon the full amount of such claims shall be recoverable in accordance with
the terms hereof. For purposes of the preceding sentence, breaches of
representations and warranties shall be determined without references to any
qualifications in such representations or warranties using the words "material,"
"materiality" or words of similar import.
(b) No indemnification shall be payable to the Stockholders with
respect to claims asserted pursuant to Section 10.4 above after the Expiration
Date; provided, however, that if on or prior to the Expiration Date a specific
-------- -------
state of facts shall have become known which may, in the good faith judgment of
the Stockholders, give rise to a claim for indemnification under Section 10.4
and the Stockholders shall have given written notice thereof to Parent of such
facts known by the Stockholders at such time, then the right to indemnification
with respect to such claim shall remain in effect without regard to when such
matter shall be finally determined and disposed of.
(c) Parent shall not be liable for any amount in excess of
$2,500,000.
(d) The limitations of Sections 10.5(a), (b) and (c) shall not apply
in the case of a fraudulent or intentional misrepresentation made by Parent to
the Company or the Principal Stockholder or an intentional breach of this
Agreement by Parent.
10.6 Notice; Defense of Claims. An indemnified party may make claims
-------------------------
for indemnification hereunder by giving written notice thereof to the
indemnifying party within the period in which indemnification claims can be made
hereunder. If indemnification is sought for a claim or liability asserted by a
third party, the indemnified party shall also give written notice thereof to the
indemnifying party promptly after it receives notice of the claim or liability
being asserted, but the failure to do so shall not relieve the indemnifying
party from any liability except to the extent that it is prejudiced by the
failure or delay in giving such notice. Such notice shall summarize the bases
for the claim for indemnification and any claim or liability being asserted by a
third party. Within 20 days after receiving such notice the indemnifying party
shall give written notice to the indemnified party stating whether it disputes
the claim for indemnification and whether it will defend against any third party
claim or liability at its own cost and expense. If the indemnifying party fails
to give notice that it disputes an indemnification claim within 20 days after
receipt of notice thereof, it shall be deemed to have accepted and agreed to the
claim, which shall become immediately due and payable. The indemnifying party
shall be entitled to direct the defense against a third party claim or liability
with counsel selected by it (subject to the consent of the indemnified party,
which consent shall not be unreasonably withheld or delayed) as long as the
indemnifying party is conducting a good faith and diligent defense. The
indemnified party shall at all times have the right to fully participate in the
defense of a third party claim or liability at its own expense directly or
through counsel; provided, however, that if the named parties to the action or
-------- -------
proceeding include both the indemnifying party and the indemnified party and the
indemnified party is advised by counsel that representation of both parties by
the same counsel would be inappropriate under applicable standards of
professional conduct, the indemnified party may engage separate counsel at the
expense of the indemnifying party. If no such notice of intent to dispute and
defend a third party claim or liability is given by the indemnifying party, or
if such good faith and diligent defense is not being or ceases to be conducted
by the indemnifying party, the indemnified party shall have the right, at the
expense of the indemnifying party, to undertake the defense of such claim or
liability (with counsel selected by the indemnified party), and to compromise or
settle it, exercising reasonable business judgment. If the third party claim or
liability is one that
A-41
<PAGE>
by its nature cannot be defended solely by the indemnifying party, then the
indemnified party shall make available such information and assistance as the
indemnifying party may reasonably request and shall cooperate with the
indemnifying party in such defense, at the expense of the indemnifying party.
10.7 Sole Remedy. From and after the Closing, the sole and exclusive
-----------
remedy of the parties hereto with respect to any and all claims relating to this
Agreement and the transactions contemplated hereby (excluding covenants to be
performed after the Closing Date) shall be the indemnification provisions set
forth in this Section 10. In determining Losses hereunder, due account shall be
taken of all relevant factors, including, without limitation, the net present
value of (i) any insurance proceeds (net of any negative tax effects) and (ii)
any deduction, credit, amortization, exclusion from income or other tax benefit
realized by the indemnified party on the account of any Loss.
SECTION 11. MISCELLANEOUS.
11.1 Alternative Structure. Notwithstanding anything to the contrary
---------------------
contained in this Agreement, prior the Effective Time, Parent shall be entitled
to revise the structure of the Merger and related transactions provided that
each of the transactions describing such revised structure shall (i) fully
qualify as, or fully be treated as part of, one or more tax free reorganizations
within the meaning of Section 368(a) of the Code, and not subject any of the
Stockholders of the Company to adverse tax consequences or change the amount of
consideration to be received by such stockholders, (ii) be properly treated for
financial reporting purposes as a pooling of interests, (iii) be capable of
consummation in as timely a manner as the structure contemplated herein and (iv)
not otherwise be prejudicial to the interests of stockholders or employees of
the Company. This Agreement and any related documents shall be appropriately
amended in order to reflect any such revised structure.
11.2 Fees and Expenses. Except as otherwise provided herein, whether
-----------------
or not the transactions herein contemplated shall be consummated, each party
hereto will pay its own fees, expenses and disbursements and those of its
agents, representatives, accountants and counsel incurred in connection with the
subject matter of this Agreement and any amendments hereto, including all costs
and expenses incurred in the performance and compliance with all conditions to
be performed by it under this Agreement. Notwithstanding the foregoing, if the
transactions contemplated hereby are consummated, the Stockholders shall pay all
of such fees and expenses incurred by them and all of such fees and expenses
incurred by the Company and no such fees or expenses shall be paid for or
reflected in any account of the Company; provided that the Company will pay the
reasonable fees and expenses of White & McDermott, P.C. up to $125,000.
11.3 Governing Law. This Agreement shall be construed under and
-------------
governed by the internal laws of The Commonwealth of Massachusetts without
regard to its conflict of laws provisions; provided that the DGCL shall govern
the provisions of this Agreement relating to the effectuation of the Merger.
11.4 Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of five days after deposit in United
States post office facilities properly addressed with postage prepaid. All
notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
A-42
<PAGE>
TO PARENT: Mac-Gray Corporation
- --------- 22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386
Attn: Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Fax: (617) 523-1231
Attn: Stuart M. Cable, Esq.
TO COMPANY: Intirion Corporation
- ---------- 10 Walpole Park South
Walpole, MA 02081
Fax: (508) 660-9242
Attn: Chief Executive Officer
With a copy to: White & McDermott, P.C.
65 William Street, Suite 209
Wellesley, MA 02181
Fax: (781) 237-8120
Attn: David A. White, Esq.
Scott McDermott, Esq.
TO THE PRINCIPAL STOCKHOLDER: Robert P. Bennett
- ---------------------------- Intirion Corporation
Ten Walpole Park South
Walpole, MA 02081
Fax: (508) 660-9242
With a copy to: White & McDermott, P.C.
65 William Street, Suite 209
Wellesley, MA 02181
Fax: (781) 237-8120
Attn: David A. White, Esq.
Scott McDermott, Esq.
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.5 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings.
11.6 Assignability; Binding Effect. This Agreement shall only be
-----------------------------
assignable by Parent to a
A-43
<PAGE>
corporation or partnership controlling, controlled by or under common control
with Parent upon written notice to the Company and the Principal Stockholder,
provided that such assignment shall not affect Parent's obligations under this
Agreement. This Agreement may not be assigned by the Principal Stockholder or
the Company without the prior written consent of Parent. This Agreement shall be
binding upon and enforceable by, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.
11.7 Captions and Gender. The captions in this Agreement are for
-------------------
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
11.8 Execution in Counterparts. For the convenience of the parties and to
-------------------------
facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.9 Amendments. This Agreement may not be amended or modified, nor may
----------
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by each party hereto, or in the case of a
waiver, the party waiving compliance.
11.10 Publicity and Disclosures. Except as contemplated by Sections 6.2
-------------------------
and 7.1 of this Agreement, no press releases or public disclosure, either
written or oral, of the transactions contemplated by this Agreement, shall be
made by a party to this Agreement without the prior knowledge and written
consent of Parent and the Company.
11.11 Consent to Jurisdiction. Each of the parties hereby consents to
-----------------------
personal jurisdiction, service of process and venue in the federal or state
courts of Massachusetts for any claim, suit or proceeding arising under this
Agreement, or in the case of a third party claim subject to indemnification
hereunder, in the court where such claim is brought.
11.12 Specific Performance. The parties agree that it would be difficult
--------------------
to measure damages which might result from a breach of this Agreement by the
Company or the Principal Stockholder and that money damages would be an
inadequate remedy for such a breach. Accordingly, if there is a breach or
proposed breach of any provision of this Agreement by the Company or the
Principal Stockholder, and Parent does not elect to terminate under Section 9,
Parent shall be entitled, in addition to any other remedies which it may have,
to an injunction or other appropriate equitable relief to restrain such breach
without having to show or prove actual damage to Parent.
11.13 Company's Knowledge. References in this Agreement, to "the
-------------------
Company's knowledge," "the knowledge of the Company" or words of similar import
shall mean (a) the collective actual knowledge of Robert P. Bennett, David
Wilcox, Karen Martinson Fleming and Rosellyn Sullivan and (b) such knowledge as
such persons would have had after reasonable investigation.
[Remainder of page left intentionally blank]
A-44
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
MAC-GRAY CORPORATION
By:/s/ Stewart G. MacDonald
--------------------------------------
Name: Stewart G. MacDonald
Title: President
MI ACQUISITION CORP.
By:/s/ Stewart G. MacDonald
-----------------------------------
Name: Stewart G. MacDonald
Title: President
INTIRION CORPORATION
By:/s/ Robert P. Bennett
-----------------------------------
Name: Robert Bennett
Title: President
/s/ Robert P. Bennett
--------------------------------------
ROBERT P. BENNETT, individually
A-45
<PAGE>
List of Exhibits and Schedules
------------------------------
Exhibit A: List of Stockholders, Warrantholders and Optionholders
B: Escrow Agreement
C: Affiliate Letter
D: Registration Rights Agreement
E-1: Voting Agreement
E-2: GECC Voting Agreement
F: Opinion of White & McDermott, P.C.
G: Non-Compete Agreement
H: General Release
I: Agreements to be Terminated
J: Opinion of Goodwin, Procter & Hoar LLP
Schedule 2.3 Warrants and Options; Voting Agreements, etc.
2.6(a) Real Property
2.6(b) Personal Property
2.7 Financial Statements
2.8 Tax Disclosures
2.9 Affiliated Accounts Receivable
2.10 Inventories
2.11 Absence of Changes
2.13 Banking Arrangements
2.14 Intellectual Property
2.15 Contracts, etc.
2.16 Litigation
2.17 Compliance with Laws
2.18 Insurance
2.19 Warranty Claims
2.22 Permits, Burdensome Agreements
2.24 Transactions with Interested Persons
2.25 Employee Benefit Programs
2.26 Environmental Matters
2.27 Officers and Directors
2.28 Net Operating Losses
2.30 Backlog
2.31 Labor Matters
2.32(a) Customers and Distributors
2.32(b) Suppliers
2.34 Stock Repurchase
2.37 Government Contracts
4.2 Conduct of Business
5.3 Outstanding Options, Warrants, Rights, etc.
A-46
<PAGE>
EXHIBIT A TO APPENDIX A
-----------------------
<TABLE>
<CAPTION>
A. SHAREHOLDERS
<S> <C>
Robert P. Bennett 227,568
Procopio Soriano 51,896
Edward J. Ward 82,271
Glenn Larson 4,264
Paul Ward 712
Janice Moore 1,424
Kevin Thom 1,422
Mark DeGroot 948
Douglas Lake 1,184
John Burgess 29,936
Don Burgess 4,736
Phil Burgess 2,516
Peter Chapman 4,316
William Morris 2,368
D. & M. Poulin 4,736
Clarence W. Bennett Trust 6,968
William F. McInerney 7,200
J. & V. Riley 2,400
John J. Riley, Jr. 1,200
Paul D. Riley 1,200
Christine M. Scanlon 1,200
Paul R. Platt 6,000
Lowestoft Co. 7,200
B. & L. Proctor 3,600
Totman & Co. (Hood Trust) 7,200
Totman & Co. (Estin Trust) 7,200
Robert C. Jordan, Jr. 3,600
Walter M. Landergan 7,200
Richard J. DeAgazio 3,600
Jane L. Chapman 5,688
Dr. Mark F. Santana 6,000
John Bennett 1,500
Wendy Bennett 1,500
J. & A. Scanlan 7,200
William E. McNamara 2,600
Peggy Soltesz 3,000
Ronald A. Golz 7,200
Charles Will 6,000
Emily A. Burrows 3,500
Brian W. Smith 1,000
R. & D. Paul 7,200
Michael W. Seely 20,596
DenProTex, Inc. 10,296
Edward J. Ward (UGMA) 800
</TABLE>
A-47
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Elaine DiGiovanni 600
John R. Mitchell 500
Floyd D. Monroe 2,600
Beverly A. Monroe 2,000
Fred Boyles 944
Richard Jacobson 2,368
Gail T. Ward 944
Totman & Co. 11,500
Harvey Kirstein 1,000
Judy Connor 1,000
Robert S. Porter 1,000
Robert E. Ray 11,500
Rene Fleurent 1,000
Leung Sau Shing 1,000
J. and J. Bell 500
Judy Samelson 1,000
Allen Maier 200
Clare Hochalter 500
Susan Schlueter 1,071
Lana Thom 1,071
Allan L. Williams 15,105
Eastech II LP 36,000
Eastech III LP 54,000
Michael Flanagan 6,640
Connie L. Soriano 27,000
Diane Burgess Revocable Trust 3,500
Metron Solutions, Inc. 5,000
B. SERIES A PREFERRED SHAREHOLDERS
Eastech II Limited Partnership 16,000
Eastech III Limited Partnership 24,000
C. SENIOR REDEEMABLE REFERRED SHAREHOLDERS
General Electric Capital Corp. 100,000
D. WARRANT HOLDERS
Scott McDermott 8,000
Peter Chapman 12,000
William Keefer 6,000
Robert E. Ray Corp. 8,000
Robert E. Ray Corp. 4,000
Donald Amdt 2,000
Robert E. Ray Corp. 5,000
Lowestoft Co. 2,500
John Burgess 5,000
Clarence Bennett 2,500
</TABLE>
A-48
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
R. & M. L. Welch 2,500
Richard DeAgazio 2,500
Robert & Diane Paul 2,500
John Burgess 5,000
Totman & Co. 2,500
Totman & Co. 2,500
Allan L. Williams 2,500
George Phaneuf 2,500
General Electric 267,284
Kevin Davidson 800
Paul Knasin 5,000
E. OPTION HOLDERS
Kathleen Will 6,000
Charles Venners 6,000
William Berger 6,000
Kathleen Will 2,000
Kathleen Will 2,000
Charles Venners 3,000
Kathleen Will 400
Charles Venners 3,000
William Berger 1,200
Robert Drake 800
Dennis Jones 800
Kathleen Will 800
Nancy Shapiro 500
Kathleen M. Will 500
Michelle Tero 250
William W. Berger 750
Dennis A. Jones 550
Charles Venners 1,000
Robert Drake 750
Key Robert Breitenstein 100
Mark J. Fredriksen 100
Robert P. Bennett 12,000
Robert E. Ray Corp. 2,000
G. Bickley Stevens II 2,000
Mark Davidson 7,200
Michael Seely 5,500
Karen Fleming 10,000
Nancy Shapiro 1,500
Kathleen M. Will 500
Michelle Tero 500
William W. Berger 750
Dennis A. Jones 1,000
Charles Venners 1,500
Robert Drake 1,500
Key Robert Breitenstein 500
</TABLE>
A-49
<PAGE>
<TABLE>
<S> <C>
Mark J. Fredriksen 1,000
Rosellen Sullivan 500
Michael Brooks 100
John Finnegan 500
Alice Libby 100
David Mendell 350
Steve Currie 750
Christine Hebert 500
Robert P. Bennett 5,500
Judy Farrell 2,500
Leslie Nelson 1,000
Paula Preston 2,500
Karen Fleming 5,000
Don Woodson 1,000
John Fletcher 6,000
Robert E. Ray 6,000
Jeannine Tyson 2,500
Christine Hebert 250
James Vincent 1,500
David Wilcox 20,000
Rosellen Sullivan 2,000
Charles Venners 500
Robert Drake 1,000
Peter Maki 7,500
Nancy Shapiro 500
Linda Rudder 500
John Fletcher 2,000
Robert E. Ray 2,000
</TABLE>
A-50
<PAGE>
EXHIBIT B TO APPENDIX A
------------------------
FORM OF
-------
ESCROW AGREEMENT
----------------
This ESCROW AGREEMENT (the "Agreement") is made and entered into as of
____________, 1998, by and among MAC-GRAY CORPORATION, a Delaware corporation
("Mac-Gray"), MICHAEL SHANAHAN, an individual (the "Stockholder
Representative"), GELCO CORPORATION, a _____________ corporation ("GECC"),
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company (the "Escrow
Agent"), and the parties hereunder defined as the Intirion Stockholders, with
reference to the following facts:
A. Pursuant to the terms and conditions of an Agreement and Plan of
Merger (the "Merger Agreement") dated as of December 22, 1997, by and among Mac-
Gray, Intirion Corporation, a Delaware corporation ("Intirion"), MI Acquisition
Corp., a Delaware corporation and wholly-owned subsidiary of Mac-Gray ("Merger
Sub"), and Robert P. Bennett, Mac-Gray and Intirion have agreed to effect a
combination of their respective businesses through a merger of Intirion and
Merger Sub (the "Merger"). Capitalized terms not otherwise defined herein have
the meanings set forth in the Merger Agreement.
B. Under the terms of the Merger Agreement, Mac-Gray is entitled to
indemnification under certain circumstances as set forth in Section 10 of the
Merger Agreement.
C. The purpose of this Agreement is to provide for the deposit into
escrow of shares of Mac-Gray's common stock, par value $.01 per share ("Mac-Gray
Common Stock"), pursuant to Section 1.12 of the Merger Agreement to secure, in
part, the indemnification obligations of the Intirion Stockholders under Section
10 of the Merger Agreement.
NOW, THEREFORE, based on the above premises and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
1. Appointment of Escrow Agent and Stockholder Representative;
-----------------------------------------------------------
Indemnification.
- ---------------
1.1 Escrow Agent. The Escrow Agent is hereby appointed as escrow
------------
agent for the purposes set forth herein, and the Escrow Agent hereby accepts
such appointment on the terms set forth herein.
1.2 Stockholder Representative. The Stockholder Representative is
--------------------------
hereby appointed as agent and representative of the holders of record, other
than GECC, at the Effective Time of Intirion's Common Stock, Senior Stock,
Series A Stock, Warrants and Options (collectively, as set forth on Schedule 1.2
to this Agreement, the "Intirion Stockholders") for the purposes set forth
herein, and the Stockholder Representative accepts such appointment on the terms
set forth herein. The term Intirion Stockholders shall not include GECC, which
shall represent itself with respect to the Escrowed Shares (as defined in
Section 2.1 hereof).
1.3 Indemnification. The Intirion Stockholders and GECC, by virtue
---------------
of their approval of the Merger Agreement, have agreed to indemnify and hold
harmless Mac-Gray and the Surviving Corporation pursuant to Section 10 of the
Merger Agreement. The Escrowed Shares (as defined in Section 2.1 hereof) shall
secure, in part, the indemnification obligations of the Intirion Stockholders
and GECC in the manner provided
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<PAGE>
in this Agreement.
2. Escrow of Shares.
----------------
2.1 Escrowed Shares: Proportionate Interest. In accordance with
---------------------------------------
Section 1.12 of the Merger Agreement, at the Effective Time (which time shall be
set forth in a certificate of Mac-Gray delivered to the Escrow Agent), Mac-Gray
shall deposit with the Escrow Agent ________ [insert 10% of total number of
shares issued in Merger] shares of Mac-Gray Common Stock (the "Escrowed Shares")
which constitute ten percent (10%) of the total number of shares of Mac-Gray
Common Stock comprising the Merger Consideration. Each Intirion Stockholder and
GECC shall be deemed to have contributed the number of shares of Mac-Gray
Common Stock set forth opposite such Intirion Stockholder's and GECC's name on
Schedule 1.2 which represents such Intirion Stockholder's and GECC's pro rata
portion of the shares of Mac-Gray Common Stock issuable at the Effective Time to
the Intirion Stockholders and GECC. (The pro rata portion for each Intirion
Stockholder and GECC is set forth on Schedule 1.2 and is hereinafter referred as
such Intirion Stockholder's and GECC's "Proportionate Interest"). The Escrowed
Shares shall be issued in the name of the Escrow Agent or its nominee. If
during the term of this Agreement there is declared a stock dividend or stock
split, all securities thereby issuable with respect to the Escrowed Shares shall
be deposited hereunder and shall be deemed "Escrowed Shares" for the purposes of
this Agreement, in which event Mac-Gray shall deliver to the Escrow Agent an
updated Schedule 1.2. If during the term of this Agreement there is paid to the
Escrow Agent any dividends in cash or other property (other than securities) in
respect of the Escrowed Shares, such dividends shall be paid currently by the
Escrow Agent to the Intirion Stockholders and GECC in accordance with each
Intirion Stockholder's and GECC's Proportionate Interest. The Escrowed Shares
shall be held and disbursed by the Escrow Agent in accordance with the terms of
this Agreement. The parties agree that for federal income tax purposes, GECC
and the Intirion Stockholders will own the Escrowed Shares as of the Effective
Time.
2.2 Voting of Escrowed Shares. The Escrowed Shares held by the
-------------------------
Escrow Agent pursuant to this Agreement shall be deemed issued and outstanding.
With respect to any matter on which stockholders of Mac-Gray have a right to
vote, the Escrow Agent, upon receipt of written notices to such fact, on behalf
of GECC and the Intirion Stockholders, acting at the written direction of such
stockholders, shall have the right to vote, or not vote, all Escrowed Shares (or
any portion thereof); provided, however, that the Escrow Agent shall at the
-----------------
expense of Mac-Gray promptly forward, or cause to be forwarded, copies of any
proxies, proxy statements and other soliciting materials which it receives to
GECC and the Intirion Stockholders, and shall vote the applicable portion of the
Escrowed Shares in accordance with any written instructions timely received by
the Escrow Agent from GECC and any Intirion Stockholder. Absent any such
written instructions, the Escrow Agent shall not vote any Escrowed Shares.
2.3 Escrowed Shares Nontransferable. GECC's and the Intirion
-------------------------------
Stockholders' interest in this Agreement and the Escrowed Shares (prior to the
disbursement thereof) may not be transferred.
3. Application of Escrowed Shares. The Escrowed Shares shall be held in
------------------------------
escrow under the terms of this Agreement and released by the Escrow Agent upon
the following terms:
3.1 Joint Instructions. Upon joint written notice and instruction
------------------
from Mac-Gray, GECC and the Stockholder Representative that the Escrowed Shares,
or any portion thereof, should be disbursed, the Escrow Agent shall make such
disbursement in accordance with the directions set forth in such joint written
notice and instruction.
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<PAGE>
3.2 Indemnification Claim. If at any time, or from time to time, on
---------------------
or before the earlier of (i) the first (lst) anniversary of the Closing Date and
(ii) the date of issuance of the first audited financial statements of Mac-Gray
for the fiscal year ended December 31, 1998 (such earlier date, the "Termination
Date"), Mac-Gray delivers to the Escrow Agent written notice (an
"Indemnification Notice") or a Contingent Claim Notice (as defined in Section
10.3(b) of the Merger Agreement) and copies thereof pursuant to Section 4.1
hereof asserting that Mac-Gray is entitled to indemnification under Section 10
of the Merger Agreement, which Indemnification Notice or Contingent Claim
Notice, as the case may be, shall state the basis and amount of such
indemnification claim, then the Escrow Agent shall disburse to Mac-Gray, on the
thirtieth (30th) day following receipt by the Escrow Agent of the
Indemnification Notice or the Contingent Claim Notice, as the case may be, a
number of the Escrowed Shares equal in value to the amount of such claim
(calculated in accordance with Section 3.7 hereof); provided, however, that if
-----------------
the Escrow Agent receives written notice from either the Stockholder
Representative or GECC prior to such thirtieth (30th) day that a dispute exists
with respect to such indemnification claim (a "Dispute Notice"), which Dispute
Notice shall state the basis of such dispute and the number of Escrowed Shares,
if any, as to which no dispute exists, the Escrow Agent shall continue to hold
the Escrowed Shares that are in dispute (but shall disburse to Mac-Gray the
number of Escrowed Shares as to which no dispute exists) until directed
otherwise pursuant to Section 3.3 hereof. GECC, Mac-Gray and the Stockholder
Representative shall deliver a joint written notice to the Escrow Agent setting
forth the Termination Date.
3.3 Dispute of Indemnification Claim. If the Escrow Agent timely
--------------------------------
receives a Dispute Notice, the Escrow Agent shall retain the Escrowed Shares in
dispute until the first to occur of the following:
3.3.1 receipt by the Escrow Agent of a joint written
instruction from Mac-Gray, GECC and the Stockholder Representative, in which
case the Escrow Agent shall disburse the Escrowed Shares (or applicable portions
thereof) as set forth in such joint written instructions; or
3.3.2 receipt by the Escrow Agent of a final order of a court
of competent jurisdiction (the "Indemnity Award") resolving the dispute, in
which case the Escrow Agent shall disburse the Escrowed Shares (or applicable
portions, thereof) as set forth in the Indemnity Award.
3.4 Automatic Disbursement on Termination Date. If, on the
------------------------------------------
Termination Date, there are Escrowed Shares remaining undisbursed and not
subject to an Indemnification Notice or a Contingent Claim Notice received by
the Escrow Agent, the Escrow Agent shall disburse (upon receipt of proper stock
certificates from Mac-Gray's transfer agent) such Escrowed Shares to the
Intirion Stockholders in accordance with each Intirion Stockholder's
Proportionate Interest.
3.5 [Intentionally Omitted]
3.6 Fractional Shares. No fractional shares shall be issued under
-----------------
this Agreement to any of the Intirion Stockholders. Any payment which would
result in the disbursement of a fractional share of Mac-Gray Common Stock shall
be rounded to the nearest whole share.
3.7 Payment of Indemnification Claims; Valuation of Mac-Gray Common
---------------------------------------------------------------
Stock. Whenever this Agreement provides that the Escrow Agent may or shall
- -----
disburse Escrowed Shares to Mac-Gray, the Escrow Agent shall deliver to the
transfer agent for the Escrowed Shares the stock certificate representing such
Escrowed Shares and the transfer agent shall deliver to the Escrow Agent one
stock certificate representing the number of shares to be delivered to Mac-Gray
and another stock certificate representing the balance of
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<PAGE>
Escrowed Shares remaining. The Escrow Agent shall then deliver to Mac-Gray a
stock certificate representing the appropriate number of Escrowed Shares
determined in accordance with the next sentence. The number of Escrowed Shares
disbursed to satisfy an indemnification claim by Mac-Gray shall be equal to the
number of Escrowed Shares (rounded to the nearest whole share) determined as
follows: (i) the amount of Losses with respect to which Mac-Gray is entitled to
indemnification under Section 10 of the Merger Agreement and as to which the
Escrow Agent has received an Indemnification Notice or a Contingent Claim Notice
for which a Dispute Notice is not timely delivered or, if so delivered, the
dispute has been resolved in accordance with Section 3.3 hereof divided by (ii)
----------
the per share closing price of Mac-Gray Common Stock on the New York Stock
Exchange on the Closing Date as reported in The Wall Street Journal, as
certified by Mac-Gray. The Intirion Stockholders and GECC shall not have the
right to substitute other property for the Escrowed Shares with respect to the
satisfaction of any indemnification claims secured hereby.
4. Communications with Stockholder Representative and GECC.
-------------------------------------------------------
4.1 Notice of Indemnification Claims. Mac-Gray shall provide copies
--------------------------------
of any Indemnification Notice or Contingent Claim Notice to GECC and the
Stockholder Representative concurrently with the delivery thereof to the Escrow
Agent.
4.2 Additional Information Regarding Indemnification Claims. Within
-------------------------------------------------------
five (5) business days after receiving a request therefor from GECC or the
Stockholder Representative, Mac-Gray shall furnish GECC or the Stockholder
Representative, as the case may be, such additional information relating to any
claim made in an Indemnification Notice or a Contingent Claim Notice as it or he
may reasonably request from time to time for the purpose of evaluating the
merits of the claim for indemnification.
4.3 Settlement of Indemnification Claims. In addition to any notices
------------------------------------
required under Section 10.6 of the Merger Agreement, at least ten (10) days
prior to settling any claim with respect to which Mac-Gray is seeking
indemnification (or such shorter period as is then consented to by the
Stockholder Representative and GECC), Mac-Gray shall give the Stockholder
Representative and GECC written notice thereof, which notice shall describe the
material terms of such settlement.
5. Scope of Undertaking. The Escrow Agent shall have no responsibility
--------------------
or obligation of any kind in connection with this Agreement and the Escrowed
Shares, and shall not be required to deliver the same or any part thereof or
take any action with respect to any matters that might arise in connection
therewith, other than to receive, hold, and make delivery of the Escrowed Shares
as herein expressly provided or by reason of a judgment or order of a court of
competent jurisdiction.
6. Knowledge and Sufficiency of Documents. The Escrow Agent shall not be
--------------------------------------
bound by or have any responsibility with respect to compliance with any
agreement between any of the other parties hereto, including the Merger
Agreement, irrespective of whether the Escrow Agent has knowledge of the
existence of any such agreement or terms and provisions thereof, the Escrow
Agent's only duty, liability, and responsibility being to receive, hold and
deliver the Escrowed Shares as herein provided. The Escrow Agent shall not be
required in any way to determine the validity or sufficiency, whether in form or
in substance, of the Escrowed Shares or the validity, sufficiency, genuineness
or accuracy of any instrument, document, certificate, statement or notice
referred to in this Agreement or contemplated hereby, or the adequacy of any
security interest created hereunder; or the identity or authority of the persons
executing the same, and it shall be sufficient if any writing purporting to be
such instrument, document, certificate statement or notice is delivered to the
Escrow Agent
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<PAGE>
and purports on its face to be correct in form and signed or otherwise executed
by the party or parties required to sign or execute the same under this
Agreement.
7. Right of Interpleader. Should any controversy arise between Mac-Gray,
---------------------
on one hand, and the Stockholder Representative and/or GECC, on the other, or
any other person, firm or entity, with respect to this Agreement, the Escrowed
Shares, or any part thereof, or the right of any party or other person to
receive the Escrowed Shares, or should such parties fail to designate another
Escrow Agent as provided in Section 12 hereof, or if the Escrow Agent should be
in doubt as to what action to take, the Escrow Agent shall have the right (but
not the obligation) to (i) withhold delivery of the Escrowed Shares until the
controversy is resolved as provided in Section 3.3 hereof or (ii) institute a
bill of interpleader in any court of competent jurisdiction to determine the
rights of the parties hereto (the right of the Escrow Agent to institute such
bill of interpleader, however, shall not be deemed to modify the manner in which
the Escrow Agent is entitled to make disbursements of the Escrowed Shares as
hereinabove set forth, other than to tender the Escrowed Shares into the
registry of such court). Should a bill of interpleader be instituted, or should
the Escrow Agent be threatened with litigation or become involved in litigation
in any manner whatsoever on account of this Agreement or the Escrowed Shares,
then as between itself and the Escrow Agent, Mac-Gray hereby binds and obligates
itself, its successors, heirs, executors and assigns to pay the Escrow Agent its
reasonable attorneys' fees and any and all other disbursements, expenses,
losses, costs and damages of the Escrow Agent in connection with or resulting
from such threatened or actual litigation.
8. Scope of Duties and Errors in Judgment. It is expressly understood
--------------------------------------
and agreed that the Escrow Agent shall be under no duty or obligation to give
any notice, or to do or to omit the doing of any action or anything with respect
to the Escrowed Shares, except to hold the same and to make disbursements in
accordance with the terms of this Agreement. Without limiting the generality of
the foregoing, it is acknowledged and agreed that (i) no implied duties shall be
read into this Agreement on the part of the Escrow Agent, and (ii) the Escrow
Agent shall not be obligated to take any legal or remedial action which might in
its judgment involve it in any expense or liability for which it has not been
furnished acceptable indemnification. The Escrow Agent, its directors, officers
and employees shall not be liable for any error in judgment or any act or steps
taken or permitted to be taken in good faith, or for any mistake of law or fact,
or for anything it may do or refrain from doing in connection herewith, except
for its own willful misconduct or gross negligence.
9. Indemnity. As between itself and the Escrow Agent, Mac-Gray agrees to
---------
indemnify the Escrow Agent against and hold the Escrow Agent and its officers,
employees and directors harmless from any and all losses, costs, damages,
expenses, claims, and attorney's fees and expenses suffered or incurred by the
Escrow Agent as a result of, in connection with or arising from or out of the
acts or omissions of the Escrow Agent in performance of or pursuant to this
Agreement, except such acts or omissions as may result from the Escrow Agent's
willful misconduct or gross negligence. In no event shall the Escrow Agent be
liable for indirect, punitive, special or consequential damages.
Mac-Gray, agrees to assume any and all obligations imposed now or hereafter
by any applicable tax law with respect to the distribution of Escrowed Shares
under this Agreement, and to indemnify and hold the Escrow Agent harmless from
and against any taxes, additions for late payment, interest, penalties and other
expenses, that may be assessed against the Escrow Agent in any such distribution
or other activities under this Agreement. Mac-Gray, undertakes to instruct the
Escrow Agent in writing with respect to the Escrow Agent's responsibility for
withholding and other taxes, assessments, or other governmental charges,
certifications and governmental reporting in connection with its acting as
Escrow Agent under this Agreement. Mac-Gray agrees to indemnify and hold the
Escrow Agent harmless from any liability on account of taxes, assessments or
other
A-55
<PAGE>
governmental charges, including without limitation the withholding or deduction
or the failure to withhold or deduct the same, and any liability for failure to
obtain proper certifications or to properly report to governmental authorities,
to which the Escrow Agent may be or become subject in connection with or which
arises out of this Agreement, including costs and expenses (including reasonable
legal fees and expenses), interest and penalties.
10. Consultation with Legal Counsel. The Escrow Agent may consult with
-------------------------------
its in-house counsel or other counsel satisfactory to it in respect to question
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered, or omitted by
the Escrow Agent in good faith upon the advice of such counsel. The Escrow
Agent may act through its officers, employees, agents and attorneys.
11. Reimbursement of Expenses. The Escrow Agent shall be entitled to
-------------------------
reimbursement from Mac-Gray of all its reasonable costs and expenses, including
reasonable fees and expenses of legal counsel incurred by it in connection with
the preparation, operating, administration and enforcement of this Agreement.
The Escrow Agent shall be entitled to reimbursement on demand for all expenses
incurred in connection with the administration of this Agreement or the escrow
created hereby which are in excess of its compensation for normal services
hereunder, including without limitation, payment of any legal fees and expenses
incurred by the Escrow Agent in connection with resolution of any claim by any
party hereunder.
12. Resignation. The Escrow Agent may resign upon 10 days' prior written
-----------
notice to Mac-Gray, GECC and the Stockholder Representative and upon written
instruction to Mac-Gray, GECC and the Stockholder Representative, the Escrow
Agent shall deliver the Escrowed Shares to any designated substitute Escrow
Agent mutually agreeable to such parties. If Mac-Gray, GECC and the Stockholder
Representative fail to designate a substitute Escrow Agent within 10 days, the
Escrow Agent, in its sole discretion and its sole option, either may (i)
continue to hold the Escrowed Shares or (ii) institute a bill of interpleader as
contemplated by Section 7 hereof.
13. Compensation. Mac-Gray shall pay to the Escrow Agent the fee
------------
determined by the Escrow Agent, from time to time, to be applicable to this
escrow and bear all costs and expenses incurred by the Escrow Agent in
connection therewith. The Escrow Agent's fees, as in effect on the date hereof,
are attached hereto as Schedule A.
----------
14. [Intentionally Omitted]
15. Responsibilities of the Stockholder Representative.
--------------------------------------------------
15.1 General. The Stockholder Representative has been designated by
-------
the Intirion Stockholders to represent the Intirion Stockholders with respect to
the Escrowed Shares pursuant to the terms of this Agreement. The duties of the
Stockholder Representative hereunder shall be limited to the observance of the
express provisions of this Agreement. The Stockholder Representative shall not
be subject to, or be obliged to recognize, any other agreement between the
parties hereto or directions or instructions not specifically set forth or
provided for herein or in the Merger Agreement.
15.2 Reimbursement of Expenses. The Intirion Stockholders shall
-------------------------
reimburse the Stockholder Representative for reasonable out-of-pocket expenses
incurred by the Stockholder Representative in the performance of his duties
hereunder. During the period the Escrowed Shares are held in escrow under
A-56
<PAGE>
this Agreement, the reimbursement provided under this Section 15.2 shall be from
sources of funds other than the Escrowed Shares.
15.3 Duties. The Intirion Stockholders hereby authorize the
------
Stockholder Representative to take all action necessary in connection with the
implementation of this Agreement on behalf of the Intirion Stockholders,
including, without limitation, giving and receiving all notices required to be
given under this Agreement, settling any dispute arising hereunder and executing
all such documents as the Stockholder Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement.
All decisions and actions by the Stockholder Representative shall be binding
upon all of the Intirion Stockholders, and no Intirion Stockholder shall have
the right to object, dissent, protest or otherwise contest the same.
15.4 Reliance. By their execution of this Agreement, the Intirion
--------
Stockholders agree that (i) Mac-Gray, GECC and the Escrow Agent shall be able to
rely conclusively on the instructions and decisions of the Stockholder
Representative as to any actions required or permitted to be taken by the
Intirion Stockholders or the Stockholder Representative hereunder, and no party
hereto shall have any cause of action against any other for any action taken in
reliance upon the instructions or decisions of the Stockholder Representative,
(ii) all actions, decisions and instructions of the Stockholder Representative
shall be conclusive and binding upon all of the Intirion Stockholders and no
Intirion Stockholder shall have any cause of action against the Stockholder
Representative or any other person for any action taken, decision made or
instruction given by the Stockholder Representative under this Agreement, unless
the Stockholder Representative is guilty of gross negligence or willful
misconduct and (iii) the provisions of this Section 15 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with an
interest and surviving death, granted by the Intirion Stockholders to the
Stockholder Representative and shall be binding upon the executors, heirs, legal
representatives and successors of each Intirion Stockholder.
16. Resignation or Removal of the Stockholder Representative. The
--------------------------------------------------------
Stockholder Representative may resign as representative by giving Mac-Gray,
GECC, the Escrow Agent and each of the Intirion Stockholders not less than
forty-five (45) days' written notice of the effective date of such resignation.
The Intirion Stockholders holding a majority of the Proportionate Interests of
all Intirion Stockholders may, by delivering written notice to Mac-Gray, GECC,
the Escrow Agent and the Stockholder Representative, remove the Stockholder
Representative with or without cause. Prior to the effective date of such
resignation or removal, Intirion Stockholders holding a majority of the
Proportionate Interests of all Intirion Stockholders may deliver to Mac-Gray,
GECC and the Escrow Agent a written designation of a substitute representative.
If no designation is made, the Stockholder Representative shall appoint a
substitute representative.
17. Confidentiality. All of the information provided by the parties to
---------------
this Agreement pursuant to this Agreement shall be deemed "Confidential
Information" except to the extent that such information (i) was known to the
receiving party prior to its receipt from the disclosing party, (ii) is or
becomes part of the public domain through no fault of any party hereto or (iii)
is disclosed by a party hereto to a third party that is legally free to disclose
such information. Each of the parties to this Agreement agrees that, without
the express written consent of the other parties hereto, it will (i) not use the
Confidential Information for any purpose except as required to discharge its
responsibilities under this Agreement; (ii) use reasonable efforts to prevent
the disclosure or other dissemination of the Confidential Information in its
possession to any third party; and (iii) upon discharging its responsibilities
under this Agreement, return or destroy any document in its possession
containing any Confidential Information supplied by the other parties to this
Agreement.
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<PAGE>
18. Miscellaneous.
-------------
18.1 Complete Agreement. This Agreement and any documents referred to
------------------
herein (including, without limitation, the Merger Agreement) or executed
contemporaneously herewith constitute the parties' entire agreement with respect
to the subject matter hereof and supersede all agreements, representations,
warranties, statements, promises and understandings, whether oral or written,
with respect to the subject matter hereof. This Agreement shall be binding upon
the respective parties hereto and their heirs, executors, successors and
assigns.
18.2 Amendments and Waivers. This Agreement may be amended, modified
----------------------
and supplemented, and compliance by with any provision hereof waived, only by a
writing signed by Mac-Gray, GECC, the Escrow Agent and the Stockholder
Representative; provided, however, that this Agreement may not be amended,
-------- -------
modified or supplemented, or compliance with any provision hereof waived, in a
manner that would materially and adversely affect the rights or benefits of the
Intirion Stockholders without the written consent of the Intirion Stockholders
holding a majority of the Proportionate Interests of all Intirion Stockholders.
18.3 Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of Mac-Gray, the Escrow Agent, GECC, the Intirion Stockholders and
the Stockholder Representative and their respective successors and permitted
assigns. Except as expressly provided in this Agreement, none of the parties
may assign any of his or its rights or obligations under this Agreement without
the prior written consent of the others; provided, however, that Mac-Gray may
-------- -------
assign its rights under this Agreement in connection with a merger,
consolidation or sale of substantially all of the assets of the Surviving
Corporation or Mac-Gray.
18.4 Waivers Strictly Construed. With regard to any power, remedy or
--------------------------
right provided herein or otherwise available to any party hereunder (a) no
waiver or extension of time shall be effective unless expressly contained in a
writing signed by the waiving party; and (b) no alteration, modification or
impairment shall be implied by reason of any previous waiver, extension of time,
delay or omission in exercise, or other indulgence.
18.5 Severability. In case any one or more of the provisions
------------
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
18.6 Termination. Upon the final distribution of the Escrowed Shares
-----------
pursuant to Section 3 hereof, this Agreement shall terminate. Anything
contained herein to the contrary notwithstanding, the provisions of Sections 7,
9 and 17 shall remain in full force and effect following the termination of this
Agreement.
18.7 Notices. All notices under this Agreement will be in writing
-------
and will be delivered by personal service or facsimile or certified mail (or, if
certified mail is not available, then by first class mail), postage prepaid, to
such address as may be designated from time to time by the relevant party, and
which will initially be as set forth below. Copies of all notices shall be given
to Mac-Gray, GECC, the Stockholder Representative and the Escrow Agent;
provided, however, that the failure to give copies of such notice shall not
- -------- -------
render the notice invalid or unenforceable. Any notice sent by certified mail
will be deemed to have been given five (5) days after the date on which it is
mailed. All other notices will be deemed given when received. No objection may
be made to the manner of delivery of any notice actually received in writing by
an authorized
A-58
<PAGE>
agent of a party. Notices will be addressed as follows or to such other address
as the party to whom the same is directed will have specified in conformity with
the foregoing:
(a) If to Mac-Gray:
Mac-Gray Corporation
22 Water Street
Cambridge, MA 02141
Attn: Chief Executive Officer
Facsimile: (617) 492-5386
(b) If to the Stockholder Representative:
Mr. Michael Shanahan
c/o Eastech Management
30 Federal Street, 3rd Floor
Boston, MA 02110
Facsimile: (617) 695-2699
(c) If to the Escrow Agent:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attn: Mr. Scott Knox
Facsimile: (617) 664-5365
(d) If to Gelco Corporation:
Gelco Corporation
c/o GE Capital Corporation
120 Long Ridge Road
Stamford, Connecticut 06927
Attn: Mr. William Krause
Facsimile: (203) 961-2585
18.8 Governing Law. The rights and liabilities of the parties under
-------------
this Agreement shall be governed by the laws of The Commonwealth of
Massachusetts, regardless of the choice of laws provisions of such state or any
other jurisdiction. Any litigation between the parties shall be conducted
exclusively in the state or federal courts of Massachusetts, and each party
consents to the exclusive jurisdiction of such courts for such purposes.
18.9 Headings. The headings in this Agreement are inserted only as a
--------
matter of convenience, and in no way define, limit, or extend or interpret the
scope of this Agreement or of any particular Section.
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<PAGE>
18.10 Force Majeure. Neither Mac-Gray, GECC, the Stockholder
-------------
Representative nor the Escrow Agent shall be responsible for delays or failures
in performance resulting from acts beyond their control. Such acts shall
include but not be limited to acts of God, strikes, lockouts, riots, acts of
war, epidemics, governmental regulations superimposed after the fact, fire,
communication line failures, computer viruses, power failures, earthquakes or
other disasters.
18.11 Reproduction of Documents. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
18.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[NEXT PAGE IS SIGNATURE PAGE]
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<PAGE>
Signature Page to Escrow Agreement
----------------------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
MAC-GRAY CORPORATION
----------------------------------------------
Name:
Title:
INTIRION CORPORATION
----------------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
----------------------------------------------
Name:
Title:
GELCO CORPORATION
----------------------------------------------
Name:
Title:
----------------------------------------------
Michael Shanahan, as Stockholder Representative
INTIRION STOCKHOLDERS
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<PAGE>
EXHIBIT C TO APPENDIX A
-----------------------
FORM OF
-------
AFFILIATE LETTER
----------------
[Date]
Mac-Gray Corporation
22 Water Street
Cambridge, Massachusetts 02141
Ladies and Gentlemen:
The undersigned has been advised that, as of the date the Agreement (as
defined below) is submitted to the stockholders of Intirion Corporation, a
Delaware corporation ("Intirion"), for adoption, the undersigned may be an
"affiliate" of Intirion as such term is (i) defined for purposes of paragraph
(c) and (d) of Rule 145 of the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended, (the "Act") and/or (ii) used in
and for purposes of Accounting Series Releases 130 and 135, as amended, of the
SEC.
Pursuant to the Agreement and Plan of Merger dated as of December 22, 1997
(the "Agreement") by and among Mac-Gray Corporation, a Delaware corporation
("Mac-Gray"), MI Acquisition Corp., a Delaware corporation ("Sub"), Intirion,
and Robert P. Bennett, Sub will be merged with and into Intirion (the "Merger").
Subject to the terms and conditions of the Agreement and pursuant to the Merger,
the undersigned may receive shares of common stock, par value $.01 per share, of
Mac-Gray ("Mac-Gray Stock"). The undersigned will receive such shares in
exchange for (i) shares of common stock, par value $.01 per share, of Intirion
("Intirion Common Stock"), (ii) shares of Series A convertible preferred stock,
par value $.01 per share, of Intirion ("Intirion Series A Stock"), (iii) senior
redeemable preferred stock, par value $.01 per share, of Intirion ("Intirion
Senior Stock") and/or (iv) options and/or warrants to purchase shares of
Intirion Common Stock ("Intirion Options") (Intirion Common Stock, Intirion
Series A Stock, Intirion Senior Stock and Intirion Options are collectively
referred to as "Intirion Stock").
The undersigned understands that because the Merger will be accounted for
as a "pooling of interests," Intirion Stock and Mac-Gray Stock received in
exchange for Intirion Stock that the undersigned owns or acquires hereafter may
only be disposed of in conformity with the limitations described in this letter
agreement.
The undersigned represents and warrants to and agrees with Mac-Gray as
follows:
1. For a period commencing on the date hereof and ending on the earlier of
(i) the publication (within the meaning of Accounting Series Release No. 135, as
amended, of the SEC) by Mac-Gray of financial results covering at least 30 days
of post-Merger combined operations of Mac-Gray and Intirion or (ii) the
termination of the Agreement, the undersigned will not sell, exchange, pledge,
distribute, transfer or otherwise dispose of or enter into any transaction
intended to have the effect or having the effect, directly or indirectly, of
reducing his, her or its risk of ownership (any such transaction, a "Sale") with
respect to, any shares of Intirion Stock or Mac-Gray Stock currently owned or
subsequently acquired by the undersigned.
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<PAGE>
2. The undersigned shall not engage in any Sale of Mac-Gray Stock in
violation of the Act or the rules and regulations of the SEC thereunder.
3. The undersigned has been advised that the issuance of Mac-Gray Stock to
the undersigned pursuant to the Merger will be registered under the Act on a
registration statement on Form S-4 and the resale of such shares will be subject
to the restrictions set forth in Rule 145 under the Act unless such shares are
transferred pursuant to an effective registration statement. The undersigned
has also been advised that the undersigned may be deemed to be an "affiliate" of
Intirion at the time the Agreement is submitted for a vote of the stockholders
of Intirion. As a result, the undersigned agrees not to sell, transfer or
otherwise dispose of any Mac-Gray Stock issued to the undersigned in the Merger
unless (i) such sale, transfer or other disposition is made pursuant to an
effective registration statement under the Act, (ii) such sale, transfer or
other disposition is made in conformity with the volume and other limitations of
Rule 145 under the Act (if applicable), or (iii) the undersigned has provided to
Mac-Gray an opinion of counsel, satisfactory to Mac-Gray, to the effect that
such sale, transfer or other disposition is exempt from registration under the
Act.
4. The certificates representing Mac-Gray Stock received by the
undersigned will be placed on the "stop-transfer list" maintained by Mac-Gray's
transfer agent and will remain so listed until the publication of the financial
results as contemplated by Paragraph 1. In addition, there will be placed on
the certificates representing Mac-Gray Stock issued to the undersigned, or any
certificates delivered in substitution or exchange therefor, a legend stating in
substance:
"The shares represented by this certificate were issued in a transaction to
which Rule 145 under the Securities Act of 1933 (the "Act") applies. The
shares represented by this certificate may only be transferred in
accordance with Rule 145, pursuant to an effective registration statement
or in accordance with a written opinion of counsel, reasonably acceptable
to Mac-Gray, to the effect that such transfer is exempt from registration
under the Act. The shares represented by this certificate may not be
offered, sold, pledged, transferred or otherwise disposed of except in
accordance with the terms of an agreement dated as of ___________ between
the holder of this certificate and Mac-Gray Corporation, a copy of which
will be furnished by Mac-Gray Corporation to the holder of this certificate
upon written request and without charge."
5. The legend set forth in paragraph 4 above may be removed by delivery of
substitute certificates without such legend if (a) a registration statement
respecting the sale of the shares represented by such certificate has been
declared effective under the Act, (b) the undersigned shall have delivered to
Mac-Gray an opinion of counsel in form and substance reasonably satisfactory to
Mac-Gray, to the effect that such legend is not required for purposes of the
Act, or (c) the sale or other disposition of the shares evidenced by such
certificate is permitted by the provisions of Rule 145 under the Act.
6. The undersigned has carefully read this letter and the Agreement and
has discussed the requirements of each and the limitations upon the
undersigned's ability to sell, transfer or otherwise dispose of Mac-Gray Stock
and Intirion Stock, to the extent deemed necessary, with the undersigned's
counsel or counsel for Intirion.
7. This agreement shall be binding upon and enforceable against
administrators, executors, representatives, heirs, legatees, devisees and
successors of the undersigned and any pledgee holding Mac-Gray Stock as
collateral.
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<PAGE>
8. This letter agreement is governed by and shall be construed in
accordance with the laws of The Commonwealth of Massachusetts, without regard to
its rules regarding conflict of laws.
9. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
10. The undersigned acknowledge that Intirion and Mac-Gray will each be
irreparably harmed and that there will be no adequate remedy at law for a breach
of any of the covenants or agreements of the undersigned set forth herein.
Therefore, it is agreed that, in addition to any other remedies that may be
available to Intirion and Mac-Gray upon any such breach, Intirion and Mac-Gray
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available at law or in
equity.
11. This Agreement may be executed in several counterparts, each of which
shall be an original and all of which together will constitute one and the same
instrument.
Very truly yours,
-----------------------------------
Name:
Address:
Accepted this _____ day of
- --------------------------
MAC-GRAY CORPORATION
By:
-------------------------
Name:
Title:
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<PAGE>
EXHIBIT D TO APPENDIX A
-----------------------
FORM OF
-------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
________________, by and among Mac-Gray Corporation, a Delaware corporation (the
"Company"), and each of Robert P. Bennett, Gelco Corporation, Eastech II Limited
Partnership and Eastech III Limited Partnership (collectively, the "Holders").
This Agreement is contemplated by a certain Agreement and Plan of Merger
dated as of December 22, 1997 (the "Merger Agreement") by and among the Company,
MI Acquisition Corp., a Delaware corporation, Intirion Corporation, a Delaware
corporation, and Robert P. Bennett.
The parties hereby agree as follows:
Section 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Business Day" means any day other than a day on which banks are authorized
------------
or required to be closed in the State of New York.
"Closing Date" has the meaning ascribed thereto in the Merger Agreement.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Common Shares" means the ___________ shares of Common Stock held by the
-------------
Holders.
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Company" has the meaning set forth in the preamble and shall include the
-------
Company's successors by merger, acquisition, reorganization or otherwise.
"Controlling Persons" has the meaning set forth in Section 7(a).
-------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
"Lock-up Period" has the meaning set forth in Section 8.
--------------
"Person" means any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
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<PAGE>
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to the prospectus, including post-effective
amendments, and in each case including all material incorporated by reference or
deemed to be incorporated by reference in such prospectus.
"Registrable Securities" means the Common Shares except for (i) Common
----------------------
Shares the sale of which is covered by a Registration Statement that has been
declared effective under the Securities Act, (ii) Common Shares which may be
transferred immediately pursuant to Rule 144 (or any similar provision then in
force, but not Rule 144A) under the Securities Act, including a sale pursuant to
the provisions of Rule 144(k), and (iii) Common Shares which cease to be
outstanding.
"Registration Expenses" has the meaning set forth in Section 6.
---------------------
"Registration Statement" means any registration statement of the Company
----------------------
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement (including any Shelf Registration Statement), and all amendments and
supplements to any such registration statement, including post-effective
amendments, in each case including the Prospectus, all exhibits, and all
material incorporated by reference or deemed to be incorporated by reference in
such registration statement.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"Shelf Registration" has the meaning set forth in Section 2.
------------------
"Shelf Registration Statement" has the meaning set forth in Section 2.
----------------------------
"Sun Services Agreement" means the Stockholders' Agreement dated as of
----------------------
April 27, 1997 by and among the Company and certain stockholders of the Company.
"Suspension Period" has the meaning set forth in Section 5.
-----------------
"Suspension Notice" has the meaning set forth in Section 5.
-----------------
"Target Effective Period" has the meaning set forth in Section 2.
-----------------------
Section 2. Shelf Registration. The Company shall use its best efforts to
------------------
file and cause to become effective under the Securities Act no later than the
date which is thirty (30) days after the Closing Date a shelf registration
statement (the "Shelf Registration Statement") on the appropriate form for an
offering to be made on a continuous basis pursuant to Rule 415 under the
Securities Act (or such successor rule or similar provision then in effect)
covering all of the Registrable Securities (a "Shelf Registration"). The
parties hereto agree that the Shelf Registration may be included in the
registration statement on Form S-4 to be filed by the Company as contemplated by
the Merger Agreement. Once the Shelf Registration Statement is effective, the
Company shall use commercially reasonable efforts to keep such Shelf
Registration Statement continuously effective for
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<PAGE>
a period (the "Target Effective Period") ending with the earlier of (a) the sale
of all Registrable Securities and (b) 12 months following the Closing Date.
Section 3. Piggy-back Registrations.
------------------------
(a) If at any time or times after the date hereof the Company shall
determine to register under the Securities Act any shares of Common Stock (other
than in connection with a registration on Form S-4 or S-8 (or then equivalent
forms) or a registration statement filed in connection with an exchange offer or
offering of securities solely to the Company's existing securityholders) and the
form of registration statement to be used permits the registration of
Registrable Securities, then the Company shall promptly give written notice of
such proposed registration to the Holders (but in no event less than thirty (30)
days prior to the anticipated effective date of the registration statement). If
within twenty (20) days after the receipt of such notice the Company receives a
written request from any Holder for the inclusion in such registration of some
or all of the Registrable Securities held by such Holder (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Holder and the intended method of distribution thereof), the Company shall use
commercially reasonable efforts to cause such Registrable Securities to be
included in such registration on the same terms and conditions as any similar
securities of the Company or any other securityholder included therein and to
permit the sale or other disposition of such Registrable Securities in
accordance with the intended method of distribution thereof. The Company may
withdraw a registration under this Section 3 at any time prior to the time it
becomes effective, provided that the Company shall give prompt notice of such
withdrawal to the Holders which requested to be included in such registration.
(b) In connection with any offering under this Section 3 involving
an underwriting, the Company shall not be required to include a Holder's
Registrable Securities in the underwritten offering unless such Holder accepts
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company. If the managing underwriter of an
underwritten offering with respect to which registration has been requested by
any Holder pursuant to this Section 3 has advised the Company that, in such
underwriter's good faith judgment, the number of securities to be sold in such
offering by persons other than the Company (collectively, "Selling
Stockholders") is greater than the number which can be offered without adversely
affecting such offering, then the Company may reduce the number of securities to
be included in such offering for the accounts of Selling Stockholders (including
the Holders) to a number deemed satisfactory by the managing underwriter,
provided, however, that the securities to be excluded shall be determined in the
- -------- -------
following order of priority: first, securities held by any Selling Stockholder
not having contractual, incidental registration rights; second, securities held
by any Selling Stockholder (including the Holders) participating in such
offering pursuant to the exercise of contractual piggyback registration rights
pursuant to an agreement other than the Sun Services Agreement, as determined on
a pro rata basis (based upon the aggregate number of securities held by such
Selling Stockholders) and third, securities held by any Selling Stockholder
participating in such offering pursuant to the exercise of the registration
rights under Section 4.1 of the Sun Services Agreement, as determined on a pro
rata basis (based upon the aggregate number of securities held by such Selling
Stockholders).
(c) Each Holder hereby agrees that such Holder may not participate
in any underwritten offering hereunder unless the Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by persons entitled hereunder to approve such
arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of the underwriting arrangements.
A-67
<PAGE>
Section 4. Registration Procedures.
-----------------------
In connection with the obligations of the Company to register Registrable
Securities pursuant to the terms and conditions of this Agreement:
(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities Act,
which form shall comply as to form in all materials respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith.
(b) The Company shall prepare and file with the Commission such
amendments and post-effective amendments to any Registration Statement as
may be necessary to keep such Registration Statement effective for (i) in
the case of the Shelf Registration Statement, the Target Effective Period
and (ii) in the case of any Registration Statement other than the Shelf
Registration Statement, the lesser of (A) one hundred eighty (180) days or
(B) the period necessary to complete the proposed offering of Registrable
Securities; shall cause the Prospectus included in such Registration
Statement to be supplemented by any required Prospectus supplement, and, as
so supplemented, to be filed pursuant to Rule 424 under the Securities Act;
and shall comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by
such Registration Statement.
(c) The Company shall furnish to any Holder, without charge, such
number of conformed copies of any Registration Statement and any post-
effective amendment thereto and such number of copies of the Prospectus
(including each preliminary Prospectus) and any amendments or supplements
thereto, as such Holder may reasonably request in order to facilitate the
sale of such Holder's Registrable Securities.
(d) The Company shall use commercially reasonable efforts to register
or qualify the Registrable Securities covered by any Registration Statement
under such other securities or "blue sky" laws of such states of the United
States as any Holder reasonably requests; provided, however, that the
-------- -------
Company shall not be required (i) to qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but
for this Section 4(d), (ii) to file any general consent to service of
process, or (iii) to subject itself to taxation in any jurisdiction where
it would not otherwise be subject to taxation.
(e) The Company shall promptly notify each Holder of the happening of
any event which makes any statement made in any Registration Statement or
related Prospectus untrue or which requires the making of any changes in
such Registration Statement or Prospectus so that it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
and promptly following expiration of any Suspension Period (as defined in
Section 5), the Company shall prepare and file with the Commission and
furnish a supplement or amendment to such Prospectus so that, as thereafter
deliverable to the purchasers of Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
A-68
<PAGE>
(f) The Company shall use commercially reasonable efforts to prevent
the issuance of any order suspending the effectiveness of any Registration
Statement, and, if one is issued, the Company shall use commercially
reasonable efforts to obtain the withdrawal of such order as promptly as
practicable.
(g) The Company shall cause the Registrable Securities included in any
Registration Statement to be listed on the New York Stock Exchange or such
other securities exchange on which similar securities issued by the Company
are then listed.
Section 5. Suspension Period.
-----------------
Each Holder, upon receipt of any notice (a "Suspension Notice") from the
Company of the happening of any event of the kind described in Section 4(e) or
of any event which, in the Company's reasonable business judgment, could become
such an event, shall immediately discontinue disposition of the Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Holder has received copies of the supplemented or amended
Prospectus contemplated by Section 4(e) (the period from the date on which such
Holder receives a Suspension Notice to the date on which such Holder receives
copies of the supplemented or amended Prospectus is referred to herein as the
"Suspension Period"). If so directed by the Company, each Holder will deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable Securities that
is current at the time of receipt of such notice. In the event that the Company
shall give any Suspension Notice, (i) the Company shall use commercially
reasonable efforts and take such actions as are reasonably necessary to end the
Suspension Period as promptly as practicable and (ii) in the event such
Suspension Period relates to the Shelf Registration Statement, the Target
Effective Period shall be extended by the number of days during the Suspension
Period.
Section 6. Registration Expenses.
---------------------
Subject to the proviso below, any and all expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation Commission and securities exchange registration and filing fees,
reasonable fees and expenses of one legal counsel for the Holders, fees and
expenses incurred in connection with compliance with state securities or "blue
sky" laws, printing expenses, fees and expenses incurred in connection with the
listing of the Registrable Securities and fees and disbursements of counsel for
the Company and of the independent certified public accountants of the Company
(all such expenses being herein called "Registration Expenses"), will be borne
by the Company; provided, however, that Registration Expenses shall not include
-------- -------
(i) underwriting discounts and commissions and transfer taxes, if any, relating
to the sale or disposition of Registrable Securities, (ii) any fees or expenses
of any counsel, accountants or other persons retained or employed by the
Holders, (other than the fees and expenses of one legal counsel as provided
above) or (iii) out-of-pocket expenses of the Holders and their agents,
including, without limitation, any travel costs.
Section 7. Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, each Holder, its officers,
directors, employees and agents and each Person, if any, which controls such
Holder within the meaning of either Section 15 of the Securities Act or Section
20
A-69
<PAGE>
of the Exchange Act, (collectively, "Controlling Persons"), from and against
all losses, claims, damages, liabilities and expenses (including without
limitation any legal or other fees and expenses reasonably incurred by any
Holder or any such Controlling Person in connection with defending or
investigating any action or claim in respect thereof) (collectively, "Damages")
to which any of them may become subject under the Securities Act or otherwise,
insofar as such Damages arise out of or are based upon (i) any untrue or alleged
untrue statement of material fact contained in any Registration Statement
(including any related preliminary or final Prospectus) pursuant to which
Registrable Securities were registered under the Securities Act, or (ii) any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except insofar as such Damages arise out of or are based
upon any such untrue statement or omission or alleged untrue statement or
omission based upon information furnished in writing to the Company by such
Holder expressly for use therein.
(b) Indemnification by the Holders. Each Holder agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, the Company, its directors,
officers, employees and agents and each Controlling Person of the Company, from
and against any and all Damages to which any of them may become subject under
the Securities Act or otherwise to the same extent as the foregoing indemnity
from the Company to such Holder, but only to the extent such Damages arise out
or are based upon any untrue statement or omission or alleged untrue statement
or omission based upon information furnished to the Company in writing by such
Holder expressly for use in any Registration Statement. In no event shall the
liability of any Holder for indemnification under this Section 7(b) in its
capacity as such (and not in such Holder's capacity as an officer or director of
the Company) exceed the proceeds received by such Holder from the sale of
Registrable Securities under such Registration Statement.
(c) Indemnification Procedures. In case any proceeding (including any
--------------------------
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceedings and shall pay the fees and
disbursements of such counsel relating to such proceeding. The failure or delay
of an indemnified party to notify the indemnifying party with respect to a
particular proceeding shall not relieve the indemnifying party from any
obligation or liability which it may have pursuant to this Agreement if the
indemnifying party is not prejudiced by such failure or delay. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent. No
indemnifying party shall, without the prior written consent of any indemnified
party (which consent shall not be unreasonably withheld), effect any settlement
of any pending or threatened proceeding in respect of which such indemnified
party is a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on all claims that are the subject
matter of such proceeding.
(d) Contribution. To the extent that the indemnification provided for in
------------
paragraph (a) or (b) of this Section 7 is held by a court of competent
jurisdiction to be unavailable to an indemnified party in respect of any
Damages, then each indemnifying party under such paragraph, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such Damages (i) in
such proportion as is appropriate to reflect the relative benefits received by
the Company on the one hand, and each Holder on the other, from the offering of
the Registrable Securities or (ii) if the allocation
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<PAGE>
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company, on the one
hand, and the Holders, on the other, in connection with the statements or
omissions which resulted in such Damages, as well as any other relevant
equitable considerations. The relative fault of the Company on the one hand and
of the Holders on the other hand shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Holders and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
If indemnification is available under paragraph (a) or (b) of this Section
7, the indemnifying parties shall indemnify each indemnified party to the full
extent provided in such paragraphs without regard to the relative benefits to or
relative fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 7(d).
The Company and each Holder agrees that it would not be just or equitable
if contribution pursuant to this Section 7(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the Damages referred to in this Section 7
shall be deemed to include any legal or other expenses reasonably incurred (and
not otherwise reimbursed) by such indemnified party in connection with
investigating or defending any such action or claim. In no event shall any
Holder be required to contribute an amount under this Section 7(d) in excess of
the proceeds received by such Holder from the sale of Registrable Securities
under the relevant Registration Statement. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
Section 8. Restrictions on Sales by Holders.
--------------------------------
In the event of an underwritten public offering of securities of the
Company, each Holder shall, upon the written request of the managing underwriter
(or underwriters) of such offering, agree not to effect any sale or disposition
of any securities similar to those being registered in such offering, including,
without limitation, sales of Registrable Securities pursuant to the Shelf
Registration Statement, for such period (the "Lock-up Period"), not to exceed
the lock-up period to which the executive officers of the Company agree in
connection with such offering, as such underwriter may specify. Such agreement
shall be in form and substance satisfactory to the Company and such underwriter.
The Target Effective Period shall be extended by the number of days during the
Lock-up Period.
Section 9. Information Furnished by Holders.
--------------------------------
Each Holder shall furnish to the Company such information regarding such
Holder and such Holder's intended method of distribution of the Registrable
Securities as the Company may from time to time reasonably request in writing in
order to comply with the Securities Act and the provisions of this Agreement.
Each Holder agrees (a) to notify the Company as promptly as practicable of any
inaccuracy or change in information previously furnished by the Holder to the
Company or of the occurrence of any event, in either case as a result of which
any Prospectus contains or would contain an untrue statement of a material fact
regarding the Holder or the Holder's intended method of distribution of the
Registrable Securities or omits or would omit to state any material fact
regarding the Holder or the Holder's intended method of distribution of the
Registrable Securities
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<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and (b) to promptly
furnish to the Company any additional information required to correct and update
any previously furnished information or required so that the Prospectus shall
not contain, with respect to the Holder or the Holder's intended method of
distribution of the Registrable Securities, an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
Section 10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of the Holders of a
majority in interest of the Registrable Securities then outstanding.
(b) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been received: at
the time delivered by hand, if personally delivered; five Business Days after
being deposited in the mail, postage prepaid, if mailed; when receipt is
acknowledged, if telecopied; and on the next Business Day if timely delivered to
a courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors of each of the parties. No Holder may assign
any of its rights hereunder without the prior written consent of the Company.
(d) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Massachusetts without regard to
principles of conflicts of law.
(g) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
(h) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and is intended to be the complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
A-72
<PAGE>
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
[Remainder of Page Intentionally Left Blank]
A-73
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed by their respective officers hereunto duly
authorized, as of the day and year first above written.
MAC-GRAY CORPORATION
By:
---------------------------------
Name:
Title:
------------------------------------
Robert P. Bennett, individually
GELCO CORPORATION
By:
---------------------------------
Name:
Title:
EASTECH II LIMITED PARTNERSHIP
By:
---------------------------------
its general partner
By:
---------------------------------
Name:
Title:
EASTECH III LIMITED PARTNERSHIP
By:
---------------------------------
its general partner
By:
---------------------------------
Name:
Title:
A-74
<PAGE>
EXHIBIT E-1 TO APPENDIX A
-------------------------
FORM OF
-------
VOTING AGREEMENT
----------------
VOTING AGREEMENT dated as of December 22, 1997 (the "Agreement") between
the undersigned holder (the "Holder") of shares of the capital stock of Intirion
Corporation, a Delaware corporation (the "Company"), and Mac-Gray Corporation, a
Delaware corporation ("Parent").
The Company, Parent, MI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Sub"), and Robert P. Bennett propose to
enter into an Agreement and Plan of Merger dated the date hereof (the "Merger
Agreement"), pursuant to which Sub would be merged (the "Merger") with and into
the Company, and each outstanding share of capital stock of the Company would be
converted into the right to receive shares of Parent Common Stock;
As a condition of its entering into the Merger Agreement, Parent has
requested the Holder to agree, and the Holder has agreed, to enter into this
Agreement;
Prior to the date hereof, Parent and the Holder had no agreement,
arrangement or understanding (as defined in Section 203 of the Delaware General
Corporation Law (the "DGCL")) for the purpose of acquiring, holding, voting or
disposing of shares of Company Capital Stock; and
In consideration for the agreements contained herein, prior to the date
hereof, and prior to the time at and date on which Parent became an "interested
stockholder" for purposes of Section 203 of the DGCL, the board of the directors
of the Company has approved the agreement of the Holder to vote as provided in
Section 2 of this Agreement and not to transfer shares of Company Capital Stock
as provided in Section 5(b) of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of the Holder. The Holder represents
--------------------------------------------
and warrants to Parent as follows:
(a) Ownership of Securities. The Holder is the record and beneficial
owner of the number of shares of Company Capital Stock (the "Existing
Securities") (together with any shares of Company Capital Stock or other
securities of the Company hereafter acquired by the Holder, the "Subject
Securities") set forth on the signature page to this Agreement. Other than as
disclosed in the Schedules to the Merger Agreement, the Holder does not own any
securities of the Company on the date hereof other than the Existing Securities.
The Holder has sole voting power and sole power to issue instructions with
respect to the voting of the Existing Securities, sole power of disposition,
sole power of exercise or conversion and the sole power to demand appraisal
rights, in each case with respect to all of the Existing Securities and, on the
date of the Special Meeting (as defined in the Merger Agreement), will have sole
voting power and sole power to issue instructions with respect to the voting of
all of the Holder's Subject Securities, sole power of disposition, sole power of
exercise or conversion and the sole power to demand appraisal rights, in each
case with respect to all of the Holder's Subject Securities.
A-75
<PAGE>
(b) Power; Binding Agreement. The Holder has full power and authority
to enter into and perform all of the Holder's obligations under this Agreement.
This Agreement has been duly and validly executed and delivered by the Holder
and constitutes a valid and binding agreement of the Holder, enforceable against
the Holder in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(c) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Holder and the consummation
by the Holder of the transactions contemplated hereby and neither the execution
and delivery of this Agreement by the Holder nor the consummation by the Holder
of the transactions contemplated hereby nor compliance by the Holder with any of
the provisions hereof shall conflict with or result in any breach of any
applicable organizational documents of the Company applicable to the Holder,
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third-party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which the Holder is a party or by which
the Holder's properties or assets may be bound or violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Holder or any of the Holder's properties or assets.
(d) No Liens. Except as set forth in the Schedules to the Merger
Agreement, the Existing Securities are now and, at all times during the term
hereof, the Subject Securities will be held by the Holder, or by a nominee or
custodian for the benefit of such Holder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any encumbrances
arising hereunder.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
------------------------
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, the Holder agrees that it
shall vote all the Subject Securities that it beneficially owns on the record
date of any such vote: (i) in favor of the Merger, the execution and delivery of
the Merger Agreement and the approval of the terms thereof and each of the other
transactions contemplated by the Merger Agreement and (ii) against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
subsidiaries; (2) a sale, lease or transfer of a material amount of assets of
the Company or its subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its subsidiaries; (3) (a) any
change in the majority of the board of directors of the Company; (b) any
material change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation; (c) any other material change in the
Company's corporate structure or business; or (d) any other action; which, in
the case of each of the matters referred to in clauses (a), (b), (c) or (d)
above, is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the contemplated
economic benefits to Parent of the Merger or the transactions contemplated by
the Merger Agreement or this Agreement.
A-76
<PAGE>
3. IRREVOCABLE PROXY. THE HOLDER HEREBY GRANTS TO, AND APPOINTS SUB AND
-----------------
THE PRESIDENT OF SUB AND THE TREASURER OF SUB, IN THEIR RESPECTIVE CAPACITIES AS
OFFICERS OF SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH
OFFICE OF SUB, AND ANY OTHER DESIGNEE OF SUB, EACH OF THEM INDIVIDUALLY, THE
HOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE OR
ACT BY WRITTEN CONSENT WITH RESPECT TO THE HOLDER'S SUBJECT SECURITIES IN
ACCORDANCE WITH SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN INTEREST AND
SHALL BE IRREVOCABLE, AND THE HOLDER WILL TAKE SUCH FURTHER ACTION OR EXECUTE
SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS
PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY IT WITH RESPECT TO THE
SUBJECT SECURITIES.
4. Representations and Warranties of Parent.
----------------------------------------
(a) Power; Binding Agreement. Parent has full corporate power and
authority to enter into and perform all of Parent's obligations under this
Agreement. This Agreement has been duly and validly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms, except that (i) such enforcement
may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by Parent and the consummation by
Parent of the transactions contemplated hereby and neither the execution and
delivery of this Agreement by Parent nor the consummation by Parent of the
transactions contemplated hereby nor compliance by Parent with any of the
provisions hereof shall conflict with or result in any breach of any
organizational documents applicable to Parent or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any third-party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which Parent is a party or by which Parent's properties or assets may be
bound or violate any order, writ, injunction, decree, judgment, order, statute,
rule or regulation applicable to Parent or any of Parent's properties or assets.
5. Covenants of the Holder. The Holder hereby agrees and covenants that:
-----------------------
(a) No Solicitation. The Holder shall not, directly or indirectly,
solicit (including by way of furnishing information) or respond to any inquiries
or the making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) with respect to the Company that constitutes or could
reasonably be expected to lead to an acquisition or purchase of all or (other
than in the ordinary course of business) a portion of the assets of, or any
equity interest in, the Company, any merger or business combination with the
Company or any public or private offering of interests in the Company. If the
Holder receives any such inquiry or proposal, then it shall promptly inform
Parent of the terms and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Holder will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
A-77
<PAGE>
(b) Restriction on Transfer, Proxies and Noninterference. The Holder
shall not, directly or indirectly: (i) except pursuant to the terms of the
Merger Agreement offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Holder's Subject Securities; (ii) except as contemplated by
this Agreement, the Merger Agreement and the Escrow Agreement, grant any proxies
or powers of attorney, deposit any such Subject Securities into a voting trust
or enter into a voting agreement with respect to any of the Holder's Subject
Securities; or (iii) take any action that would make any representation or
warranty contained herein untrue or incorrect or have the effect of preventing
or disabling such Holder from performing its obligations under this Agreement.
6. Assignment; Benefits. The rights (but not the obligations) of Parent
--------------------
hereunder may be assigned, in whole or in part, to Sub or any other direct
wholly-owned subsidiary of Parent, to the extent and for so long as it remains a
direct wholly-owned subsidiary of Parent. Other than as permitted in the
preceding sentence, this Agreement may not be assigned by any party hereto
without the prior written consent of the other party. This Agreement shall be
binding upon, and shall inure to the benefit of, the Holder, Parent and their
respective successors and permitted assigns.
7. Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to the Holder:
With a copy to:
White & McDermott, P.C.
65 William Street, Suite 209
Wellesley, MA 02181
Fax: (781) 237-8120
Attn: David A. White, Esq.
Scott McDermott, Esq.
If to Parent or Sub:
Mac-Gray Corporation
22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386
Attn: Chief Executive Officer
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Fax: (617) 523-1231
Attn: Stuart M. Cable, Esq.
A-78
<PAGE>
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
8. Specific Performance. The parties hereto agree that irreparable harm
--------------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
9. Amendment. This Agreement may not be amended or modified, except by an
---------
instrument in writing signed by or on behalf of each of the parties hereto. This
Agreement may not be waived by either party hereto, except by an instrument in
writing signed by or on behalf of the party granting such waiver.
10. Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of Delaware, without regard to
its rules regarding conflict of laws.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
12. Defined Terms. Terms used herein but not otherwise defined shall have
-------------
the meanings set forth in the Merger Agreement.
13. Termination. This Agreement shall terminate upon the earlier of (i)
-----------
the consummation of the Merger or (ii) the termination of the Merger Agreement
pursuant to its terms. The date and time at which this Agreement is terminated
in accordance with this Section 13 is referred to herein as the "Termination
Date." Upon any termination of this Agreement, this Agreement shall thereupon
become void and of no further force and effect, and there shall be no liability
in respect of this Agreement or of any transactions contemplated hereby or by
the Merger Agreement on the part of any party hereto or any of its directors,
officers, partners, stockholders, employees, agents, advisors, representatives
or affiliates; provided, however, that nothing herein shall relieve any party
-------- -------
from any liability for such party's wilful breach of this Agreement; and
provided further that nothing herein shall limit, restrict, impair, amend or
- ----------------
otherwise modify the rights, remedies, obligations or liabilities of any person
under any other contract or agreement, including, without limitation, the Merger
Agreement.
[END OF TEXT]
A-79
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf
of each of the parties hereto, all as of the date first above written above.
MAC-GRAY CORPORATION
------------------------------------
By:
Title:
------------------------------------
ROBERT P. BENNETT
Shares of Common Stock: ------------
Shares of Series A
Preferred Stock: ------------
Shares of Senior Redeemable
Preferred Stock: --------
A-80
<PAGE>
EXHIBIT E-2 TO APPENDIX A
-------------------------
FORM OF
-------
GELCO CORPORATION VOTING AGREEMENT
----------------------------------
VOTING AGREEMENT dated as of December 22, 1997 (the "Agreement") between
the undersigned holder (the "Holder") of shares of the capital stock of Intirion
Corporation, a Delaware corporation (the "Company"), and Mac-Gray Corporation, a
Delaware corporation ("Parent").
The Company, Parent, MI Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Sub"), and Robert P. Bennett propose to
enter into an Agreement and Plan of Merger dated the date hereof (the "Merger
Agreement"), pursuant to which Sub would be merged (the "Merger") with and into
the Company, and each outstanding share of capital stock of the Company would be
converted into the right to receive shares of Parent Common Stock;
As a condition of its entering into the Merger Agreement, Parent has
requested the Holder to agree, and the Holder has agreed, to enter into this
Agreement;
Prior to the date hereof, Parent and the Holder had no agreement,
arrangement or understanding (as defined in Section 203 of the Delaware General
Corporation Law (the "DGCL")) for the purpose of acquiring, holding, voting or
disposing of shares of Company Capital Stock; and
In consideration for the agreements contained herein, prior to the date
hereof, and prior to the time at and date on which Parent became an "interested
stockholder" for purposes of Section 203 of the DGCL, the board of the directors
of the Company has approved the agreement of the Holder to vote as provided in
Section 2 of this Agreement and not to transfer shares of Company Capital Stock
as provided in Section 5(b) of this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Representations and Warranties of the Holder. The Holder represents
--------------------------------------------
and warrants to Parent as follows:
(a) Ownership of Securities. The Holder is the record and beneficial
owner of the number of shares of Company Capital Stock (the "Existing
Securities") (together with any shares of Company Capital Stock or other
securities of the Company hereafter acquired by the Holder, the "Subject
Securities") set forth on the signature page to this Agreement. Other than as
disclosed in the Schedules to the Merger Agreement, the Holder does not own any
securities of the Company on the date hereof other than the Existing Securities.
The Holder has sole voting power and sole power to issue instructions with
respect to the voting of the Existing Securities, sole power of disposition,
sole power of exercise or conversion and the sole power to demand appraisal
rights, in each case with respect to all of the Existing Securities and, on the
date of the Special Meeting (as defined in the Merger Agreement), will have sole
voting power and sole power to issue instructions with respect to the voting of
all of the Holder's Subject Securities, sole power of disposition, sole power of
exercise or conversion and the sole power to demand appraisal rights, in each
case with respect to all of the Holder's Subject Securities.
A-81
<PAGE>
(b) Power; Binding Agreement. The Holder has full power and authority
to enter into and perform all of the Holder's obligations under this Agreement.
This Agreement has been duly and validly executed and delivered by the Holder
and constitutes a valid and binding agreement of the Holder, enforceable against
the Holder in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereafter in effect, affecting creditors' rights generally, and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(c) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by the Holder and the consummation
by the Holder of the transactions contemplated hereby and neither the execution
and delivery of this Agreement by the Holder nor the consummation by the Holder
of the transactions contemplated hereby nor compliance by the Holder with any of
the provisions hereof shall conflict with or result in any breach of any
applicable organizational documents of the Company applicable to the Holder,
result in a violation or breach of, or constitute (with or without notice or
lapse of time or both) a default (or give rise to any third-party right of
termination, cancellation, material modification or acceleration) under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which the Holder is a party or by which
the Holder's properties or assets may be bound or violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation applicable to
the Holder or any of the Holder's properties or assets.
(d) No Liens. Except as set forth in the Schedules to the Merger
Agreement, the Existing Securities are now and, at all times during the term
hereof, the Subject Securities will be held by the Holder, or by a nominee or
custodian for the benefit of such Holder, free and clear of all liens, claims,
security interests, proxies, voting trusts or agreements, understandings or
arrangements or any other encumbrances whatsoever, except for any encumbrances
arising hereunder.
2. Agreement to Vote Shares. At every meeting of the stockholders of the
------------------------
Company called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of the Company with respect to any of the following, the Holder agrees that it
shall vote all the Subject Securities that it beneficially owns on the record
date of any such vote: (i) in favor of the Merger, the execution and delivery of
the Merger Agreement and the approval of the terms thereof (including, without
limitation, Sections 1.8 and 1.9 of the Merger Agreement) and each of the other
transactions contemplated by the Merger Agreement and (ii) against the following
actions (other than the Merger and the transactions contemplated by the Merger
Agreement): (1) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
subsidiaries; (2) a sale, lease or transfer of a material amount of assets of
the Company or its subsidiaries or a reorganization, recapitalization,
dissolution or liquidation of the Company or its subsidiaries; (3) (a) any
change in the majority of the board of directors of the Company; (b) any
material change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation; (c) any other material change in the
Company's corporate structure or business; or (d) any other action; which, in
the case of each of the matters referred to in clauses (a), (b), (c) or (d)
above, is intended, or could reasonably be expected, to impede, interfere with,
delay, postpone, discourage or materially adversely affect the contemplated
economic benefits to Parent of the Merger or the transactions contemplated by
the Merger Agreement or this Agreement.
A-82
<PAGE>
3. IRREVOCABLE PROXY. THE HOLDER HEREBY GRANTS TO, AND APPOINTS SUB AND
-----------------
THE PRESIDENT OF SUB AND THE TREASURER OF SUB, IN THEIR RESPECTIVE CAPACITIES AS
OFFICERS OF SUB, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH
OFFICE OF SUB, AND ANY OTHER DESIGNEE OF SUB, EACH OF THEM INDIVIDUALLY, THE
HOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE OR
ACT BY WRITTEN CONSENT WITH RESPECT TO THE HOLDER'S SUBJECT SECURITIES IN
ACCORDANCE WITH SECTION 2 HEREOF. THIS PROXY IS COUPLED WITH AN INTEREST AND
SHALL BE IRREVOCABLE, AND THE HOLDER WILL TAKE SUCH FURTHER ACTION OR EXECUTE
SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS
PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY IT WITH RESPECT TO THE
SUBJECT SECURITIES.
4. Representations and Warranties of Parent.
----------------------------------------
(a) Power; Binding Agreement. Parent has full corporate power and
authority to enter into and perform all of Parent's obligations under this
Agreement. This Agreement has been duly and validly executed and delivered by
Parent and constitutes a valid and binding agreement of Parent, enforceable
against Parent in accordance with its terms, except that (i) such enforcement
may be subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
(b) No Conflicts. No filing with, and no permit, authorization,
consent or approval of, any state or federal public body or authority is
necessary for the execution of this Agreement by Parent and the consummation by
Parent of the transactions contemplated hereby and neither the execution and
delivery of this Agreement by Parent nor the consummation by Parent of the
transactions contemplated hereby nor compliance by Parent with any of the
provisions hereof shall conflict with or result in any breach of any
organizational documents applicable to Parent or result in a violation or breach
of, or constitute (with or without notice or lapse of time or both) a default
(or give rise to any third-party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation of any
kind to which Parent is a party or by which Parent's properties or assets may be
bound or violate any order, writ, injunction, decree, judgment, order, statute,
rule or regulation applicable to Parent or any of Parent's properties or assets.
5. Covenants of the Holder. The Holder hereby agrees and covenants that:
-----------------------
(a) No Solicitation. The Holder shall not, directly or indirectly,
solicit (including by way of furnishing information) or respond to any inquiries
or the making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) with respect to the Company that constitutes or could
reasonably be expected to lead to an acquisition or purchase of all or (other
than in the ordinary course of business) a portion of the assets of, or any
equity interest in, the Company, any merger or business combination with the
Company or any public or private offering of interests in the Company. If the
Holder receives any such inquiry or proposal, then it shall promptly inform
Parent of the terms and conditions, if any, of such inquiry or proposal and the
identity of the person making it. The Holder will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
A-83
<PAGE>
(b) Restriction on Transfer, Proxies and Noninterference. The Holder
shall not, directly or indirectly: (i) except pursuant to the terms of the
Merger Agreement offer for sale, sell, transfer, tender, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer for sale,
sale, transfer, tender, pledge, encumbrance, assignment or other disposition of,
any or all of the Holder's Subject Securities; (ii) tender, surrender, transfer
or otherwise exchange any shares of Senior Stock for the purpose of exercising
any $12.50 Warrant(s); (iii) except as contemplated by this Agreement, the
Merger Agreement and the Escrow Agreement, grant any proxies or powers of
attorney, deposit any such Subject Securities into a voting trust or enter into
a voting agreement with respect to any of the Holder's Subject Securities; or
(iii) take any action that would make any representation or warranty contained
herein untrue or incorrect or have the effect of preventing or disabling such
Holder from performing its obligations under this Agreement.
6. Assignment; Benefits. The rights (but not the obligations) of Parent
--------------------
hereunder may be assigned, in whole or in part, to Sub or any other direct
wholly-owned subsidiary of Parent, to the extent and for so long as it remains a
direct wholly-owned subsidiary of Parent. Other than as permitted in the
preceding sentence, this Agreement may not be assigned by any party hereto
without the prior written consent of the other party. This Agreement shall be
binding upon, and shall inure to the benefit of, the Holder, Parent and their
respective successors and permitted assigns.
7. Notices. All notices and other communications given or made pursuant
-------
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier or sent by electronic
transmission, with confirmation received, to the telecopy numbers specified
below:
If to the Holder:
With a copy to:
White & McDermott, P.C.
65 William Street, Suite 209
Wellesley, MA 02181
Fax: (781) 237-8120
Attn: David A. White, Esq.
Scott McDermott, Esq.
If to Parent or Sub:
Mac-Gray Corporation
22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386
Attn: Chief Executive Officer
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
A-84
<PAGE>
Fax: (617) 523-1231
Attn: Stuart M. Cable, Esq.
or to such other address or telecopy number as any party may have furnished to
the other parties in writing in accordance herewith.
8. Specific Performance. The parties hereto agree that irreparable harm
--------------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
9. Amendment. This Agreement may not be amended or modified, except by an
---------
instrument in writing signed by or on behalf of each of the parties hereto. This
Agreement may not be waived by either party hereto, except by an instrument in
writing signed by or on behalf of the party granting such waiver.
10. Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the State of Delaware, without regard to
its rules regarding conflict of laws.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same agreement.
12. Defined Terms. Terms used herein but not otherwise defined shall have
-------------
the meanings set forth in the Merger Agreement.
13. Termination. This Agreement shall terminate upon the earlier of (i)
-----------
the consummation of the Merger, (ii) the termination of the Merger Agreement
pursuant to its terms or (iii) an amendment to the Merger Agreement that (a)
reduces the consideration to be paid to the Holder in connection with the Merger
or (b) otherwise materially adversely affects the Holder. The date and time at
which this Agreement is terminated in accordance with this Section 13 is
referred to herein as the "Termination Date." Upon any termination of this
Agreement, this Agreement shall thereupon become void and of no further force
and effect, and there shall be no liability in respect of this Agreement or of
any transactions contemplated hereby or by the Merger Agreement on the part of
any party hereto or any of its directors, officers, partners, stockholders,
employees, agents, advisors, representatives or affiliates; provided, however,
-------- -------
that nothing herein shall relieve any party from any liability for such party's
wilful breach of this Agreement; and provided further that nothing herein shall
----------------
limit, restrict, impair, amend or otherwise modify the rights, remedies,
obligations or liabilities of any person under any other contract or agreement,
including, without limitation, the Merger Agreement.
[End of Text]
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on behalf
of each of the parties hereto, all as of the date first above written above.
MAC-GRAY CORPORATION
------------------------------------
By:
Title:
GELCO CORPORATION
------------------------------------
By:
Title:
Shares of Common Stock: ------------
Shares of Series A
Preferred Stock: ------------
Shares of Senior Redeemable
Preferred Stock: ------------
A-86
<PAGE>
EXHIBIT F TO APPENDIX A
-----------------------
FORM OF
-------
OPINION OF WHITE & McDERMOTT, P.C.
----------------------------------
[Customary Introduction and Qualifications]
1. The Company has been duly incorporated and is validly existing and in
good standing under the laws of State of Delaware with full corporate power and
authority to conduct its business in the manner that it is presently being
conducted. The Company is duly qualified to do business as a foreign
corporation in The Commonwealth of Massachusetts.
2 The authorized capital stock of the Company consists of (i) 200,000
shares of Preferred Stock of which 100,000 shares have been designated Senior
Stock and 40,000 shares have been designated Series A Stock and (ii) 2,500,000
shares of Common Stock. As of the date hereof __________ shares of Senior
Stock, ________ shares of Series A Stock and _________ shares of Common Stock
are issued, outstanding, fully paid and non assessable. All of the outstanding
capital stock is entitled to vote with respect to the Merger. Based solely on a
review of the Company's minutes and stock records, except as set forth on
Schedule 2.3 of the Merger Agreement, (i) no shares of capital stock of the
- ------------
Company are reserved for issuance upon exercise of outstanding Options, Warrants
or otherwise, (ii) there are no outstanding Options, Warrants, rights,
commitments, preemptive rights or agreements of any kind for the issuance or
sale of, or outstanding securities convertible into, any additional shares of
capital stock of the Company and (iii) there are no voting trusts, voting
agreements, proxies or other agreements, instruments or undertakings with
respect to the voting of the Company Capital Stock to which the Company or any
of the Stockholders is a party. Based solely on a review of the Company's
minutes and stock records, Exhibit A to the Merger Agreement sets forth a true
---------
and correct list of all of the holders of record of all of the issued and
outstanding shares of Company Capital Stock and all of the outstanding Warrants
and Options. All shares of Company Capital Stock and all outstanding Warrants
and Options owned by Robert P. Bennett are held free and clear of all pledges,
liens, encumbrances or other claims or charges.
3. Each of the Company and Robert P. Bennett has full right, authority
and power to enter into the Merger Agreement and each agreement, document and
instrument to be executed and delivered by it pursuant to the Merger Agreement
(the "Related Agreements"), and to carry out the transactions contemplated
thereby, including the Merger. The execution, delivery and performance by the
Company and Robert P. Bennett of the Merger Agreement and each Related Agreement
have been duly authorized by all necessary action of the Company (including
stockholder approval) and no other action on the part of the Company or Robert
P. Bennett is required in connection therewith.
4. Each of the Company and Robert P. Bennett has duly executed and
delivered the Merger Agreement and each Related Agreement to which it or he is a
party, and each such agreement constitutes the valid and binding obligation of
the Company and/or Robert P. Bennett, as the case may be, enforceable against
the Company and/or Robert P. Bennett, as the case may be, in accordance with its
terms.
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<PAGE>
5. The execution, delivery and performance by the Company of the Merger
Agreement and the Related Agreements to which it is a party: (i) do not and will
not violate any provision of the Certificate of Incorporation or by-laws of the
Company; (ii) do not and will not violate any law, statute, rule or regulation
applicable to the Company or its properties or require the Company to obtain any
approval, consent or waiver of, or to make any filing with, any governmental or
regulatory agency or administrative body or to obtain any other approval,
consent or waiver of, or to make any other filing with, any other person or
entity, in each case that has not been obtained or made, except for the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware and except for consents and approvals the failure of which to obtain
would not result in Material Adverse Effect; and (iii) to our knowledge, do not
and will not result in a breach of, constitute a default under, accelerate any
obligation under or give rise to a right of termination of any indenture or loan
or credit agreement or any other agreement, contract, instrument, mortgage,
lien, lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the Company is a party or by which
the property of the Company is bound or affected, or result in the creation or
imposition of any mortgage, pledge, lien, security interest or other charge or
encumbrance on any property or asset owned by the Company.
6. The execution, delivery and performance by Robert P. Bennett of the
Merger Agreement and Related Agreements to which he is a party: (i) do not and
will not violate in any material respect any law, statute, rule or regulation
applicable to him or require him to obtain any approval, consent or waiver of,
or to make any filing with, any governmental or regulatory agency or
administrative body or to obtain any other approval, consent or waiver of, or to
make any other filing with, any other person or entity, in each case that has
not been obtained or made; and (ii) to our knowledge, do not and will not result
in a breach of, constitute a default under, accelerate any obligation under or
give rise to a right of termination of any indenture or loan or credit agreement
or any other agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which he is a party or result in the creation or imposition
of any mortgage, pledge, lien, security interest or other charge or encumbrance
on any property or asset owned by him.
7. Except as described in the Merger Agreement and the Schedules thereto,
to our knowledge there are no (a) actions, suits, claims or proceedings pending
or threatened against the Company, whether at law or in equity, or before or by
any federal, state, municipal or other governmental body or (b) judgments,
decrees, injunctions or orders of any court, governmental body or arbitrator
against the Company which, in either case, could result in a Material Adverse
Effect.
A-88
<PAGE>
EXHIBIT G TO APPENDIX A
-----------------------
FORM OF
-------
NONCOMPETITION AGREEMENT
NONCOMPETITION AGREEMENT dated as of ________, 1998 by and between Mac-Gray
Corporation, a Delaware corporation having a principal place of business at 22
Water Street, Cambridge, Massachusetts 02141 (the "Company"), and Robert P.
Bennett of ____________ (the "Executive").
WHEREAS, in consideration of (i) the employment of the Executive by the
Company, which necessarily involves the disclosure by the Company to the
Executive of, and access by the Executive to, confidential information relating
to the method of business, processes, products, operations and clients of the
Company, and (ii) the grant by the Company to the Executive of certain options
to purchase common stock of the Company, the parties hereto covenant and agree
as follows:
ARTICLE 1. TRADE SECRETS; CONFIDENTIAL INFORMATION;
- --------- ----------------------------------------
PROPRIETARY PROPERTY
--------------------
Section 1.01 Trade Secrets; Confidential Information. It is specifically
---------------------------------------
agreed between the parties hereto that: (a) the trade secrets of the Company
(the "Trade Secrets") shall include (i) the names and locations of the customers
of the Company and the services provided to each customer or supplier and (ii)
the terms and conditions of the contracts the Company has with each such
customer or supplier; and (b) the confidential information (the "Confidential
Information") of the Company shall include (i) any other confidential or
proprietary information or data relating to the business of the Company, or any
of its Affiliates (as defined below), which is not generally known to the public
and which provides the Company and its Affiliates some competitive advantage, or
the opportunity to obtain such advantage, or the disclosure of which could be
detrimental to the interests of the Company and its Affiliates, including,
without limitation, all notes, memoranda, inventions, drawings, file data,
documentation, diagrams, specifications, know how, processes, formulas, models,
customer lists, sales representative lists, sales plans, proprietary
information, research and development procedures, research or development and
test results, marketing techniques and materials, marketing and development
plans, price lists, pricing policies, business plans, reports, information
relating to customers and/or suppliers' identities, characteristics and
agreements, financial information and projections, and employee files, and (ii)
any information described above which the Company or any of its Affiliates
obtains from another party and which the Company or such Affiliate treats as
proprietary or designates as Confidential Information, whether or not owned or
developed by the Company or such Affiliate.
Section 1.02 Nondisclosure; Nonuse. As long as the Executive is employed
---------------------
by the Company and any time thereafter, the Executive shall keep secret and
shall not ever publish, divulge, furnish, impart or disclose any of the Trade
Secrets or Confidential Information to any person, firm or corporation other
than the Company or any of its Affiliates, or use any of the Trade Secrets or
Confidential Information, directly or indirectly, for the Executive's own
benefit or for the benefit of any person, firm or corporation other than the
Company and its Affiliates.
Section 1.03 Company's Proprietary Right to Documents. All Trade Secrets
----------------------------------------
and Confidential Information shall be the property of the Company and its
Affiliates and shall be delivered by the Executive to the Company or an
Affiliate upon termination of the Executive's employment with the Company or an
Affiliate
A-89
<PAGE>
at any earlier time at the request of the Company or such Affiliate.
Specifically, the Executive agrees that any Trade Secrets or Confidential
Information coming into the Executive's possession by reason of the Executive's
employment with the Company or an Affiliate, including, without limitation,
custom computer programs, software, or related data, are the property of the
Company or such Affiliate and shall not be used in any way except on behalf of
and for the benefit of the Company or any of its Affiliates. The Executive will
not deliver, reproduce or otherwise use such documents or information for the
Executive's own benefit or in any way allow such documents or things to be
delivered or used by any third party without the prior written consent of the
Company. As long as the Executive is employed by the Company and any time
thereafter, the Executive will not publish, release or otherwise make available
to any third party any information describing any Trade Secret or Confidential
Information of the Company or any of its Affiliates, without the prior written
consent of the Company.
Section 1.04 Proprietary Property. The Executive agrees to, and does
--------------------
hereby, sell, assign, transfer and set over to the Company, its successors,
assigns or Affiliates, as the case may be, all of the Executive's right, title
and interest in and to any custom software, documentation, copyrights,
inventions, improvements, proprietary information, patents or applications for
patents (collectively, the "Proprietary Property") conceived of, prepared or
developed by the Executive, individually or in conjunction with others, during
the period that he hereafter will be employed by the Company; provided, however,
-------- -------
that the foregoing sale or assignment shall only apply to Proprietary Property
which either relates to the product areas in which the Company or any of its
Affiliates is then engaged or constitutes an application of any Proprietary
Property then belonging to the Company or any of its Affiliates. The right,
title and interest transferred pursuant to this Section 1.04 shall be held and
enjoyed by the Company, its Affiliates, and their respective successors and
assigns, to the full extent of the term for which any copyright or Letters
Patent may be granted, and as fully as the same would have been held by the
Executive had such sale or assignment not been made. The Executive agrees to
disclose promptly to the Company all such Proprietary Property and to deliver
any documents and take any other action necessary to vest in the Company all of
the Executive's rights in and to such Proprietary Property.
ARTICLE 2. NONCOMPETITION
- --------- --------------
Section 2.01 Noncompetition. The Executive covenants and agrees that he
--------------
shall not, for a period beginning on the date of this Agreement and ending on
the third anniversary of the date the Executive's employment with the Company is
terminated (the "Termination Date"), without the express prior written consent
of the Company, directly or indirectly, anywhere in the Restricted Area (as
defined below) (a) engage in any activity in the Designated Industry (as defined
below) or (b) engage, participate or invest in or assist (whether as owner,
part-owner, shareholder, partner, member, director, officer, trustee, employee,
agent or consultant, or in any other capacity) any business organization whose
activities, products or services are in the Designated Industry; provided,
--------
however, that the Executive may make passive investments in a competitive
- -------
enterprise, the shares of which are publicly traded, if the Executive's
aggregate investment in such enterprise constitutes less than one percent (1%)
of the equity ownership of such enterprise. Without implied limitation, the
foregoing noncompetition covenant shall prohibit the Executive from (i) hiring,
attempting to hire or otherwise soliciting, for himself or on behalf of any
entity or person, any officer, director, consultant or other employee of the
Company or any of its Affiliates, or authorizing or approving any such action by
any other person, (ii) encouraging for himself or on behalf of any entity or
person any officer, director, consultant or other employee to terminate his or
her relationship or employment with the Company or any of its Affiliates, (iii)
soliciting for or on behalf of any entity or person any customer or Prospective
Customer of the Company or any of its Affiliates and (iv) diverting to any
entity or person any customer or Prospective Customer of the Company or any of
its Affiliates.
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<PAGE>
Section 2.02 Definitions. For purposes of this Agreement, the following
-----------
terms shall have the following meanings:
(a) "Restricted Area" means each state of the United States in
---------------
which the Company and its Affiliates are, collectively, as of the date
of this Agreement or at any time prior to the Termination Date,
conducting any business activities.
(b) "Designated Industry" means the principal business of the
-------------------
Company and its Affiliates as of the date of this Agreement,
including, without limitation, the business of (1) owning, selling,
leasing, operating or servicing card or coin-operated laundry machines
and (2) producing, selling, leasing and servicing appliance products,
including, without limitation, refrigerators, freezers and microwave
ovens, in the "in room" environments of college and university
residence halls, hotels and motels, government or military
accommodations or the senior living market.
(c) "Affiliate" shall mean, with respect to any person or entity
---------
(herein the "first party"), any other person or entity that directly
or indirectly controls, or is controlled by, or is under common
control with, such first party (the term "control" as used herein
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to (X) vote
twenty-five percent (25%) or more of the outstanding voting securities
of such person or entity, or (Y) otherwise direct the management or
policies of such person or entity by contract or otherwise).
(d) "Prospective Customer" shall mean any person or entity with
--------------------
whom the Company or any of its Affiliates, as the case may be, was
actively attempting to develop a customer relationship (whether for
laundry services or otherwise) at any time during the six (6) months
immediately preceding the Termination Date.
ARTICLE 3. MISCELLANEOUS
- --------- -------------
Section 3.01 Scope of Agreement. The parties acknowledge that the time,
------------------
scope, geographic area and other provisions of this Agreement have been
specifically negotiated by sophisticated commercial parties and agree that all
such provisions are reasonable under the circumstances of the Executive's
employment with the Company. The Executive has independently consulted with his
counsel and has been advised in all respects concerning the reasonableness and
propriety of the covenants contained herein, with specific regard to the
businesses conducted by the Company and its Affiliates.
Section 3.02 Specific Performance; Severability. It is specifically
----------------------------------
understood and agreed by the parties hereto that the breach by the Executive of
any provision of this Agreement will result in irreparable injury to the Company
and its Affiliates, that the remedy at law alone will be an inadequate remedy
for such breach and that, in addition to any other remedy they may have, the
Company and each of its Affiliates shall be entitled to enforce the specific
performance of this Agreement by the Executive through both temporary and
permanent injunctive relief without the necessity of proving actual damages. If
the Company is required to post a bond in connection with obtaining any
temporary or permanent injunctive relief, the parties hereto agree that such
bond shall be limited in amount to $10,000 and that such amount is reasonable
and adequate for such bond. In the event that any covenant or provision
contained in this Agreement shall be determined by any court of competent
jurisdiction to be unenforceable by reason of its extending for too long a
period of time or over too large a geographical area or by reason of its being
too extensive in any other respect, such covenant or provision
A-91
<PAGE>
shall not be construed to be null, void and of no effect, but rather shall be
interpreted to extend only over the maximum period of time for which it may be
enforceable, and/or over the maximum geographical area as to which it may be
enforceable, and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action. The
existence of any claim or cause of action which the Executive may have against
the Company or any of its Affiliates shall not constitute a defense or bar to
the enforcement of any of the provisions of this Agreement and shall be pursued
through separate court action by the Executive.
Section 3.03 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of The Commonwealth of Massachusetts,
without regard to the conflicts or choice of law provisions thereof.
Section 3.04 Attorneys' Fees. If any suit or action is instituted by
---------------
either party to enforce or in connection with any dispute relating to this
Agreement, the prevailing party in such suit or action shall be entitled to have
all court costs and attorneys' fees paid by the non-prevailing party.
Section 3.05 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of, and be binding upon, the successors of the Company and its
Affiliates by way of merger, consolidation or transfer of all or substantially
all of the assets of the Company, and may not be assigned by the Executive.
Section 3.06 No Conflicting Obligations. The Executive hereby represents
--------------------------
and warrants to the Company that he is not now under, or bound to be under in
the future, any obligation to any person, firm or corporation which is or would
be inconsistent or in conflict with this Agreement or would prevent, limit or
impair in any way the full and absolute performance by the Executive of his
obligations hereunder. In addition, the Executive covenants that he will not
enter into or discuss entering into any such agreement.
Section 3.07 Entire Agreement; Modifications. This Agreement constitutes
-------------------------------
the entire agreement between the parties pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements, representations,
negotiations and understandings of the parties, whether oral or written. No
supplement, modification or amendment to this Agreement shall be binding unless
executed in writing by all the parties hereto.
Section 3.08 No Employment Obligations. The Executive understands and
-------------------------
agrees that this Agreement does not create any obligation on the part of the
Company to continue his employment with the Company.
Section 3.09 Waivers. The failure of any party to require the
-------
performance or satisfaction of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent failure or breach.
Section 3.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
Section 3.11 Notices. All notices and other communications under this
-------
Agreement shall be in writing and shall be delivered by certified mail, return
receipt requested, postage prepaid, to the address set forth above unless
another address shall be furnished in writing by such party.
A-92
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Noncompetition
Agreement as of the date and year first written above.
COMPANY:
MAC-GRAY CORPORATION, a Delaware
corporation
--------------------------------
Name:
Title:
EXECUTIVE:
--------------------------------
Robert P. Bennett
A-93
<PAGE>
EXHIBIT H TO APPENDIX A
-----------------------
FORM OF
-------
RELEASE
-------
This release is delivered by __________ (the "Releasing Party") pursuant to
Section 8.2(m) of the Agreement and Plan of Merger dated as of December 22, 1997
by and among Mac-Gray Corporation, a Delaware corporation ("Mac-Gray"), MI
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Mac-
Gray ("Sub"), Intirion Corporation, a Delaware corporation (the "Company"), and
Robert P. Bennett (the "Merger Agreement"). Capitalized terms used herein and
not otherwise defined shall have the meanings provided in the Merger Agreement.
1. Release. In consideration of the Merger Consideration paid to the
-------
Releasing Party pursuant to the Merger Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the Releasing Party, the Releasing Party hereby releases and forever discharges
(i) Mac-Gray, the Company and the Surviving Corporation, (ii) each present and
former stockholder, director, officer, employee and agent of Mac-Gray, the
Company and the Surviving Corporation and (iii) each subsidiary, affiliate,
successor and assign of the persons named in clauses (i) and (ii) above (each a
"Released Party" and collectively the "Released Parties") of and from any and
all commitments, indebtedness, suits, demands, obligations and liabilities,
whether asserted, unasserted, absolute, contingent, known or unknown, or
otherwise, of every kind and nature, including claims and causes of action both
in law and in equity, which such Releasing Party and/or such Releasing Party's
heirs, executors, administrators, beneficiaries, affiliates, successors or
assigns ever had, now has or, to the extent arising from or in connection with
any act, omission or state of facts taken or existing on or prior to the Closing
Date, may have after the Closing Date, against any Released Party, other than
claims or causes of action arising under or pursuant to the Merger Agreement,
the Escrow Agreement, the Registration Rights Agreement or any employment
agreement (including any non-competition agreement) to which the Releasing Party
and any Released Party are parties. The provisions of this release shall inure
to the benefit of the Released Parties.
Each Releasing Party hereby represents to the Released Parties that (a)
such Releasing Party has not assigned any claim or possible claim against any
Released Party, (b) such Releasing Party fully intends to release, and by
executing this release it is releasing, all claims against the Released Parties
including without limitation unknown and contingent claims (other than those
specifically reserved above), and (c) such Releasing Party has had the
opportunity to consult with counsel with respect to the execution and delivery
of this release and the consequences hereof.
2. Governing Law. This release shall be construed in accordance with and
-------------
governed by the laws of The Commonwealth of Massachusetts applicable to
agreements made and to be performed wholly within such jurisdiction.
3. Severability. If any portion of this release is declared by a court
------------
of competent jurisdiction to be invalid or unenforceable after all appeals have
either been exhausted or the time for any appeals to be taken has expired, the
remainder of the terms, provisions, covenants and restrictions of this release
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
EXECUTED as of the ____ day of __________________. _________________________
A-94
<PAGE>
EXHIBIT I TO APPENDIX A
-----------------------
AGREEMENTS TO BE TERMINATED
1. Stock Redemption Agreement between Robert P. Bennett and MicroFridge, Inc.
dated __________, 1995 between Robert P. Bennett and MicroFridge, Inc.
providing for the purchase of $3,000,000 worth of shares upon the death of
Robert P. Bennett.
2. Agreement between MicroFridge, Inc. for the sale of Series A Convertible
Preferred Stock and Common Stock Purchase Warrant to Eastech II Limited
Partnership and Eastech III Limited Partnership.
3. Registration Rights Agreement dated November 30, 1990 between MicroFridge,
Inc. and Eastech II Limited Partnership and Eastech III Limited
Partnership.
4. Stockholder Voting Agreement dated November 30, 1990 between MicroFridge,
Inc., Eastech and the Founders.
5. Right of First Refusal and Co-Sale Agreement dated November 30, 1990 among
MicroFridge, Inc., Eastech and the Founders.
6. A Waiver and Amendment Agreement by and among MicroFridge, Inc., Eastech II
Limited Partnership, Eastech III Limited Partnership dated April 21, 1994.
7. An Agreement between General Electric Capital Corporation and MicroFridge,
Inc. for the Purchase of Senior Redeemable Preferred Stock and Warrant to
purchase the common stock of MicroFridge, Inc. by General Electric Capital
Corporation dated April 21, 1994.
8. Registration Rights Agreement between MicroFridge, Inc. and General
Electric Capital Corporation dated April 21, 1994.
A-95
<PAGE>
EXHIBIT J TO APPENDIX A
-----------------------
FORM OF
-------
OPINION OF GOODWIN, PROCTER & HOAR LLP
--------------------------------------
_____________, 1998
To: The parties listed on Schedule A hereto
----------
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 8.3(e) of the
Agreement and Plan of Merger dated as of December 22, 1997 (the "Merger
Agreement") by and among Mac-Gray Corporation, a Delaware corporation
("Parent"), MI Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Sub"), Intirion Corporation, a Delaware corporation (the
"Company"), and Robert P. Bennett. Capitalized terms used but not defined
herein shall have the respective meanings attributed to them in the Merger
Agreement.
We have acted as counsel to Parent and Sub in connection with the
transactions contemplated by the Merger Agreement. In arriving at the opinions
expressed below, we have examined and relied on the originals or copies,
certified or otherwise identified to our satisfaction, of the Merger Agreement,
the Escrow Agreement and the Registration Rights Agreement (collectively, the
"Subject Agreements"). We have also examined such other records, documents,
certificates and other instruments we have deemed necessary to enable us to
render the opinions contained herein.
In our examination, we have assumed without any investigation (i) the legal
capacity of each natural person, (ii) the full power and authority of each
person other than Parent and Sub to execute, deliver and perform its obligations
under each document heretofore executed and delivered or hereafter to be
executed and delivered and to do each other act heretofore done or hereafter to
be done by such person, (iii) the due authorization, execution and delivery by
each person other than Parent and Sub of each document heretofore executed and
delivered or hereafter to be executed and delivered by such person, (iv) the
legality, validity, binding effect and enforceability as to each person other
than Parent and Sub of each document heretofore executed and delivered or
hereafter to be executed and delivered and of each other act heretofore done or
hereafter to be done by such person, (v) the genuineness of each signature other
than those of officers of Parent and Sub and the completeness and authenticity
of each document submitted to us as an original, (vi) the conformity to the
original of each document submitted to us as a copy, (vii) the authenticity of
the original of each document submitted to us as a copy and (viii) no amendment
or modification hereafter of any provision of any document. Insofar as our
opinion relates to, or dependent on, any matter of fact, we have relied on
representations of Parent and Sub as set forth in the Merger Agreement, and upon
written statement and certificates of officers of Parent and Sub and of public
officials. We have not attempted to verify independently the accuracy of such
representations, statements or certificates.
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<PAGE>
As used in this opinion with respect to any matter, the qualifying phrase
"to our knowledge" means that, in the course of our performing legal services
for Parent and Sub with respect to the transactions contemplated by the Subject
Agreements, nothing has come to the attention of the attorneys in this firm who
have performed such legal services, and in this regard it is noted that we have
not made any special review or investigation in connection with rendering the
opinion with respect to the matters so qualified.
Members of our firm are admitted to the bar in the Commonwealth of
Massachusetts and we express no opinion as to any laws other than the laws of
the United States of America, the laws of the Commonwealth of Massachusetts and
the General Corporation Law of the State of Delaware.
For the purposes of this opinion, we have assumed that each party other
than Parent and Sub has taken any and all necessary action, to execute, deliver
and perform its obligations under the Subject Agreements and each other
agreement to which it is a party, and that it has duly executed and delivered
each such agreement, and that each such agreement is a valid and binding
obligation of such party, enforceable against such party in accordance with its
terms.
The opinions expressed below are qualified to the extent that (i) the
validity or enforceability of any provision of any instrument or document or any
rights granted thereunder may be subject to or affected by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar law
relating to or affecting the rights of creditors generally; (ii) the remedy of
specific performance or any other equitable remedy may be unavailable in any
jurisdiction or may be withheld as a matter of judicial discretion; and (iii)
equitable principles may be applied in construing or enforcing the provisions of
any instrument or document (regardless of whether enforcement is sought in a
proceeding in equity or at law).
The opinions set forth below are further subject to the following
qualifications and exceptions:
(i) The opinions set forth in paragraph 1 hereof with respect to the
valid existence and good standing of Parent and Sub are based solely upon
certificates issued by the office of the Secretary of State of the State of
Delaware, copies of which have been delivered to your legal counsel on the
date hereof; and
(ii) no opinion is given herein as to the enforceability of any
provisions for indemnification of any person for liability under federal or
state securities laws.
Based on the foregoing, and subject to the qualifications, assumptions and
exceptions set forth herein, we are of the opinion that:
1. Each of Parent and Sub is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware. Each of
Parent and Sub has full power and authority to conduct its business in the
manner that it is presently being conducted.
2. Each of Parent and Sub has full corporate power and corporate
authority to execute and deliver each Subject Agreement to which it is a party,
to perform its obligations thereunder and to consummate the transactions
contemplated thereby, including, in the case of Sub, the Merger. The execution,
delivery and performance by each of Parent and Sub of each Subject Agreement to
which it is a party have been duly and validly authorized by all necessary
corporate action of Parent and Sub, and no further corporate proceedings on the
part of Parent or Sub are required in connection therewith.
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3. Each of Parent and Sub has duly executed and delivered each Subject
Agreement to which it is a party, and each such agreement constitutes the valid
and binding obligation of Parent and/or Sub, as the case may be, enforceable
against Parent and/or Sub, as the case may be, in accordance with its terms,
subject to the qualifications above.
4. The execution, delivery and performance of the Subject Agreements by
each of Parent and Sub does not require Parent or Sub to obtain any approval,
consent or waiver of, or to make any filing with, any governmental or regulatory
agency or administrative body of the Commonwealth of Massachusetts, under the
DGCL or of the federal government of the United States of America that has not
been obtained or made, except the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with the DGCL.
5. The shares of Mac-Gray Common Stock to be issued at the Effective Time
are duly authorized and, when issued in accordance with the Merger Agreement
pursuant to the Merger, will be validly issued, fully paid and non-assessable.
6. As of the date hereof and immediately following consummation of the
Merger, the authorized capital stock of Parent consists of (a) 30,000,000 shares
of common stock, $.01 par value per share, of which ___________ shares are
issued and outstanding and (b) 5,000,000 shares of undesignated preferred stock,
$.01 par value per share, of which no shares are issued and outstanding. Except
as set forth on Schedule 5.3(a)(i) to the Merger Agreement, to our knowledge
------------------
there are no outstanding options, warrants, rights, commitments, preemptive
rights or agreements of any kind for the issuance or sale of, or outstanding
securities convertible into, any additional shares of capital stock of any class
of Parent.
This opinion is based upon currently existing statutes, rules and
regulations and judicial decisions and is rendered as of the date hereof, and we
disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in facts or
circumstances which might affect any matters or opinions set forth herein.
The opinions set forth herein are rendered solely for your use in
connection with the transactions contemplated by the Merger Agreement and may
not be relied upon by you for any other purpose, or furnished to, quoted to, or
relied upon by, in whole or in part, any other person, firm or corporation for
any purpose, without our prior written consent.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
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APPENDIX B
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DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Section 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except;
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system
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security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) and (c) hereof that appraisal rights are available for any or
all of the shares of the constituent corporations, and shall include in such
notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not voted
in favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within
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20 days after the date of mailing of such notice, demand in writing from the
surviving or resulting corporation the appraisal of such holder's shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either (i)
each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
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(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
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(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Certain exhibits indicated below are incorporated by reference to documents
of Mac-Gray on file with the Commission. Each exhibit marked by a cross (+)
was previously filed as an exhibit to Mac-Gray's Registration Statement on
Form S-1 (No. 333-33669) and the number in parentheses following the
description of the exhibit refers to the exhibit number in the Form S-1. Each
exhibit marked by an asterisk (*) was previously filed as an exhibit to Mac-
Gray's Registration Statement on Form S-4 (No. 333-45899).
(a) Exhibits. The following is a complete list of exhibits filed or
incorporated by reference as part of this Registration Statement.
<TABLE>
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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 are included in Appendix A to the Prospectus/Proxy
Statement, which is a part of this Registration Statement on Form S-4.*
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).+
</TABLE>
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<TABLE>
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10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and among the
Registrant and the other parties named therein (10.3).+
10.4 Credit Agreement dated April 17, 1997, by and among the Registrant, the
other Borrowers (as defined therein), the lenders named therein and
State Street Bank and Trust Company, as agent (10.4).+
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks (as
defined therein) (10.5).+
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by the
Registrant in favor of the Banks (as defined therein) (10.6).+
10.7 Pledge Agreement dated as of April 17, 1997 by and among the Registrant
and the Banks (as defined therein) (10.7).+
10.8 Confidentiality and Noncompetition Agreement dated as of September 4,
1990, as amended on March 25, 1993, by and between the Registrant and
Caldwell and Gregory, Inc. (10.8).+
10.9 Consulting Agreement dated as of April 17, 1997 by and among the
Registrant and Jeffrey C. Huenink (10.9).+
10.10 Noncompetition Agreement dated as of April 17, 1997 by and among
Registrant and Jeffrey C. Huenink (10.10).+
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers (10.11).+
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service" (10.12).+
10.13 Form of Maytag Distributorship Agreements (10.13).+
10.14 Promissory Note dated December 31, 1992 issued by the Registrant in
favor of Donald M. Shaw (10.14).+
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by and
between Donald M. Shaw and the Registrant (10.15).+
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with form of
option agreements attached as exhibits) (10.16).+
10.17 Form of Director Indemnification Agreement between the Registrant and
each of its Directors (10.17).+
10.18 Form of Registration Rights Agreement by and among the Registrant,
Robert P. Bennett, Gelco Corporation, Eastech II Limited Partnership
and Eastech III Limited Partnership.*
10.19 Form of Escrow Agreement by and among the Registrant, Gelco Corporation,
Michael Shanahan, the former securityholders of Intirion Corporation
and State Street Bank and Trust Company, as escrow agent.*
10.20 Voting Agreement by and between the Registrant and each of Robert P.
Bennett, Eastech II Limited Partnership and Eastech III Limited
Partnership.*
10.21 Voting Agreement by and between the Registrant and Gelco Corporation.*
10.22 Form of Noncompetition Agreement by and between the Registrant and
Robert P. Bennett.*
10.23 Distribution Agreement by and between Schlumberger Technologies, Inc.
and Mac-Gray Services, Inc., dated as of October 27, 1997 (certain
portions of this exhibit are being omitted pursuant to a request for
confidential treatment).
10.24 Stock and Asset Purchase Agreement, dated as of March 4, 1998, by and
among Mac-Gray Services, Inc., Amerivend Corporation, Amerivend
Southeast Corporation and Gerald E. Pulver.
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).*
23.2 Consent of Price Waterhouse LLP (Mac-Gray Corporation).
23.3 Consent of Price Waterhouse LLP (Intirion Corporation).
24.1 Powers of Attorney (contained in the Signature Page to this Registration
Statement).*
27.1 Financial Data Schedule.*
99.1 Form of Proxy.*
</TABLE>
(b) Financial Statement Schedules.
The following Financial Statement Schedule is filed herewith:
Intirion Corporation: Schedule II--Valuation and Qualifying Accounts
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ITEM 22. 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 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;
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form;
(5) That every prospectus: (i) that is filed pursuant to paragraph (4)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes 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.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Mac-Gray
Corporation has duly cause this Post-Effective Amendment No. 2 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 March 4, 1998.
MAC-GRAY CORPORATION
/s/ John S. Olbrych
By: ________________________________
John S. Olbrych
Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 2 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
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SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman, Chief March 4, 1998
____________________________________ Executive Officer and
Stewart Gray MacDonald, Jr. Director (Principal
Executive Officer)
* Executive Vice President March 4, 1998
____________________________________ Mergers and
Patrick A. Flanagan Acquisitions, Secretary
and Director
/s/ John S. Olbrych Chief Financial Officer March 4, 1998
____________________________________ and Treasurer
John S. Olbrych (Principal Financial
and Accounting Officer)
* Director March 4, 1998
____________________________________
Jeffrey C. Huenink
* Director March 4, 1998
____________________________________
Jerry A. Schiller
* Director March 4, 1998
____________________________________
John P. Leydon
* Director March 4, 1998
____________________________________
Eugene B. Doggett
</TABLE>
/s/ John S. Olbrych
*By: ___________________________
John S. Olbrych
Attorney-in-Fact
II-4
<PAGE>
SCHEDULE II
INTIRION CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------
CHARGED
BALANCE TO COSTS BALANCE
BEGINNING AND AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
--------- -------- ---------- -------
<S> <C> <C> <C> <C>
Year Ended June 30, 1997:
Allowance for doubtful accounts........ $ 42 $ 34 $(58) $ 18
Valuation allowance for deferred tax
assets................................ $503 $(133) $-- $370
Year Ended June 30, 1996:
Allowance for doubtful accounts........ $ 35 $ 19 $(12) $ 42
Valuation allowance for deferred tax
assets................................ $519 $ (16) $-- $503
Year Ended June 30, 1995:
Allowance for doubtful accounts........ $ 52 $ (15) $ (2) $ 35
Valuation allowance for deferred tax
assets................................ $386 $ 133 $-- $519
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 22, 1997, by and
among Mac-Gray Corporation, MI Acquisition Corp., Intirion
Corporation and Robert P. Bennett. Pursuant to Item 601(b)(2) of
Regulation S-K, the Schedules referred to in the Merger Agreement are
omitted. The Registrant hereby undertakes to furnish supplementally a
copy of any omitted Schedule to the Commission upon request. The
Exhibits to the Merger Agreement are included in Appendix A to the
Prospectus/Proxy Statement, which is a part of this Registration
Statement on Form S-4.*
3.1 Amended and Restated Certificate of Incorporation (3.1).+
3.2 By-laws (3.2).+
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of
the Registrant (4.1).+
5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered.*
10.1 Stockholders' Agreement dated as of April 17, 1997 by and among the
Registrant and certain stockholders of the Registrant (10.1).+
10.2 Stockholders' Agreement dated as of June 26, 1997 by and among the
Registrant and certain stockholders of the Registrant (10.2).+
10.3 Agreement and Plan of Merger dated as of April 17, 1997 by and among
the Registrant and the other parties named therein (10.3).+
10.4 Credit Agreement dated April 17, 1997, by and among the Registrant,
the other Borrowers (as defined therein), the lenders named therein
and State Street Bank and Trust Company, as agent (10.4).+
10.5 Security Agreement dated as of April 17, 1997 by and among the
Registrant, the other Borrowers (as defined therein) and the Banks
(as defined therein) (10.5).+
10.6 Revolving Line of Credit Note dated April 17, 1997 issued by the
Registrant in favor of the Banks (as defined therein) (10.6).+
10.7 Pledge Agreement dated as of April 17, 1997 by and among the
Registrant and the Banks (as defined therein) (10.7).+
10.8 Confidentiality and Noncompetition Agreement dated as of September 4,
1990, as amended on March 25, 1993, by and between the Registrant and
Caldwell and Gregory, Inc. (10.8).+
10.9 Consulting Agreement dated as of April 17, 1997 by and among the
Registrant and Jeffrey C. Huenink (10.9).+
10.10 Noncompetition Agreement dated as of April 17, 1997 by and among
Registrant and Jeffrey C. Huenink (10.10).+
10.11 Form of Noncompetition Agreement between the Registrant and its
executive officers (10.11).+
10.12 Form of Maytag Licensing Agreement for "Red Carpet Service" (10.12).+
10.13 Form of Maytag Distributorship Agreements (10.13).+
10.14 Promissory Note dated December 31, 1992 issued by the Registrant in
favor of Donald M. Shaw (10.14).+
10.15 Consulting and Noncompete Agreement dated December 31, 1992 by and
between Donald M. Shaw and the Registrant (10.15).+
10.16 The Registrant's 1997 Stock Option and Incentive Plan (with form of
option agreements attached as exhibits) (10.16).+
10.17 Form of Director Indemnification Agreement between the Registrant and
each of its Directors (10.17).+
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.18 Form of Registration Rights Agreement by and among the Registrant,
Robert P. Bennett, Gelco Corporation, Eastech II Limited Partnership
and Eastech III Limited Partnership.*
10.19 Form of Escrow Agreement by and among the Registrant, Gelco Corporation,
Michael Shanahan, the former securityholders of Intirion Corporation
and State Street Bank and Trust Company, as escrow agent.*
10.20 Voting Agreement by and between the Registrant and each of Robert P.
Bennett, Eastech II Limited Partnership and Eastech III Limited
Partnership.*
10.21 Voting Agreement by and between the Registrant and Gelco Corporation.*
10.22 Form of Noncompetition Agreement by and between the Registrant and
Robert P. Bennett.*
10.23 Distribution Agreement by and between Schlumberger Technologies, Inc.
and Mac-Gray Services, Inc., dated as of October 27, 1997 (certain
portions of this exhibit are being omitted pursuant to a request for
confidential treatment).
10.24 Stock and Asset Purchase Agreement, dated as of March 4, 1998, by and
among Mac-Gray Services, Inc., Amerivend Corporation, Amerivend
Southeast Corporation and Gerald E. Pulver.
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Counsel (included in Exhibit 5.1 hereto).*
23.2 Consent of Price Waterhouse LLP (Mac-Gray Corporation).
23.3 Consent of Price Waterhouse LLP (Intirion Corporation).
24.1 Powers of Attorney (contained in the Signature Page to this Registration
Statement).*
27.1 Financial Data Schedule.*
99.1 Form of Proxy.*
</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 (No. 333-45899) and incorporated by reference herein.
<PAGE>
EXHIBIT 10.23
SCHLUMBERGER TERMS AND CONDITIONS
FOR MAC-GRAY PURCHASE ORDER
Schlumberger Technologies, Inc.
Smart Cards and Systems Division
Schlumberger DANYL, Inc.
1. ACCEPTANCE
----------
It is agreed that sales of products and/or services are expressly made on
the terms and conditions contained herein, and to the extent of any conflict
these shall take precedence over any terms and conditions which may appear on
Mac-Gray's purchase order or any other document unless expressly accepted by
Schlumberger in writing. Mac-Gray's acceptance of and/or payment for the
products or services covered herein shall constitute an acceptance of these
terms and conditions.
2. PAYMENT TERMS
-------------
All invoices are due and payable thirty (30) days from date of invoice.
For any amounts payable to Schlumberger that are unpaid after thirty (30)
days from date of the invoice, Schlumberger may without prejudice to any other
rights, either suspend delivery to Mac-Gray, ship any future order COD, and/or
charge Mac-Gray a finance charge of 1-1/2% per month on the unpaid balance.
No payment due to Schlumberger shall in any circumstances be offset against
any sum owned by Schlumberger to Mac-Gray whether in respect of the present
transaction or otherwise. No discount for early payment is authorized. In the
event any proceeding is brought by or against Mac-Gray under any bankruptcy or
insolvency laws, Schlumberger shall be entitled to cancel any order then
outstanding and shall receive reimbursement for reasonable cancellation charges.
3. TAXES
-----
All prices are inclusive of import duty (including brokerage fees) but
exclusive of any present or future sales, revenue, or excise taxes, or other tax
applicable to the products or services covered by this order or the manufacture
or sale thereof. Such taxes, when applicable, shall be added to the invoice and
shall be paid by Mac-Gray unless Mac-Gray provides Schlumberger with the proper
tax exemption certificates.
4. DELIVERY TERMS
--------------
All sales are made FOB Schlumberger's U.S. shipping point, with freight
prepaid. Freight charges shall be invoiced to Mac-Gray.
Risk of loss shall pass to Mac-Gray at point of shipment. Schlumberger's
liability for shipment and delivery of goods ceases upon delivery of products in
good condition to a shipping company or common carrier designated by Mac-Gray or
Mac-Gray's representative or employee. Goods placed in segregated inventory at
the request of Mac-Gray shall be deemed to have been delivered to Mac-Gray at
the time such goods are placed in segregated inventory and Mac-Gray shall be
responsible for any loss thereto, except for losses resulting from
Schlumberger's gross negligence.
- --------------------
** Multiple asterisks indicate that the portion of this document so marked has
been omitted as a confidential portion of this document and has been filed
separately with the Commission.
<PAGE>
All stipulated delivery or shipment dates are estimates only. Schlumberger
reserves the right to make deliveries of products in installments and any delay
in delivery or other default of any installment of any one or more products
shall not relieve Mac-Gray of its obligation to accept and pay the remaining
deliveries.
Late delivery penalty - If Schlumberger is more than two weeks late against
an acknowledged delivery date, Mac-Gray will receive extended payment terms for
that order by the same time period as the shipment is late. This penalty will
only begin to apply to new products after these new products are released for
general availability.
5. SOLOLOCK **OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**
--------
During the period defined, **OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL
TREATMENT** Schlumberger hereby appoints Mac-Gray as **OMITTED PURSUANT TO
REQUEST FOR CONFIDENTIAL TREATMENT** distributor for the products known as
Sololock 1 and Sololock 2 in the United States, and Mac-Gray agrees to such
appointment. The specifications for these products are included as Attachment A.
**OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT** Mac-Gray agrees to
act as a distributor for these products for the US. Mac-Gray also agrees to use
Schlumberger laundry card systems exclusively, except where a client mandates a
competitive card system. Mac-Gray agrees to sell Sololock product to **OMITTED
PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**.
**OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**
Schlumberger agrees to allow Mac-Gray to use the name Sololock 1 & 2,
although there are no trademarks or prior commercial use of this name.
Schlumberger agrees not to use the name Sololock 1 & 2, or whatever name is
chosen by Mac-Gray for the door locking product. Schlumberger retains the right
to market a door access product in the same or other physical package as long as
the functionality is limited to authorizing entry based on group codes.
**OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT** Schlumberger retains
the right to use the same Sololock physical package and electronics for other
non-lock applications without restriction.
**OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**
Mac-Gray agrees upon the signing of this agreement, to release firm,
non-cancelable purchase orders for delivery of Laundry product
for four (4) six month periods, beginning January 1, 1998, and
ending December 31, 1999.
. The first release will be a non-cancelable purchase order
for Laundry product totaling **OMITTED PURSUANT TO REQUEST
FOR CONFIDENTIAL TREATMENT**for delivery
beginning January 1, 1998, and ending June 30, 1998.
. After the first release of Laundry product for delivery from
January 1, 1998, to June 30, 1998, Mac-Gray agrees to notify
Schlumberger Order Entry
2
<PAGE>
Department, in writing, no later than 90 days prior to the
commencement of the next six month period, **OMITTED
PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT** This
process will be repeated until December 31, 1999. **OMITTED
PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**
Mac-Gray also agrees to release, upon the signing of this agreement, a
non-cancelable purchase order for **OMITTED PURSUANT TO REQUEST
FOR CONFIDENTIAL TREATMENT** Sololock units, totaling **OMITTED
PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT** December 31,
1998.
Mac-Gray complies in all material respects with this Agreement.
**OMITTED PURSUANT TO REQUEST FOR CONFIDENTIAL TREATMENT**
6. PERFORMANCE AND NEW PRODUCTS DIVISION
-------------------------------------
Schlumberger and Mac-Gray agree to meet every 90 to 180 days to review the
status of their mutual interests including forecasts, performance against the
Purchase Agreement and this Agreement, deliveries, service, and product
performance.
Schlumberger accepts the following performance goals and measures:
products will operate in the field as indicated in the written
specifications;
products will operate reliably in the field, where reliably is defined
as maintaining an average mean time between failures (MTBF) of 12
months on readers that are maintained as recommended, and where
failures caused by misuse, external causes, or abuse of readers
are excluded; and, 97% of deliveries of releases products are
made within 10 working days of acknowledged delivery date.
In the event that Schlumberger's performance does not achieve any of the
above measures for more that 60 days, Mac-Gray will provide written notice to
the Schlumberger contact identified below that Schlumberger is not achieving the
performance goals of the Agreement. Schlumberger will then have 90 days to
correct the situation. If the situation is not corrected after 90 days, Mac-Gray
will have the right to cancel the Agreement without penalty.
If at any time during the term of this Agreement Schlumberger develops or
offers for sale either (a) a new product which is a replacement of successor
for, an evolution of, or serves substantially the same functions as, any of the
products to be purchased by Mac-Gray under this Agreement or (b) a product which
would convert, adapt, or otherwise permit the products to be purchased by Mac-
Gray under this Agreement to be used in an "open" smart card system, then (i)
Schlumberger shall give prompt notice to Mac-Gray of such fact, and (ii) if Mac-
Gray so requests, Mac-Gray and Schlumberger will negotiate in good faith an
agreement for the sale of such products to Mac-Gray and if such agreement is not
reached within thirty days following Mac-Gray's request, Mac-Gray shall have the
right to terminate this Agreement effective upon written notice to Schlumberger.
3
<PAGE>
7. CARD QUANTITIES
---------------
Quantities specified in quotations for custom-manufactured cards are for
uninterrupted production and one shipment to one destination, unless otherwise
specified. Quantity variations of plus or minus 10% shall constitute an
acceptable delivery for custom-manufactured cards and the excess or deficiency
shall be billed proportionally.
8. MAC-GRAY-SUPPLIED MATERIALS
---------------------------
If materials are furnished by Mac-Gray to be incorporated into manufactured
products, a supply of such materials 10% in excess of the quantity required to
complete the order shall be furnished FOB the Schlumberger's plant.
Schlumberger accepts no liability for storage of Mac-Gray-supplied materials.
9. INSPECTION
----------
Mac-Gray shall inspect and accept or reject goods within thirty (30) days
from delivery thereof. If Mac-Gray fails to notify Schlumberger in writing of
its rejections and the reasons therefor within such time period then Mac-Gray
will be deemed to have accepted such shipment and waived any right to later
reject the goods.
10. CANCELLATIONS, RETURNS, AND CHANGES
-----------------------------------
Custom-manufactured card orders cannot be canceled or returned if printed.
Mac-Gray will provide a rolling 6 month forecast that will be updated by
the last day of each month. Mac-Gray will have the right to change the mix of
product ordered as required with the exception that Mac-Gray agrees not to
reduce any quantities ordered within 90 days of scheduled shipment.
If, after an order is accepted by Schlumberger, Mac-Gray requests changes
to product design, specification or quantity, and if such changes are accepted
by Schlumberger, Schlumberger shall prepare a revised quotation. If accepted by
Mac-Gray, the order shall be amended accordingly.
11. CARD ART, PROOFS AND COLOR MATCH
--------------------------------
(a) Art.
---
Prices for custom-manufactured cards are based on camera-ready art
available from Mac-Gray. If artwork is developed by Schlumberger at Mac-Gray's
request, charges for development shall be invoiced to Mac-Gray at current rates.
Art and designs created by Schlumberger shall remain Schlumberger's exclusive
property, including electronic media, negatives, positives, and printing plates
(to be disposed of at Schlumberger's convenience in a secure manner).
(b) Proofs.
------
All four-color process designs require press proofs and Mac-Gray approval
before production run. Press proofs for other processes are not required and
shall not be submitted unless requested. Charges for proofs are not included in
quoted prices unless specified.
(c) Color Match.
-----------
Colors will be matched within reasonable commercial variations.
4
<PAGE>
12. SPARE PARTS AND CARD AVAILABILITY
---------------------------------
Schlumberger agrees to provide for the availability of spare parts for
terminals and value centers for five years after the expiration date of the
agreement. In the event of a discontinuation of a smart card product,
Schlumberger agrees to give Mac-Gray the opportunity for a last buy.
13. WARRANTIES
----------
(a) Schlumberger warrants that the products and software supplied with or
incorporated in Schlumberger's products furnished hereunder will, under normal
and proper use, be free from defects in material and workmanship and will
conform to Schlumberger's applicable standard written specifications or, if
appropriate, to specifications accepted in writing by Schlumberger, for a period
of one (1) year from the date of shipment for terminals and readers and (90)
ninety days for cards.
Schlumberger's sole obligation hereunder shall be limited to, at
Schlumberger's option, either crediting Mac-Gray the purchase price or replacing
or repairing any products or software, except post-processed integrated circuit
cards. For post-processed integrated circuit cards (those that have had one or
more operations performed by another party or Mac-Gray after delivery),
Schlumberger's sole obligation hereunder shall be limited to replacement or
credit of a quantity of cards not to exceed 2% of the total quantity per batch,
after subtracting 2% for each step of post-processing per batch delivered by
Schlumberger. These obligations apply to products for which (i) written notice
of non-conformance is received before the expiration of the warranty period;
(ii) after Schlumberger's authorization, are returned to Schlumberger's original
U.S. shipping point, freight charges prepaid; and (iii) after examination are
disclosed, to Schlumberger's satisfaction, to be non-conforming. Any such
repair or replacement shall not extend the period within which such warranty can
be asserted.
(b) Exclusions.
----------
This warranty shall not apply to products or software which have been
subjected to operating and/or environmental conditions in excess of the maximum
values therefore in the applicable specifications or otherwise have been
subjected to post-processing (except as provided herein), misuse, tampering,
neglect, improper installation, abnormal stress, repair, modification,
alteration, or damage. Schlumberger is not responsible for defects or non-
conformance to Schlumberger's specifications if product is produced according to
Mac-Gray's specifications or approved proofs, colors, or test cards. The
software warranty is only valid for products in which the software used have
been supplied or approved by Schlumberger and neither the software not hardware
has been modified in any way. THIS WARRANTY MAY BE ASSERTED BY MAC-GRAY ONLY,
NOT BY MAC-GRAY'S CUSTOMERS OR USERS OF THE MAC-GRAY'S PRODUCTS AND IS IN LIEU
OF ALL OTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING ANY IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY, AND OF ALL
OTHER OBLIGATIONS OR LIABILITIES ON SCHLUMBERGER'S PART. SCHLUMBERGER NEITHER
ASSUMES NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR SCHLUMBERGER ANY OTHER
LIABILITIES IN CONNECTION WITH THE SALES OF SAID PRODUCTS.
14. LIMITATION OF LIABILITY
-----------------------
(a) Limitations.
-----------
Except as defined below, Mac-Gray's exclusive remedy and Schlumberger's
total liability for any and all losses and damages from any cause whatsoever
arising from or relating to this contract (whether such cause be based in
contract, negligence, strict liability, tort, or otherwise) shall in no event
exceed the purchase price of the goods and services in respect to which such
cause arises.
5
<PAGE>
(b) Exceptions.
----------
In the event of proven fraudulent use of embossed, encoded, printed or
blank cards, or any information contained thereon, or any errors resulting from
Mac-Gray-furnished input data including formatting information as a result of
careless, negligent, or felonious acts of an employee or agent of Schlumberger,
the maximum liability of Schlumberger shall be $500 per card, with a maximum
Mac-Gray limit of $5,000 per year of proven loss. Schlumberger shall not be
held liable for damages resulting from the use of cards personalized by
Schlumberger according to inaccurate, incomplete or out-of-date requirements
from Mac-Gray. IN NO EVENT SHALL SCHLUMBERGER BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL, INDIRECT OR PUNITIVE DAMAGES RESULTING FROM ANY SUCH CAUSE.
SCHLUMBERGER MAY, AT ITS SOLE OPTION, EITHER REPAIR OR REPLACE DEFECTIVE GOODS,
SOFTWARE, OR WORK, OR WITH RESPECT TO GOODS PURCHASED, REFUND THE PURCHASE PRICE
PAID UPON RETURN OF THE GOODS TO SCHLUMBERGER, AND SHALL THEREAFTER HAVE NO
FURTHER OBLIGATION TO MAC-GRAY. THESE LIMITATIONS SHALL APPLY EVEN IF ANY
LIMITED REMEDY FAILS IN ITS ESSENTIAL PURPOSE.
15. FORCE MAJEURE
-------------
Schlumberger shall not be liable to non-performance or delays caused by
acts of god, wars, riots, strikes, fires, shortages of labor or materials, labor
disputes, governmental restrictions or any other causes beyond its reasonable
control. In the event of any such excused delay of failure or performance, the
date of delivery shall, at the request of the Schlumberger, be deferred for a
period equal to time lost by reason of the delay. Schlumberger shall notify
Mac-Gray in writing of any such event or circumstance within a reasonable period
after it learns of same.
16. PATENTS
-------
Mac-Gray shall hold Schlumberger harmless against any expense or loss
resulting from infringement of any patent arising directly from compliance with
Mac-Gray's designs, specification, or instructions. Except as provided in the
preceding sentence, Schlumberger shall hold Mac-Gray harmless and shall settle
or defend any suit or proceeding brought against Mac-Gray insofar as based on a
claim that any product (or part thereof) manufactured by Schlumberger and
furnished under this contract and not used in combination with other products,
whether or not furnished hereunder, constitutes a direct infringement of any
United States patent if notified promptly in writing and given authority,
information and assistance (at Schlumberger's expense) for the settlement of
defense of same, and Schlumberger shall pay the damages and costs awarded
therein against Mac-Gray or agreed upon in such settlement. Schlumberger may
(at its option and expense) either (i) procure for Mac-Gray the right to
continue using said product or part, or (ii) furnish a non-infringing product,
or (iii) modify the product so it becomes non-infringing or (iv) refund the
purchase price and transportation cost thereof upon return authorized by
Schlumberger. THE FOREGOING STATES THE ENTIRE LIABILITY OF SCHLUMBERGER FOR
PATENT INFRINGEMENT BY SAID PRODUCTS OR ANY PART THEREOF.
17. SOFTWARE
--------
All software (whether in source or object code) transferred to Mac-Gray
hereunder is considered by Schlumberger to be an unpublished work and is
protected under the copyright laws of the United States. All copyright and
other intellectual property rights of whatever nature that subsist or may
subsist in any software (whether in source or object code), specifications,
drawings, plans, designs, flowcharts, and technical documents and information
supplied by Schlumberger are and shall remain Schlumberger's property. Mac-Gray
agrees to keep confidential and not to modify or make any copy of any such
software, specifications, drawings, plans, designs, flowcharts, and technical
documents and information except as expressly approved in writing
6
<PAGE>
by Schlumberger. Mac-Gray is granted a limited license to use any software
supplied with or incorporated in the products only on such products, and only
for the purposes contemplated by Schlumberger in the course of sales of the
products. Such limited license shall be for Mac-Gray alone and shall not be
assigned, transferred or sublicensed without Schlumberger's prior written
consent, which Schlumberger agrees will not be unreasonably withheld. Mac-Gray
further agrees not to reverse compile or reverse engineer the software.
18. GOVERNMENT END-USERS
--------------------
If software is acquired by or on behalf of a unit or agency of the U.S.
Government, this provision applies.
(a) This software (i) was developed at private expense, and no part of it
was developed with Government funds, (ii) is a trade secret of Schlumberger for
all purposes of the Freedom of Information Act; (iii) is "commercial computer
software" subject to limited utilization as provided in the contract between the
vendor and the governmental entity; and (iv) in all respects is proprietary data
belonging solely to Schlumberger. When regulations of the Department of Defense
(DOD) are applicable, this software is sold only with "Restricted Rights" as
that term is defined in the DOD Supplement to the Federal Acquisition
Regulations, 52.227-7013. Use, duplication or disclosure is subject to
restrictions of the Rights in Technical Data and Computer Software clause at
52.227-7013, Manufacturer: Schlumberger Technologies, Inc., 1601 Schlumberger
Drive, Moorestown, NJ 08057.
(b) If this software was acquired under a GSA Schedule, the Government has
agreed to refrain from changing or removing any insignia or lettering from the
software that is provided or from producing copies of manuals or disks (except
one hard disk copy and one backup or archival copy) and (i) title to and
ownership of this software and related documentation and any reproductions
thereof shall remain with Schlumberger; (ii) use of this software and related
documentation shall be limited to the facility for which it is acquired; and
(iii) if use of the software is discontinued at the installation specified in
the purchase/delivery order and the Government desires to use it at another
location, it may do so by giving prior notice to Schlumberger, specifying the
type of computer and new locations site.
19. DISPUTE RESOLUTION
------------------
Mac-Gray and Schlumberger agree that any disputes or claims arising under
this agreement shall be resolved through alternative dispute resolution means in
the following manner:
(a) Initially the parties shall engage in non-binding mediation. Mediation
shall be held in Moorestown, New Jersey, or Owings Mills, Maryland, as
designated by Schlumberger, or such other site as is mutually agreed upon by the
parties. The mediator shall be jointly appointed by the parties and shall have
expertise in commercial dispute resolution.
(b) In the event the dispute or claim is not satisfactorily resolved
through mediation within 90 days of notice of such claim or dispute by a party,
the parties agree to submit such dispute or claim to binding arbitration.
Arbitration shall be held in Moorestown, New Jersey, or Owings Mills, Maryland,
as designated by Schlumberger, or such other site as is mutually agreed to by
the parties. If Mac-Gray is a foreign (non-US) corporation and delivery of the
goods under this agreement is to a foreign (non-US) destination, then the
commercial arbitration rules of the International Chamber of Commerce shall
apply. In all other instances, the commercial arbitration rules of the American
Arbitration Association shall apply. Any judgment, decision, or award by the
arbitrators shall be final and binding on the parties and may be enforced in any
court having jurisdiction over a party against whom any such judgment, decision,
or award is to be enforced. The parties
7
<PAGE>
hereby waive any claim under state or federal law or constitution which purports
to otherwise give a party the right to appeal an arbitrator's judgment, decision
or award.
(c) The parties shall bear their own costs and expenses (including
attorney's fees) for any mediation or arbitration, unless otherwise directed by
the mediator or arbitrator.
20. MODIFICATIONS
-------------
These terms and conditions constitute the entire agreement between the
parties relating to the sale of the products or services described in our
quotation, and no addition to or modification of any provision herein, by way of
changes to the drawings, designs, specifications or delivery schedule shall be
binding upon Schlumberger unless made in writing and signed by a duly authorized
employee of Schlumberger. Mac-Gray has not relied on any representations, oral
or written, except as are made in or expressly referenced by this document or
Schlumberger's quotation.
21. GOVERNING LAW
-------------
The validity, performance, and construction of this Agreement shall be
governed by the Laws of the State of New Jersey.
22. EXPORT ADMINISTRATION ACT
-------------------------
Regardless of any disclosure by Mac-Gray to Schlumberger of the
contemplated ultimate destination of the products, Mac-Gray shall not export,
directly or indirectly, any product acquired hereunder (or the "direct product"
of any software product) without first obtaining an export license from the U.S.
Department of Commerce or other agency of the U.S. Government, as required.
Schlumberger shall comply with all import and trade laws and regulations as
applicable.
23. NOTIFICATION AND TERM OF AGREEMENT
----------------------------------
All communication concerning this Agreement will be sent to the following
persons:
For Mac-Gray: For Schlumberger:
Mr. Stewart G. MacDonald Mr. Michael H. Smith
Chairman and CEO General Manager, Operations
MAC-GRAY CO., INC. Schlumberger DANYL
22 Water Street 1509 Glen Avenue
Cambridge, MA 02141-0003 Moorestown, NJ 08057
The term of the Agreement will begin on the signing date indicated below
and end on December 31, 1999.
24. AUTHORITY TO EXECUTE AGREEMENT
------------------------------
In executing this Agreement, the undersigned hereby represent that they
have read carefully the foregoing terms of this Agreement on behalf of their
respective interests, that they know the contents of this Agreement, that they
have the authority to execute this Agreement and that they have signed the same
as their own respective free acts and with the expressed authority to do so on
behalf of their respective interests. IN WITNESS WHEREOF, the parties have
caused this Agreement to be executed as of the date indicated.
8
<PAGE>
Schlumberger Technologies Mac-Gray Services, Inc.
Signature: /s/ Michael H. Smith Signature: /s/ Neil F. MacLellan
------------------------- -----------------------
Print name: Michael H. Smith Print name: Neil F. Maclellan
Title: General Manager - Operations Title: Executive Vice President
Date: Date: October 27, 1997
<PAGE>
ATTACHMENT A
------------
**Omitted pursuant to request for confidential treatment**
<PAGE>
<TABLE>
<CAPTION>
Check One: DANYL [_] SCS [_] BRT [_]
SCHLUMBERGER Purchase Commitment Date: October 22, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
ACKNOWLEDGE TO: SHIP TO: Mac-Gray
22 Water Street
Cambridge, MA
02141-0003
- -----------------------------------------------------------------------------------------------------------------------------
BILL TO: CUSTOMER CONTACT: Joe Mantia 800-993-9989
John Martin Fax 617-492-5386
John Volante
- -----------------------------------------------------------------------------------------------------------------------------
Customer: ___ RECAP Spec Sheet Reference Nos. TAX: Order Subject to Applicable Sale
_____ New _____ Existing ___ Credit Application and Use Taxes.
___ Site Survey Purchase Order No. ____ Taxable
____ Exempt No. _____________
For Internal Use Only Sales Rep. ___________
Group Code: Resale Certificate must be provided with
__________________________ orders from new customers.
- -----------------------------------------------------------------------------------------------------------------------------
Terms: All invoices are due and payable ten days from Requested Method of Requested Delivery Date:
date of invoice in the manner set forth in Seller's Shipment:
quotation, provided that Buyer's creditworthiness is
established in advance of acceptance of order by Seller.
If not so established, payment shall be made in
advance or COD as determined by Seller at time of order
acceptance. Complete Terms and Conditions available
upon request.
Unless different terms are specified in Seller's
quotation, all sales are made FOB Seller's U.S.
shipping point, with freight prepaid. Freight
charges shall be involved to Buyer.
- -----------------------------------------------------------------------------------------------------------------------------
UNIT GROSS
ITEM QTY. PRODUCT NO. DESCRIPTION PRICE AMOUNT
=============================================================================================================================
1 ** S/LSU/MT LAUNDRY SINGLE UNIT/MAYTAG $ ** $ **
- -----------------------------------------------------------------------------------------------------------------------------
2 ** LSU/PLUS/B LAUNDRY SINGLE UNIT PLUS BASE ** **
- -----------------------------------------------------------------------------------------------------------------------------
3 ** CSC/SAV/MG CARD SERVICE CENTER/ADD VALUE/MAC-GRAY $ ** **
- -----------------------------------------------------------------------------------------------------------------------------
4 ** S/896/BLANK BLANK USER SMART CARD ** **
- -----------------------------------------------------------------------------------------------------------------------------
5 ** SOLO/LOCK DOOR ACCESS UNIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
6 ** LSU/P/CD LSU/PLUS CD CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
7 ** LSU/P/PD LSU/PLUS PD CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
8 ** LSU/P/CDS LSU/PLUS CDS CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
9 ** LSU/P/PDS LSU/PLUS PDS CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
10 ** LSU/P/LMI LSU/PLUS LMI CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
$ **
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
REMARKS: Delivery Schedule as follows: Shipments will begin on or around
January 1, 1998 and run until December 31, 1999. See attached agreement for
product terms and conditions.
Schlumberger CUSTOMER: BY EXECUTION HEREOF
UNDERSIGNED CERTIFIED
ORDERING OF ABOVE EQUIPMENT AND SERVICES
By: ______________________________ By:_____________________________________
John McLaughlin, Nat'l Account _____________________________________
------------------------------ Authorized Signature
Mgr. Laundry
------------------------------ _____________________________________
Title Date
______________________________
SCHLUMBERGER . 1509 GLEN AVENUE . MOORESTOWN, NJ 08057 . (609) 234-8000
<PAGE>
<TABLE>
<CAPTION>
Check One: DANYL [_] SCS [_] BRT [_]
SCHLUMBERGER Purchase Commitment Date: October 22, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
ACKNOWLEDGE TO: SHIP TO: Mac-Gray
22 Water Street
Cambridge, MA
02141-0003
- -----------------------------------------------------------------------------------------------------------------------------
BILL TO: CUSTOMER CONTACT: Joe Mantia ext. 365
John Martin ext. 315
John Volante ext. 330
- -----------------------------------------------------------------------------------------------------------------------------
Customer: ___ RECAP Spec Sheet Reference Nos. TAX: Order Subject to Applicable Sale
_____ New _____ Existing ___ Credit Application and Use Taxes.
___ Site Survey Purchase Order No. ____ Taxable
____ Exempt No. _____________
For Internal Use Only Sales Rep. ___________
Group Code: Resale Certificate must be provided with
__________________________ orders from new customers.
- -----------------------------------------------------------------------------------------------------------------------------
Terms: All invoices are due and payable ten days from Requested Method of Requested Delivery Date:
date of invoice in the manner set forth in Seller's Shipment:
quotation, provided that Buyer's creditworthiness is
established in advance of acceptance of order by Seller.
If not so established, payment shall be made in
advance or COD as determined by Seller at time of order
acceptance. Complete Terms and Conditions available
upon request.
Unless different terms are specified in Seller's
quotation, all sales are made FOB Seller's U.S.
shipping point, with freight prepaid. Freight
charges shall be involved to Buyer.
- -----------------------------------------------------------------------------------------------------------------------------
UNIT GROSS
ITEM QTY. PRODUCT NO. DESCRIPTION PRICE AMOUNT
=============================================================================================================================
1 ** S/LSU/MT LAUNDRY SINGLE UNIT/MAYTAG $ ** $ **
- -----------------------------------------------------------------------------------------------------------------------------
2 ** LSU/PLUS/B LAUNDRY SINGLE UNIT PLUS BASE ** **
- -----------------------------------------------------------------------------------------------------------------------------
3 ** CSC/SAV/MG CARD SERVICE CENTER/ADD VALUE/MAC-GRAY $ ** **
- -----------------------------------------------------------------------------------------------------------------------------
4 ** LSU/P/CD LSU/PLUS CD CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
5 ** LSU/P/CD LSU/PLUS CD CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
6 ** LSU/P/CDS LSU/PLUS CDS CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
7 ** LSU/P/PDS LSU/PLUS PDS CABLE KIT ** **
- -----------------------------------------------------------------------------------------------------------------------------
8 ** LSU/P/LMI LSU/PLUS LMI CABLE KIT w/power supply ** **
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ **
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
REMARKS: Delivery Schedule as follows: Product will be delivered in equal
amounts, per month, beginning January 1, 1998 and running til June 30, 1998.
This is a non-cancellable purchase order. See attached agreement for product
terms and conditions
Schlumberger CUSTOMER: BY EXECUTION HEREOF
UNDERSIGNED CERTIFIED
ORDERING OF ABOVE EQUIPMENT AND SERVICES
By: ______________________________ By:_____________________________________
John McLaughlin, Nat'l Account _____________________________________
------------------------------ Authorized Signature
Mgr. Laundry
------------------------------ _____________________________________
Title Date
______________________________
SCHLUMBERGER . 1509 GLEN AVENUE . MOORESTOWN, NJ 08057 . (609) 234-8000
<PAGE>
<TABLE>
<CAPTION>
Check One: DANYL [_] SCS [_] BRT [_]
SCHLUMBERGER Purchase Commitment Date: October 22, 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
ACKNOWLEDGE TO: SHIP TO: Mac-Gray
22 Water Street
Cambridge, MA
02141-0003
- -----------------------------------------------------------------------------------------------------------------------------
BILL TO: CUSTOMER CONTACT: Joe Mantia ext. 365
John Martin ext. 315
John Volante ext. 330
- -----------------------------------------------------------------------------------------------------------------------------
Customer: ___ RECAP Spec Sheet Reference Nos. TAX: Order Subject to Applicable Sale
_____ New _____ Existing ___ Credit Application and Use Taxes.
___ Site Survey Purchase Order No. ____ Taxable
____ Exempt No. _____________
For Internal Use Only Sales Rep. ___________
Group Code: Resale Certificate must be provided with
__________________________ orders from new customers.
- -----------------------------------------------------------------------------------------------------------------------------
Terms: All invoices are due and payable ten days from Requested Method of Requested Delivery Date:
date of invoice in the manner set forth in Seller's Shipment:
quotation, provided that Buyer's creditworthiness is
established in advance of acceptance of order by Seller.
If not so established, payment shall be made in
advance or COD as determined by Seller at time of order
acceptance. Complete Terms and Conditions available
upon request.
Unless different terms are specified in Seller's
quotation, all sales are made FOB Seller's U.S.
shipping point, with freight prepaid. Freight
charges shall be involved to Buyer.
- -----------------------------------------------------------------------------------------------------------------------------
UNIT GROSS
ITEM QTY. PRODUCT NO. DESCRIPTION PRICE AMOUNT
=============================================================================================================================
5 ** SOLOLOCK/MG DOOR ACCESS UNIT (including LMI cable/
power pack) $ ** $ **
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL $ **
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
REMARKS: Delivery Schedule as follows: Product will be delivered in equal
amounts, per month, beginning January 1, 1998 and running til June 30, 1998.
This is a non-cancellable purchase order. See attached agreement for product
terms and conditions
Schlumberger CUSTOMER: BY EXECUTION HEREOF
UNDERSIGNED CERTIFIED
ORDERING OF ABOVE EQUIPMENT AND SERVICES
By: ______________________________ By:_____________________________________
John McLaughlin, Nat'l Account _____________________________________
------------------------------ Authorized Signature
Mgr. Laundry
------------------------------ _____________________________________
Title Date
______________________________
SCHLUMBERGER . 1509 GLEN AVENUE . MOORESTOWN, NJ 08057 . (609) 234-8000
<PAGE>
EXHIBIT 10.24
================================================================================
STOCK AND ASSET PURCHASE AGREEMENT
By and Among
Mac-Gray Services, Inc.,
("Buyer")
Amerivend Corporation,
("Amerivend")
Amerivend Southeast Corporation,
("Amerivend Southeast")
and
Gerald E. Pulver
and
Gerald E. Pulver Grantor Retained Annuity Trust
("Stockholders")
March 4, 1998
================================================================================
<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT
INDEX
-----
Page
----
SECTION 1. SALE OF SHARES AND ASSETS; PURCHASE PRICE.............. 1
1.01 Transfer of Amerivend Shares................................ 1
1.02 Sale of Southeast Assets.................................... 2
1.03 Purchase Price.............................................. 2
1.04 Closing..................................................... 3
1.05 Amerivend Purchase Price Adjustment......................... 3
1.06 Further Assurances.......................................... 5
1.07 Transfer Taxes.............................................. 5
1.08 No Assumption; Allocation of Southeast Purchase Price....... 5
1.09 Proration................................................... 5
1.10 Transfer of Southeast Assets................................ 5
1.11 Employees................................................... 6
1.12 Stockholders' Representative................................ 6
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND
MR. PULVER
2.01 Making of Representations and Warranties.................... 8
2.02 Organization and Qualifications of the Companies............ 8
2.03 Capital Stock of the Companies; Beneficial Ownership........ 8
2.04 Subsidiaries; Investments................................... 8
2.05 Authority................................................... 9
2.06 Real and Personal Property.................................. 10
2.07 Laundry Leases.............................................. 12
2.08 Equipment................................................... 13
2.09 Title....................................................... 13
2.10 Financial Statements........................................ 13
2.11 Taxes....................................................... 14
2.12 Collectibility of Accounts Receivable....................... 16
2.13 Inventories................................................. 16
2.14 Absence of Certain Changes.................................. 17
2.15 Ordinary Course............................................. 19
2.16 Banking Relations........................................... 19
2.17 Intellectual Property....................................... 19
2.18 Contracts................................................... 20
2.19 Litigation.................................................. 22
2.20 Compliance with Laws........................................ 22
2.21 Insurance................................................... 22
2.22 Warranty or Other Claims.................................... 23
2.23 Powers of Attorney.......................................... 23
(i)
<PAGE>
2.24 Finder's Fee................................................ 23
2.25 Permits; Burdensome Agreements.............................. 23
2.26 Corporate Records; Copies of Documents...................... 23
2.27 Transactions with Interested Persons........................ 24
2.28 Employee Benefit Programs................................... 24
2.29 Environmental Matters....................................... 26
2.30 List of Directors and Officers.............................. 27
2.31 Employees; Labor Matters.................................... 27
2.32 Non-Foreign Status.......................................... 28
2.33 Backlog..................................................... 28
2.34 Customers, Distributors and Suppliers....................... 28
2.35 Transfer of Shares.......................................... 29
2.36 Stock Repurchase............................................ 29
2.37 Disclosure.................................................. 29
2.38 Commission Payments......................................... 29
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS 29
3.01 Amerivend Shares............................................ 29
3.02 Authority................................................... 30
3.03 Finder's Fee................................................ 30
3.04 Agreements.................................................. 30
SECTION 4. COVENANTS OF THE COMPANIES AND THE STOCKHOLDERS........ 31
4.01 Making of Covenants and Agreements.......................... 31
4.02 Conduct of Business......................................... 31
4.03 Consents.................................................... 33
4.04 Notice of Default........................................... 33
4.05 Consummation of Agreement................................... 33
4.06 Cooperation of the Companies and the Stockholders........... 33
4.07 No Solicitation of Other Offers............................. 33
4.08 Confidentiality............................................. 34
4.09 Tax Returns................................................. 34
4.10 Filing Cooperation.......................................... 34
4.11 No Transfer of Securities................................... 34
4.12 Use of Trade Name........................................... 35
4.13 Updating of Information..................................... 35
4.14 2451 Brickell Avenue........................................ 35
SECTION 4A. CERTAIN TAX MATTERS................................... 35
4A.01 Section 338(h)(10) Election................................. 35
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER................ 36
5.01 Making of Representations and Warranties.................... 36
5.02 Organization of Buyer....................................... 36
(ii)
<PAGE>
5.03 Authority of Buyer.......................................... 36
5.04 Litigation.................................................. 37
5.05 Finder's Fee................................................ 37
SECTION 6. COVENANTS OF BUYER..................................... 37
6.01 Making of Covenants and Agreements.......................... 37
6.02 Confidentiality............................................. 37
6.03 Consents.................................................... 38
6.04 Consummation of Agreement................................... 38
SECTION 7. CONDITIONS............................................. 38
7.01 Conditions to the Obligations of Buyer...................... 38
7.02 Conditions to Obligations of the Companies and the
Stockholders................................................ 42
SECTION 8. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED............ 43
8.01 Termination................................................. 43
8.02 Effect of Termination....................................... 44
8.03 Right to Proceed............................................ 44
SECTION 9. SURVIVAL............................................... 44
9.01 Survival of Warranties...................................... 44
SECTION 10. INDEMNIFICATION....................................... 44
10.01 Indemnification by Southeast and the Stockholders........... 44
10.02 Limitations on Indemnification by Southeast and the
Stockholders................................................ 45
10.03 Indemnification by Buyer.................................... 46
10.04 Limitation on Indemnification by Buyer...................... 46
10.05 Notice; Defense of Claims................................... 46
10.06 Claims Against Indemnification Escrow....................... 47
SECTION 11. MISCELLANEOUS......................................... 47
11.01 Fees and Expenses........................................... 47
11.02 Governing Law............................................... 48
11.03 Notices..................................................... 48
11.04 Entire Agreement............................................ 49
11.05 Assignability; Binding Effect............................... 49
11.06 Captions and Gender......................................... 49
11.07 Execution in Counterparts................................... 49
11.08 Amendments.................................................. 49
11.09 Publicity and Disclosures................................... 49
11.10 Consent to Jurisdiction..................................... 50
11.11 Specific Performance........................................ 50
11.12 Bulk Sales Law.............................................. 50
(iii)
<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT
----------------------------------
AGREEMENT entered into as of March 4, 1998 by and among Mac-Gray Services,
Inc., a Delaware corporation ("Buyer"), Amerivend Corporation, a Florida
corporation ("Amerivend"), Amerivend Southeast Corporation, a Georgia
corporation ("Southeast"), Gerald E. Pulver ("Mr. Pulver") and the Gerald E.
Pulver Grantor Retained Annuity Trust (the "Pulver Trust"). Amerivend and
Amerivend Southeast are sometimes referred to herein individually as a "Company"
and together as the "Companies" and Mr. Pulver and the Pulver Trust are
sometimes referred to herein individually as a "Stockholder" and together as the
"Stockholders."
W I T N E S S E T H
-------------------
AS, the Stockholders are the record and beneficial owners of all of
the issued and outstanding capital stock of Amerivend which consists entirely of
an aggregate of Five Hundred (500) shares of common stock, $.10 par value per
share (the "Amerivend Shares");
WHEREAS, subject to the terms and conditions set forth herein, the
Stockholders desire to sell all of the Amerivend Shares to Buyer, and Buyer
desires to acquire all of the Amerivend Shares; and
WHEREAS, subject to the terms and conditions hereof, Southeast desires to
sell, transfer and assign to Buyer and Buyer desires to purchase from Southeast,
all of the properties and assets comprising the laundry distribution and coin
route management business of Southeast (the "Southeast Laundry Business").
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein, the parties hereto
agree as follows:
SECTION SALE OF SHARES AND ASSETS; PURCHASE PRICE.
--------------------------------------------------
1.01 Transfer of Amerivend Shares. At the Closing (as hereinafter
----------------------------
defined), each Stockholder shall deliver or cause to be delivered to Buyer
certificates representing all of the Amerivend Shares owned by such Stockholder
as set forth on Exhibit A, which collectively shall represent all of the issued
---------
and outstanding capital stock of Amerivend. Such stock certificates shall be
duly endorsed in blank for transfer or shall be presented with stock powers duly
executed in blank, with such signature guarantees and such other documents as
may be reasonably required by Buyer to effect a valid transfer of such Amerivend
Shares by such Stockholder, free and clear of any and all liens, encumbrances,
charges or claims. Each Stockholder by execution of this Agreement hereby
appoints Buyer as his attorney-in-fact to effectuate transfer of the Amerivend
Shares at the Closing.
<PAGE>
1.02 Sale of Southeast Assets. Upon the terms and subject to the
------------------------
conditions set forth in this Agreement, Southeast agrees to sell, assign,
transfer and deliver to Buyer, and Buyer agrees to purchase from Southeast, all
right, title and interest in and to the following assets of Southeast which
comprise the Southeast Laundry Business, other than the Southeast Receivable (as
defined below) (the "Southeast Assets"):
(a) Laundry Machines and other Tangible Assets. All of Southeast's
------------------------------------------
(i) new and used inventory of washers and dryers, soap, bleach and softener
dispensers and change machines, parts and accessories, a true, correct and
complete list of which is attached hereto as Schedule 1.02(a)(i) and (ii)
-------------
furniture and office equipment, a true, correct and complete list of which is
attached hereto as Schedule 1.02(a)(ii), in each case together with any
-------------
additions thereto prior to the Closing Date;
(b) Vehicles. All of the vehicles listed on Schedule 1.02(b) attached
-------- ------------
hereto;
(c) Receivables. All notes and accounts receivable of Southeast
-----------
outstanding on the Closing Date (other than the receivable due from Amerivend to
Southeast in the amount of $408,299, plus any interest through the Closing Date
(the "Southeast Receivable"));
(d) Name. The name "Amerivend Southeast" and all related and
----
associated logos and trademarks, and all licenses to or from third parties with
respect to the foregoing and rights related thereto;
(e) Distributorship; Contracts. All of the rights of Southeast
--------------------------
under and interest of Southeast in (i) all distributorship agreements with
Maytag Corporation, including all Parts Distributor Agreements and Commercial
Distributor Sales Agreements (collectively, the "Maytag Distributorship") and
(ii) all customer purchase orders;
(f) Goodwill. All of the goodwill of Southeast in, and the going
--------
concern value of the Southeast Laundry Business, and all of the intellectual
property and intangible assets of Southeast used or held for use in the
Southeast Laundry Business, including without limitation all business and
customer lists, proprietary information, and trade secrets; and
(g) Records. All of Southeast's customer logs and records and other
-------
business records relating to the Southeast Laundry Business.
1.03 Purchase Price. In reliance upon the representations and warranties
--------------
of the Companies and the Stockholders contained herein and made at the Closing
and subject to satisfaction of all of the conditions contained herein:
(a) Amerivend Shares. In consideration of the sale by the
----------------
Stockholders to Buyer of the Amerivend Shares, Buyer agrees that at the Closing
it will deliver to the Stockholders an aggregate purchase price (the "Amerivend
Purchase Price") equal to (i) $33,140,000, less (ii) the aggregate amount of
principal of and accrued and unpaid interest,
2
<PAGE>
premiums and penalties (if any) and other amounts on all indebtedness of
Amerivend for borrowed funds outstanding as of the Closing Date (as hereinafter
defined) (assuming payment in full by Buyer of all such indebtedness on the
Closing Date), including without limitation the indebtedness listed on Schedule
--------
1.03 attached hereto (but excluding the Southeast Receivable), less (iii) the
- ----
amount of the Southeast Receivable, and as adjusted pursuant to Section 1.05
hereof. The Amerivend Purchase Price shall be paid by Buyer at the Closing by
delivery to the Escrow Agent (as defined in Section 1.03(c) below) of $1,500,000
with the balance paid to the Stockholders, as allocated between the Stockholders
as specified on Exhibit A hereto, by wire transfer to an account specified by
---------
each Stockholder.
(b) Southeast Assets. In consideration of the sale by Southeast to
----------------
Buyer of the Southeast Assets, Buyer agrees that at the Closing it will deliver
to Southeast an aggregate purchase price (the "Southeast Purchase Price") equal
to $360,000, which shall be paid at the Closing by wire transfer to an account
specified by Southeast.
(c) Escrow Amount. On the Closing Date, Buyer shall deliver to State
-------------
Street Bank and Trust Company (the "Escrow Agent") cash in an amount equal to
$1,500,000 (the "Escrow Amount") to be held by the Escrow Agent pursuant to and
in accordance with the terms and provisions of the Indemnification Escrow
Agreement in the form attached hereto as Exhibit B (the "Escrow Agreement").
---------
1.04 Closing. Unless this Agreement shall have been terminated in
-------
accordance with Section 8 hereof, the closing of the purchase and sale of the
Amerivend Shares and the Southeast Assets provided for in this Agreement (the
"Closing") shall take place at the offices of Goodwin, Procter & Hoar LLP at
Exchange Place, 53 State Street, Boston, Massachusetts 02109 commencing at 10:00
A.M. Eastern Standard Time on March 31, 1998 or, if the conditions contained in
Sections 7.01(i) and 7.02(d) have not been satisfied by such date, on the date
that is three (3) business days after such conditions are satisfied, in either
case provided that the conditions to closing set forth in Section 7 hereof are
satisfied or, if applicable, waived, or at such other time and date as may be
otherwise mutually agreed upon by the parties (the "Closing Date"). Except as
otherwise expressly provided in this Agreement or in any document contemplated
by this Agreement, all matters at the Closing shall be considered to take place
simultaneously and no delivery of any documents shall be deemed complete until
all transactions and deliveries of documents are completed.
1.05 Amerivend Purchase Price Adjustment.
-----------------------------------
(a) Closing Adjustment. The Amerivend Purchase Price shall be
------------------
adjusted as of the Closing Date to the extent that Estimated Net Working Capital
(as defined below) of Amerivend differs from the Net Working Capital of
Amerivend at December 31, 1996 (the "1996FYE Net Working Capital"), which the
parties estimate was $870,300, as follows:
3
<PAGE>
(i) The Amerivend Purchase Price shall be increased by the
amount (if any) by which Estimated Net Working Capital exceeds the 1996FYE Net
Working Capital; and
(ii) The Amerivend Purchase Price shall be decreased by the
amount (if any) by which the 1996FYE Net Working Capital exceeds Estimated Net
Working Capital.
For purposes of this Section 1.05, "Net Working Capital" means the aggregate
value of Amerivend's current assets minus the aggregate value of Amerivend's
current liabilities (excluding any current portion of any indebtedness which
reduces the Amerivend Purchase Price pursuant to Section 1.03 hereof), all as
determined in accordance with generally accepted accounting principles ("GAAP")
and consistent with the practices and policies used in preparing Amerivend's
December 31, 1996 balance sheet. For purposes of this Agreement, "Estimated Net
Working Capital" means the estimated Net Working Capital of Amerivend at the
Closing Date based on a statement jointly prepared by and agreed to by Buyer and
Amerivend at least two business days prior to the Closing Date.
(b) Post-Closing Adjustment. The Amerivend Purchase Price will be
-----------------------
adjusted dollar for dollar following the Closing Date as provided in this
Section 1.05(b). Buyer shall pay the Stockholders (in proportion to their
respective allocations on Exhibit A hereto) the amount (if any) by which the
---------
Closing Net Working Capital (as defined in Section 1.05(c) below) exceeds the
Estimated Net Working Capital and the Stockholders shall pay Buyer the amount
(if any) by which the Estimated Net Working Capital exceeds the Closing Net
Working Capital. Payment shall be made in immediately available funds by the
party obligated to make such payment not more than five business days following
the determination of the Closing Net Working Capital pursuant to Section 1.05(c)
hereof.
(c) Closing Net Working Capital Statement. Buyer will furnish to the
-------------------------------------
Stockholders' Representative (as defined in Section 1.12 hereof) not later than
45 days after the Closing Date a statement (the "Closing Net Working Capital
Statement") showing the Net Working Capital of Amerivend at the Closing Date
(the "Closing Net Working Capital"). Buyer will give Stockholders'
Representative and his accountants reasonable access to books, records and work
papers of Amerivend for purposes of confirming the Closing Net Working Capital
Statement. Unless Stockholders' Representative notifies Buyer in writing that
it disagrees with the Closing Net Working Capital Statement within 30 days after
Stockholders' Representative's receipt thereof, the Closing Net Working Capital
Statement shall be conclusive and binding on all parties hereto and not subject
to dispute or review. If Stockholders' Representative notifies Buyer in writing
of its disagreement with the Closing Net Working Capital Statement within such
30-day period, then Stockholders' Representative and Buyer shall attempt to
resolve their differences with respect thereto within 30 days after Buyer's
receipt of Stockholders' Representative's written notice of disagreement. Any
dispute regarding the Closing Net Working Capital Statement not resolved by
Stockholders' Representative and Buyer within such 30-day period will be
resolved by an accounting firm mutually acceptable to both parties or, in the
absence of agreement, by an accounting firm of national reputation selected by
lot after eliminating Buyer's principal outside accountants and
4
<PAGE>
Stockholders' Representative' principal outside accountants and one additional
firm designated as objectionable by each of Buyer and Stockholders'
Representative. The parties will engage the accounting firm within seven days
after such 30-day period. The determination by the accounting firm so selected
of the Closing Net Working Capital Statement and the Closing Net Working Capital
(with such modifications therein, if any, as reflect such determination) shall
be conclusive and binding upon all parties hereto and not subject to dispute or
review. The fees and expenses of such accounting firm in acting (in the event of
a dispute) under this Section 1.05(c) shall be shared equally by Stockholders'
Representative and Buyer.
1.06 Further Assurances. The Stockholders and Southeast from time to time
------------------
after the Closing at the request of Buyer and without further consideration
shall execute and deliver further instruments of transfer and assignment and
take such other action as Buyer may reasonably require to more effectively
transfer and assign to, and vest in, Buyer the Amerivend Shares, the Southeast
Assets and all rights thereto, and to fully implement the provisions of this
Agreement.
1.07 Transfer Taxes. All sales and transfer taxes, fees and duties, if
--------------
any, under applicable law incurred in connection with the sale and transfer of
the Amerivend Shares and Southeast Assets pursuant to this Agreement will be
borne and paid by the Stockholders and Southeast, respectively, and the
Stockholders and Southeast shall promptly reimburse Amerivend and Buyer for any
such tax, fee or duty which any of them is required to pay under applicable law.
1.08 No Assumption; Allocation of Southeast Purchase Price. Buyer is not
-----------------------------------------------------
assuming and shall not pay or be liable for any liability or obligation of
Southeast of any kind or nature, known, unknown, contingent or otherwise. At or
prior to the Closing, Buyer and Southeast shall agree on the allocation of the
Southeast Purchase Price, which allocation shall be set forth on Schedule 1.08
-------------
attached hereto. Such allocation shall be made in accordance with (i) the
respective fair market values of the Southeast Assets being purchased and sold
and (ii) the provisions of Section 1060 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder, and shall be binding upon
Buyer and Southeast for all purposes (including financial accounting purposes,
financial and regulatory reporting purposes and tax purposes). Buyer and
Southeast each further agrees to file its Federal income tax returns and its
other tax returns reflecting such allocation, Form 8594 and any other reports
required by Section 1060 of the Code, in accordance with said allocation.
1.09 Proration. Buyer and Southeast shall prorate personal property taxes
---------
and any other items as agreed by Buyer and Southeast in connection with the sale
of the Southeast Assets. Such proration shall be made as of 12:00 a.m. on the
Closing Date and the Southeast Purchase Price shall be adjusted as necessary to
reflect such proration.
1.10 Transfer of Southeast Assets. At the Closing, Southeast shall
----------------------------
deliver or cause to be delivered to Buyer good and sufficient instruments of
transfer transferring to Buyer title to all of the Southeast Assets including
without limitation, a Bill of Sale and assignments of the
5
<PAGE>
Maytag Distributorship, together with any required consents to assignment. Such
instruments of transfer (a) shall be in the form which is usual and customary
for transferring the type of property involved under the laws of the
jurisdictions applicable to such transfers, (b) shall be in form and substance
reasonably satisfactory to Buyer and its counsel, (c) shall effectively vest in
Buyer good and marketable title to all of the Southeast Assets free and clear of
all Encumbrances (as defined in Section 2.06 hereof), and (d) where applicable,
shall be accompanied by evidence of the discharge of all Encumbrances against
the Southeast Assets.
1.11 Employees.
---------
(a) Southeast shall terminate all of its employees effective as of
the Closing and Buyer shall not assume or have any obligations or liabilities
with respect to such terminations.
(b) Buyer shall offer employment to each of Southeast's employees as
of the Closing Date. Southeast acknowledges and agrees that Buyer may interview
and discuss employment terms and issues with its employees. Nothing in this
Agreement shall be construed as a commitment or obligation of Buyer to continue
the employment of, any of Southeast's employees.
(c) Southeast shall pay all wages, salaries, commissions, and the
cost of all fringe benefits provided to all of its employees which shall have
become due for work performed as of and through the day preceding the Closing
Date, and Southeast shall collect and pay all taxes in respect of such wages,
salaries, commissions and benefits.
(d) Southeast acknowledges and agrees that Buyer shall not acquire
any rights or interests of Southeast in, or assume or have any obligations or
liabilities of Southeast under, any benefit plans maintained by, or for the
benefit of employees of Southeast prior to the Closing Date including without
limitation obligations for severance or vacation accrued but not taken as of the
Closing Date.
1.12 Stockholders' Representative.
----------------------------
(a) By executing and delivering this Agreement, each Stockholder
hereby irrevocably constitutes and appoints Gerald E. Pulver as his true and
lawful agent and attorney-in-fact (the "Stockholders' Representative") with full
power of substitution to act in his name, place and stead with respect to all
transactions contemplated by, and all terms and provisions of, this Agreement,
and to act on his behalf in any dispute or arbitration involving this Agreement,
and to do or refrain from doing all such further acts and things, and execute
all such documents as the Stockholders' Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement,
in all events in the Stockholders' Representative's sole and absolute
discretion, including, without limitation, the power:
6
<PAGE>
(i) to waive any condition to the obligations of the Company and the
Stockholders to consummate the transactions contemplated by this Agreement;
(ii) to act for each Stockholder with regard to matters pertaining to
indemnification referred to in this Agreement, including the power to compromise
any claim on behalf of any Stockholder and to transact matters of litigation;
(iii) to execute and deliver all ancillary agreements, certificates
and documents, and to make representations and warranties therein, on behalf of
each Stockholder in connection with the consummation of the transactions
contemplated by this Agreement;
(iv) to do or refrain from doing any further act or deed on behalf of
each Stockholder relating to the subject matter of this Agreement, as fully and
completely as each such Stockholder could do if personally present; and
(v) to receive all notices on behalf of each Stockholder in
connection with any claims or matters under this Agreement.
(b) The appointment of the Stockholders' Representative in this
Section 1.04 shall be deemed coupled with an interest and shall be irrevocable,
and Buyer and any other person may conclusively and absolutely rely, without
inquiry, upon any action of the Stockholders' Representative on behalf of the
Stockholders in all matters referred to herein. All notices delivered by Buyer
to the Stockholders' Representative (whether pursuant hereto or otherwise) for
the benefit of the Stockholders shall constitute notice to the Stockholders.
(c) All actions, decisions and instructions of the Stockholders'
Representative taken, made or given pursuant to the authority granted to the
Stockholders' Representative pursuant to paragraph (a) above shall be conclusive
and binding upon the Stockholders, and the Stockholders shall not have the right
to object, dissent, protest or otherwise contest the same.
(d) The provisions of this Section 1.12 are independent and
severable, shall constitute an irrevocable power of attorney, coupled with an
interest surviving death or disability of any Stockholder, granted by each of
the Stockholders to the Stockholders' Representative and shall be binding upon
the executors, heirs, legal representatives, successors and assigns of each of
the Stockholders.
(a) Buyer shall be entitled to rely conclusively on the instructions
and decisions of the Stockholders' Representative as to any actions required or
permitted to be taken by the Stockholders or the Stockholders' Representative
hereunder, and no party hereunder shall have any cause of action against Buyer
for any action taken in good faith by Buyer in reliance upon the instructions or
decisions of the Stockholders' Representative.
7
<PAGE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND MR. PULVER.
-------------------------------------------------------------------------
2.01 Making of Representations and Warranties. As a material inducement
----------------------------------------
to Buyer to enter into this Agreement and consummate the transactions
contemplated hereby, each Company and Mr. Pulver jointly and severally hereby
make to Buyer the representations and warranties contained in this Section 2. No
Stockholder shall have any right of indemnity or contribution from Amerivend or
any Subsidiary with respect to the breach of any representation or warranty
hereunder.
2.02 Organization and Qualifications of the Companies. Each Company is a
------------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Florida (in the case of Amerivend) or Georgia (in the case of Southeast),
with full corporate power and authority to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is currently conducted or proposed to be
conducted. The copies of each Company's Articles of Incorporation, as amended
to date, and of each Company's by-laws, as amended to date, and heretofore
delivered to Buyer's counsel, are complete and correct, and no amendments
thereto are pending. Each Company is duly qualified to do business as a foreign
corporation in each jurisdiction where the nature of its properties or the
conduct of its business makes its qualification so necessary, except where the
failure to be so qualified would not have a material adverse effect on the
business, assets, properties, results of operations, condition (financial or
otherwise) or prospects (a "Material Adverse Effect") of the Companies and their
Subsidiaries (as hereinafter defined) taken as a whole.
2.03 Capital Stock of the Companies; Beneficial Ownership.
----------------------------------------------------
(a) The authorized capital stock of Amerivend consists of 3,000,000
shares of common stock, $.10 par value per share, of which 500 shares are duly
and validly issued, outstanding, fully paid and nonassessable and of which
2,999,500 shares are authorized but unissued. There are no outstanding options,
warrants, rights, commitments, preemptive rights or agreements of any kind for
the issuance or sale of, or outstanding securities convertible into, any
additional shares of capital stock of any class of Amerivend. No capital stock
of either Company has been issued in violation of any federal or state law.
Except as set forth in Schedule 2.03 attached hereto, there are no voting
-------------
trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Amerivend Shares to which either
Amerivend or any of the Stockholders is a party.
(b) Each of the Stockholders owns beneficially and of record that
number of Amerivend Shares set forth opposite such Stockholder's name in Exhibit
-------
A attached hereto free and clear of any and all Encumbrances.
- -
2.04 Subsidiaries; Investments. Each Company's subsidiaries and
-------------------------
investments in any other corporation or business entity are listed in Schedule
--------
2.04 attached hereto (collectively,
- ----
8
<PAGE>
the "Subsidiaries" and, individually, each a "Subsidiary"). Except as set forth
in Schedule 2.04 attached hereto, each Subsidiary is a duly organized, validly
-------------
existing corporation or other business entity in good standing under the laws of
the jurisdiction of its incorporation or formation with full power and authority
to own or lease its properties and to conduct its business in the manner and in
the places where such properties are owned or leased or such business is
currently conducted or proposed to be conducted. Except as disclosed in
Schedule 2.04 attached hereto, all of the outstanding shares of capital stock
- -------------
of each Subsidiary are owned beneficially and of record by the relevant Company,
free of any lien, restriction or encumbrance and said shares have been duly and
validly issued and are outstanding, fully paid and nonassessable. The copies of
each of the Subsidiaries' Articles of Incorporation and by-laws, or other
organizational documents, each as amended to date, and heretofore delivered to
Buyer's counsel, are complete and correct, and no amendments thereto are
pending. None of the Subsidiaries is in violation of any term of its Articles of
Incorporation or by-laws (or comparable organizational documents). Each
Subsidiary is duly qualified to do business as a foreign corporation in each
jurisdiction where (i) such Subsidiary conducts business and (ii) the laws of
such jurisdiction require such qualification, and it is not required to be
licensed or qualified to conduct its business or own its property in any other
jurisdiction. Except as disclosed in Schedule 2.04 attached hereto, (A) there
-------------
are no outstanding warrants, options or other rights to purchase or acquire any
of the shares of capital stock or other ownership interests of any Subsidiary,
or any outstanding securities convertible into such shares or outstanding
warrants, options or other rights to acquire any such convertible securities,
(B) there are no restrictions on the transfer of any Subsidiaries' capital stock
or other ownership interests, and (C) no capital stock or other ownership
interest of any Subsidiary has been issued in violation of any foreign, federal,
state or local law.
2.05 Authority. Each Company has full right, authority and power to enter
---------
into this Agreement and each agreement, document and instrument to be executed
and delivered by such Company pursuant to this Agreement and to carry out the
transactions contemplated hereby and thereby. The execution, delivery and
performance by each Company of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action of
such Company and no other action on the part of such Company is required in
connection therewith.
This Agreement and each agreement, document and instrument contemplated
hereby to which either Company is a party constitute, or when executed and
delivered by such Company will constitute, valid and binding obligations of such
Company enforceable against such Company in accordance with their terms, except
as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights
and (ii) general principles of equity that restrict the availability of
equitable remedies. The execution, delivery and performance by each Company of
this Agreement and each such agreement, document and instrument:
(A) does not and will not violate any provision of the Articles of
Incorporation or by-laws or any similar organizational documents of either
Company;
9
<PAGE>
(B) does not and will not violate any federal, state or local laws
applicable to either Company or require either Company to obtain any approval,
consent or waiver of, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made; and
(C) does not and will not result in a breach of, constitute a default
under, accelerate any obligation under, or give rise to a right of termination
of any indenture or loan or credit agreement or any other agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award to which either Company
(or any of its Subsidiaries) is a party or by which the property of either
Company (or any of its Subsidiaries) is bound or affected, except as set forth
on Schedule 2.05, or result in the creation or imposition of any mortgage,
-------------
pledge, lien, security interest or other charge or encumbrance on either
Company's (or any of its Subsidiary's) assets or on the capital stock of either
Company, except as specifically identified in Schedule 2.05 attached hereto.
-------------
2.06 Real and Personal Property.
--------------------------
(a) Real Property. All of the real property owned or leased by
-------------
either Company or any of its Subsidiaries is identified in Schedule 2.06(a)
----------------
attached hereto (herein referred to as the "Owned Real Property" or the "Leased
Real Property," as the case may be, or collectively as the "Real Property.")
(i) Title. Except as set forth in Schedule 2.06(a) attached
----- ----------------
hereto, each Company and each Subsidiary (as the case may be) has good, clear,
record and marketable title to (A) all Owned Real Property of such Company and
(B) enforceable leasehold interests in the Leased Real Property of such Company,
in each case free and clear of all easements, covenants, restrictions, leases,
mortgages, liens, assessments, claims, rights, judgments, encroachments,
pledges, conditional sale agreements, security interests, encumbrances, or other
matters affecting title (collectively, "Encumbrances"), other than:
(x) easements, covenants, restrictions and similar
encumbrances that do not and could not materially interfere with the use of the
Owned Real Property as currently used and improved; and
(y) minor encroachments that do not and could not
materially adversely affect the value or use of the Owned Real Property as
currently used and improved and that could be removed without material cost.
((x) and (y) are collectively referred to as "Permitted Encumbrances"), except
as set forth in Schedule 2.06(a) attached hereto. To the knowledge of the
----------------
Companies and the Sto`ckholders, the lessors of the Leased Real Property have
good, clear, record and marketable title to the Leased Real Property, and the
Companies and their Subsidiaries have good, clear, record and marketable title
to enforceable leasehold interests in the Leased Real Property, in each case
10
<PAGE>
free and clear of all Encumbrances other than Permitted Encumbrances, subject
only to the right of reversion of the lessor, except as set forth in Schedule
--------
2.06(a).
- -------
(ii) Status of Leases. All leases of Leased Real Property or of
----------------
Owned Real Property are identified in Schedule 2.06(a) attached hereto, and true
----------------
and complete copies thereof have been delivered to Buyer. Each of said leases
has been duly authorized and executed by the parties thereto and is in full
force and effect. Neither Company nor any of their Subsidiaries is in default
under any of said leases or has received any notice thereof, nor has any event
occurred which, with notice or the passage of time, or both, would give rise to
such a default. To the knowledge of the Companies and the Stockholders, none of
the other parties to said leases is in default thereunder and there is no event
which, with notice or the passage of time, or both, would give rise to such a
default. After giving effect to the transactions contemplated by this
Agreement, each of said leases will be fully enforceable by the Company or
Subsidiary which is a party thereto against the other party thereto.
(iii) Consents. Except as set forth in Schedule 2.06(a) attached
-------- ----------------
hereto, no approval is required with respect to the transactions contemplated by
this Agreement from the other parties to any lease of the Leased Real Property,
from the holder of any Encumbrance on any Owned Real Property, or from any
regulatory authority, no filing with any regulatory authority is required in
connection therewith, and to the extent that any such consents, approvals or
filings are required, the Companies or the Stockholders will obtain or complete
them before the Closing.
(iv) Condition of Real Property. There are no material defects
--------------------------
in the physical condition of any land, buildings or improvements constituting
part of the Real Property, including, without limitation, structural elements,
mechanical systems, parking and loading areas, and all such buildings and
improvements are in good operating condition and repair and have been well
maintained.
(v) Compliance with the Law. Neither Company nor any
-----------------------
Subsidiary has received any notice from any governmental authority of any
violation of any law, ordinance, regulation, license, permit or authorization
issued with respect to any Real Property that has not been heretofore corrected,
and no such violation exists which should have a material adverse effect on the
operation or value of any Real Property. All improvements located on or
constituting part of the Real Property and their use and operation by the
Companies and their Subsidiaries were and are now in compliance in all material
respects with all applicable laws, ordinances, regulations, licenses, permits
and authorizations, except as set forth in Schedule 2.06(a) attached hereto. No
----------------
approval or consent to the transactions contemplated by this Agreement is
required of any governmental authority with jurisdiction over any aspect of the
Real Property or its use or operations, except where the failure to obtain such
approval or consent would not have a material adverse effect on the operation or
value of the Real Property. Neither Company nor any Subsidiary has received any
notice of any real estate tax deficiency or assessment which has not been
satisfied or is aware of any proposed
11
<PAGE>
material deficiency, claim or assessment with respect to any of the Real
Property, or any pending or threatened condemnation thereof.
(b) Personal Property. A complete description of the machinery and
-----------------
equipment of each Company and each of its Subsidiaries is contained in Schedule
--------
2.06(b) attached hereto. Except as specifically disclosed in said Schedule or
- -------
the Base Balance Sheet (as hereinafter defined), each Company and each of its
Subsidiaries has good and marketable title to all of its personal property.
None of such personal property or assets is subject to any Encumbrance except as
specifically disclosed in said Schedule or in the Base Balance Sheet. The Base
Balance Sheet reflects all personal property of Amerivend and each of its
Subsidiaries. Except as otherwise specified in Schedule 2.06(b) attached
----------------
hereto, all leasehold improvements, furnishings, machinery and equipment of each
Company and each of its Subsidiaries are in good repair, have been well
maintained and substantially comply with all applicable laws, ordinances and
regulations, and such machinery and equipment is in good working order; and
neither Company nor any of the Stockholders knows of any pending or threatened
change of any such law, ordinance or regulation which could adversely affect
either Company, any of its Subsidiaries or any of their businesses.
2.07 Laundry Leases. Schedule 2.07 attached hereto lists all of the
-------------- -------------
contracts, understandings and arrangements, whether written or oral, including
any tenancy at will, under which either Company or any of their Subsidiaries are
bound, or to which either Company or any of their Subsidiaries is a party, which
relate to the placement of laundry machines (the "Laundry Leases"). Schedule
--------
2.07 attached hereto contains a true, correct and complete list of all Laundry
- ----
Lease locations, Laundry Lease expirations, the number of laundry machines at
each Laundry Lease location, vend prices, net revenues after commission for each
Laundry Lease location and whether the terms of such Laundry Lease require the
consent or approval of or prior notice to any third party as a result of the
consummation of the transactions contemplated by this Agreement. True and
correct copies of all the Laundry Leases have been delivered or made available
to Buyer prior to the date hereof. Each of the Laundry Leases is valid, in full
force and effect and binding upon the relevant Company or its Subsidiaries, as
the case may be, and the other parties thereto in accordance with its respective
terms. Neither Company, its Subsidiaries nor, to the knowledge of the Companies
and the Stockholders, any other party is in default under or in arrears in the
performance, payment or satisfaction of any agreement or condition on its part
to be performed or satisfied under any Laundry Lease, nor, to the knowledge of
the Companies and the Stockholders, does any condition exist that with notice or
lapse of time or both would constitute such a default, and no waiver or
indulgence has been granted by any lessee under any Laundry Lease. Neither
Company nor any of its Subsidiaries has received notice or has knowledge of any
fact which would result in the termination, repudiation or breach of any Laundry
Lease. After giving effect to the transactions contemplated by this Agreement,
each of the Laundry Leases will be valid and effective in accordance with its
terms, and fully enforceable by the relevant Company or a Subsidiary against the
other party thereto.
12
<PAGE>
2.08 Equipment. The laundry machines that are the subject of the Laundry
---------
Leases listed in Schedule 2.07 constitute all of the laundry machines which are
-------------
owned and/or operated by the Companies and their Subsidiaries, except for
laundry machines held in inventory as set forth in Schedule 2.08 attached
-------------
hereto. Schedule 2.08 attached hereto includes a true, correct and complete
-------------
list of: (i) all of the laundry machines and change machines installed at the
Laundry Lease locations listed in Schedule 2.07 and (ii) all of the inventory of
-------------
new laundry machines of the Companies and their Subsidiaries (collectively, the
"Equipment"). All of the Equipment is in good operating condition, ordinary
wear and tear excepted.
2.09 Title. Except as set forth in Schedule 2.09 attached hereto, each
----- -------------
Company and its Subsidiaries have good and valid title to, or a valid leasehold
interest in, all of their Equipment, Laundry Leases and the other properties and
assets which are used in their business or otherwise material to their financial
condition, free and clear of any Encumbrance. The Southeast Assets being
purchased by Buyer hereunder constitute all of the assets necessary for Buyer to
operate the Southeast Laundry Business as currently conducted.
2.10 Financial Statements.
--------------------
(a) The Companies have delivered to Buyer the following financial
statements, copies of which are attached hereto as Schedule 2.10:
-------------
(b) Consolidated balance sheets of Amerivend and its Subsidiaries as
of December 31, 1995, 1996 and 1997 and statements of income and retained
earnings and statements of cash flows for the three (3) years then ended, which
statements are audited by Amerivend's independent public accountants (KPMG Peat
Marwick in the case of the 1995 and 1996 statements and Morrison, Brown, Argiz &
Company in the case of the 1997 statements). The audited balance sheet of
Amerivend as of December 31, 1997 is referred to herein as the "Amerivend Base
Balance Sheet."
(c) Consolidated balance sheets of Southeast and its Subsidiaries as
of March 31, 1995, 1996 and 1997 and statements of income and retained earnings
and statements of cash flows for the three (3) years then ended, which
statements are audited by Conn & Company, P.C., independent public accountants.
The audited balance sheet of Southeast as of March 31, 1997 is referred to
herein as the "Amerivend Southeast Base Balance Sheet" and, together with the
Amerivend Base Balance Sheet, the "Base Balance Sheet."
(d) A consolidated balance sheet of Amerivend and its Subsidiaries
as of January 31, 1998 and statements of income and retained earnings and
statements of cash flows for the one-month period then ended, certified by
Amerivend's Treasurer or Chief Financial Officer.
(e) Consolidated balance sheets of Southeast and its Subsidiaries
as of December 31, 1997 and January 31, 1998 and statements of income and
retained earnings and statements of cash flows for the nine-month and one-month
periods then ended, respectivley, certified by Southeast's Treasurer or Chief
Financial Officer.
13
<PAGE>
The financial statements described in (b), (c), (d) and (e) above have been
prepared in accordance with GAAP applied consistently during the periods covered
thereby, are complete and correct in all material respects and present fairly in
all material respects the financial condition of each Company and its
Subsidiaries, as the case may be, at the dates of said statements and the
results of operations for the periods covered thereby.
(f) As of the date of the Base Balance Sheet, neither Company nor
any of its Subsidiaries has or will have any liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others, liabilities for taxes due or then accrued
or to become due, or contingent or potential liabilities relating to activities
of either Company or any of its Subsidiaries or the conduct of their business
prior to the date of the Base Balance Sheet, regardless of whether claims in
respect thereof had been asserted as of such date), except (i) liabilities
stated or adequately reserved against on the Base Balance Sheet or the notes
thereto, (ii) liabilities reflected in Schedules furnished to Buyer hereunder as
of the date hereof, or (iii) immaterial liabilities incurred in the ordinary
course of business of the Companies and their Subsidiaries, as applicable, in
existence as of the date of the Base Balance Sheet which are not required to be
reflected in the Base Balance Sheet or the notes thereto under GAAP.
(g) As of the date hereof and as of the Closing, neither Company nor
any of its Subsidiaries has had or will have any liabilities of any nature,
whether accrued, absolute, contingent or otherwise, asserted or unasserted,
known or unknown (including, without limitation, liabilities as guarantor or
otherwise with respect to obligations of others, liabilities for taxes due or
then accrued or to become due, or contingent or potential liabilities relating
to activities of either Company or any of its Subsidiaries or the conduct of
their business prior to the date hereof or the Closing, as the case may be,
regardless of whether claims in respect thereof had been asserted as of such
date), except liabilities (i) stated or adequately reserved against on the Base
Balance Sheet or the notes thereto, (ii) reflected in Schedules furnished to
Buyer hereunder on the date hereof, or (iii) incurred after the date of the Base
Balance Sheet in the ordinary course of business of the Companies or any
Subsidiary consistent with the terms of this Agreement.
2.11 Taxes.
-----
(a) Each Company and each of its Subsidiaries has paid or caused to
be paid all federal, state, local, foreign and other taxes, including, without
limitation, income taxes, estimated taxes, capital gains taxes, alternative
minimum taxes, excise taxes, sales taxes, goods and services taxes, use taxes,
value-added taxes, gross receipts taxes, franchise taxes, capital stock taxes,
employment and payroll-related taxes, withholding taxes, stamp taxes, transfer
taxes, windfall profit taxes, environmental taxes and property taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or other
additions to tax, interest, fines and penalties owed by it (collectively,
"Taxes"), required to be paid by it through the date hereof whether disputed or
not. All Taxes and other assessments and levies which either
14
<PAGE>
Company or any of their Subsidiaries is required to withhold or collect have
been withheld and collected and have been paid over to the proper governmental
authorities within the time required by applicable law.
(b) Each Company and each of its Subsidiaries has in accordance with
applicable law filed all federal, state, local and foreign tax returns and all
other materials required to be filed by it through the date hereof and will
continue to do so in respect of any fiscal period ending on or prior to the
Closing Date, and all such returns correctly and accurately set forth the amount
of any Taxes relating to the applicable period. A list of federal, state, local
and foreign income tax returns filed with respect to each Company and its
Subsidiaries for taxable periods ending on or after March 9, 1989 is set forth
in Schedule 2.11 attached hereto, and said Schedule indicates those returns that
-------------
have been audited or currently are subject of an audit. For each taxable period
of each Company and its Subsidiaries ended on or after March 9, 1989, such
Company has delivered to Buyer correct and complete copies of all federal,
state, local and foreign tax returns, examination reports and statements of
deficiencies assessed against or agreed to by such Company or any of its
Subsidiaries.
(c) Except as set forth in Schedule 2.11 attached hereto, neither
-------------
the Internal Revenue Service ("IRS") nor any other governmental authority is now
asserting or, to the knowledge of the Companies and the Stockholders,
threatening to assert against either Company or any of its Subsidiaries, any
deficiency or claim for additional Taxes. No claim has ever been made by an
authority in a jurisdiction where a Company or any Subsidiary does not file
reports and returns that such Company or such Subsidiary is or may be subject to
taxation by that jurisdiction. There are no Encumbrances on any of the assets of
the Companies or any of their Subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Taxes. Neither Company nor any
Subsidiary has ever entered into a closing agreement pursuant to Section 7121 of
the Internal Revenue Code of 1986, as amended (the "Code").
(d) Except as set forth in Schedule 2.11 attached hereto, there has
-------------
not been any audit of any tax return filed by either Company or any Subsidiary,
no such audit is in progress, and neither Company nor any Subsidiary has been
notified by any tax authority that any such audit is contemplated or pending.
Except as set forth in Schedule 2.11, no extension of time with respect to any
-------------
date on which a tax return was or is to be filed by either Company or any
Subsidiary is in force, and no waiver or agreement by either Company or any
Subsidiary is in force for the extension of time for the assessment or payment
of any Taxes.
(e) Neither Company nor any Subsidiary has ever been (or has ever
had any liability for unpaid Taxes because it once was) a member of an
"affiliated group" (as defined in Section 1504(a) of the Code). Except as set
forth in Schedule 2.11 attached hereto, neither Company nor any Subsidiary has
-------------
ever filed, and has ever been required to file, a consolidated, combined or
unitary tax return with any other entity. Except as set forth in Schedule 2.11,
--------------
neither Company nor any Subsidiary owns or has ever owned a direct or indirect
interest in any trust, partnership, corporation or other entity. Except as set
forth in Schedule 2.11
-------------
15
<PAGE>
attached hereto, neither Company nor any Subsidiary is a party to any tax
sharing agreement. Neither Company nor any Subsidiary is or could be liable for
any Taxes of any other person or entity.
(f) For purposes of this Agreement, all references to sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
(g) For federal income tax purposes, Amerivend el
ected to be an S
corporation under (S)1362 of the Code effective as of March 9, 1989 and has been
an S corporation at all times since March 9, 1989. For state income tax
purposes, including but not limited to the States of Florida and Georgia,
Amerivend elected to be an S corporation effective as of March 9, 1989 and has
been an S corporation at all times since March 9, 1989. Amerivend is an entity
described in Section 280(G)(b)(5)(A)(i) of the Code.
(h) Amerivend filed with each of its Georgia S corporation corporate
tax returns filed since March 9, 1989 a consent agreement signed by all of its
nonresident stockholders, in which all of such stockholders agreed to pay
Georgia income tax on their portion of Amerivend's corporate income.
2.12 Collectibility of Accounts Receivable. All of the accounts and notes
-------------------------------------
receivable of the Companies or any Subsidiary shown or reflected on the Base
Balance Sheet or existing at the date hereof (less the reserve for bad debts set
forth on the Base Balance Sheet) are or will be at the Closing valid and
enforceable claims, fully collectible and subject to no setoff or counterclaim.
Neither Company nor any Subsidiary has any accounts or loans receivable of
Amerivend from any person, firm or corporation which is affiliated with either
Company or any Subsidiary or from any director, officer or employee of either
Company or any Subsidiary, except as disclosed in Schedule 2.12 attached hereto,
-------------
and all accounts and loans receivable from any such person, firm or corporation
shall be paid in cash prior to the Closing, or shall be included in indebtedness
of Amerivend in accordance with Section 1.03 hereof.
2.13 Inventories. Except as disclosed in Schedule 2.13, all items in the
----------- -------------
inventories of the Companies or any Subsidiary shown on the Base Balance Sheet
or existing at the date hereof are of a quality and quantity saleable or
leasable in the ordinary course of business of the Companies and their
Subsidiaries at profit margins consistent with their experience during the year
ended December 31, 1997. Except as disclosed in Schedule 2.13, said inventories
-------------
reflect write-downs to realizable values in the case of items which are below
standard quality or have become obsolete or unsaleable or unleasable (except at
prices less than cost) in the ordinary course of the business of the Companies
and their Subsidiaries. No such write-downs since January 1, 1997 have had a
Material Adverse Effect on the Companies and their Subsidiaries taken as a
whole. The values of the inventories stated in the Base Balance Sheet and any
subsequent financial statements of either Company or any Subsidiary reflect the
normal inventory valuation policies of the Companies and their Subsidiaries and
were determined at the lower of cost or market in accordance with generally
accepted accounting principles, practices and methods consistently applied.
Purchase commitments for parts are
16
<PAGE>
not in excess of normal requirements and none are at prices materially in
excess of current market prices. Except as disclosed in Schedule 2.13, all
-------------
inventory items are located on the Owned Real Property or the Leased Real
Property. Since the date of the Base Balance Sheet, no inventory items have been
sold, leased or disposed of except through sales and leases in the ordinary
course of business at profit margins consistent with the experience of the
Companies and their Subsidiaries during the year ended December 31, 1997.
2.14 Absence of Certain Changes. Except as disclosed in Schedule 2.14
-------------------------- -------------
attached hereto, since the date of the Amerivend Base Balance Sheet (in the case
of Amerivend) and since the date of the Southeast Base Balance Sheet (in the
case of Southeast) there has not been:
(a) Any change in the financial condition, properties, assets,
liabilities, business or operations of either Company or any of its
Subsidiaries, which change by itself or in conjunction with all other such
changes, whether or not arising in the ordinary course of business, has had a
Material Adverse Effect on the Companies and their Subsidiaries taken as a
whole;
(b) Any contingent liability incurred by either Company or any of
its Subsidiaries as guarantor or otherwise with respect to the obligations of
others or any cancellation of any material debt or claim owing to, or waiver of
any material right of, the Company or any of its Subsidiaries;
(c) Any Encumbrance placed on any of the properties of either
Company or any of its Subsidiaries which remains in existence on the date hereof
or will remain on the Closing Date;
(d) Any obligation or liability of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown
(including, without limitation, liabilities for Taxes due or to become due or
contingent or potential liabilities relating to products or services provided by
the Companies or any of their Subsidiaries or the conduct of the business of the
Companies or any of their Subsidiaries since the date of the Base Balance Sheet
regardless of whether claims in respect thereof have been asserted), incurred by
either Company or any of its Subsidiaries other than obligations and liabilities
incurred in the ordinary course of business consistent with the terms of this
Agreement (it being understood that product or service liability claims shall
not be deemed to be incurred in the ordinary course of business);
(e) Any purchase, sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of the
properties or assets of either Company or any of its Subsidiaries other than in
the ordinary course of business;
(f) Any damage, destruction or loss, whether or not covered by
insurance, which has had a Material Adverse Effect on the Companies and their
Subsidiaries taken as a whole;
17
<PAGE>
(g) Any declaration, setting aside or payment of any dividend by
either Company or any of its Subsidiaries, or the making of any other
distribution in respect of the capital stock, or other ownership interests, of
either Company or any of its Subsidiaries, or any direct or indirect redemption,
purchase or other acquisition by either Company or any of its Subsidiaries of
its own capital stock, or other ownership interests;
(h) Any labor trouble or claim of unfair labor practices involving
either Company or any of its Subsidiaries, any change in the compensation
payable or to become payable by either Company or any of its Subsidiaries to any
of its officers, employees, agents or independent contractors other than normal
merit increases in accordance with its usual practices, or any bonus payment or
arrangement made to or with any of such officers, employees, agents or
independent contractors;
(i) Any change with respect to the officers or management of either
Company or any of its Subsidiaries;
(j) Any payment or discharge of a material lien or liability of
either Company or any of its Subsidiaries which was not shown on the Base
Balance Sheet or incurred in the ordinary course of business thereafter;
(k) Any obligation or liability incurred by either Company or any of
its Subsidiaries to any of its officers, directors, stockholders or employees,
or any loans or advances made by either Company or any of its Subsidiaries to
any of its officers, directors, stockholders or employees, except normal
compensation and expense allowances payable to officers or employees;
(l) Any change in accounting methods or practices, credit practices
or collection policies used by either Company or any of its Subsidiaries;
(m) Any other transaction entered into by either Company or any of
its Subsidiaries other than transactions in the ordinary course of business;
(n) Any change in the financial condition of any Subsidiary of
either Company that would make it more likely than not that any guarantee made
by such Company with respect to such Subsidiary's obligations will be triggered
within six (6) months after the date of this Agreement, or any change in the
financial condition of any such Subsidiary that has triggered a guarantee of
either Company with respect to the obligations of such Subsidiary;
(o) Any waiver of any valuable right of, or cancellation of any debt
or claim held by, either Company or any of its Subsidiaries; or
(p) Any agreement or understanding whether in writing or otherwise,
for either Company or any its Subsidiaries to take any of the actions specified
in paragraphs (a) through (o) above.
18
<PAGE>
2.15 Ordinary Course. Since the dates of their respective Base Balance
---------------
Sheets, each Company and each of its Subsidiaries has conducted its business
only in the ordinary course and consistently with its prior practices.
2.16 Banking Relations. All of the arrangements which either Company or
-----------------
any of its Subsidiaries has with any banking institution are completely and
accurately described in Schedule 2.16 attached hereto, indicating with respect
-------------
to each of such arrangements the type of arrangements maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the person
or persons authorized in respect thereof.
2.17 Intellectual Property.
---------------------
(a) except as described in Schedule 2.17 attached hereto, each
-------------
Company and each of its Subsidiaries has exclusive ownership of, or exclusive
license to use, all patent, copyright, trade secret, trademark, or other
proprietary rights (collectively, "Intellectual Property") used or to be used in
the business of such Company or such Subsidiary as presently conducted or
contemplated. All of the rights of each Company and each of its Subsidiaries in
such Intellectual Property are freely transferable. There are no claims or
demands of any other person pertaining to any of such Intellectual Property and
no proceedings have been instituted, or are pending or threatened, which
challenge the rights of either Company or any of its Subsidiaries in respect
thereof. Except as described in Schedule 2.17, each Company and each of its
-------------
Subsidiaries has the right to use, free and clear of claims or rights of other
persons, all customer lists, designs, manufacturing or other processes, computer
software, systems, data compilations, research results and other information
required for or incident to its products or its business as presently conducted
or contemplated.
(b) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights which are owned by or
licensed to either Company or any of its Subsidiaries are listed in Schedule
--------
2.17 attached hereto. All of such patents, patent applications, trademark
- ----
registrations, trademark applications and registered copyrights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office or such other applicable governmental office or authority under the
jurisdiction of which the relevant Company and its Subsidiaries conduct
business, as the case may be, and have been properly maintained and renewed in
accordance with all applicable provisions of applicable law and administrative
regulations.
(c) All licenses or other agreements under which either Company or
any of its Subsidiaries is granted rights in Intellectual Property are listed in
Schedule 2.17 attached hereto. All said licenses or other agreements are in
- -------------
full force and effect, there is no material default by any party thereto, and,
except as set forth in Schedule 2.17 attached hereto, all of the rights of each
-------------
Company or any Subsidiary thereunder will continue in full force and effect upon
consummation of the transactions contemplated hereby. To the knowledge of the
Companies and the Stockholders, the licensors under said licenses and other
agreements have and had all requisite power and authority to grant the rights
purported to be conferred thereby.
19
<PAGE>
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to Buyer.
(d) All licenses or other agreements under which either Company or
any of its Subsidiaries has granted rights to others in Intellectual Property
owned or licensed by either Company or such Subsidiary are listed in
Schedule 2.17 attached hereto. All of said licenses or other agreements
- -------------
are in full force and effect and, to the knowledge of the Companies and the
Stockholders, there is no material default by any party thereto, and, except as
set forth in Schedule 2.17 attached hereto, all of the rights of each Company
-------------
or any Subsidiary thereunder will continue in full force and effect upon
consummation of the transactions contemplated hereby. True and complete copies
of all such licenses or other agreements, and any amendments thereto, have been
provided to Buyer.
(e) Each Company and each of its Subsidiaries has taken all steps
required in accordance with sound business practice to establish and preserve
its ownership of all material Intellectual Property rights with respect to its
products, services and technology. Except as set forth on Schedule 2.17,
-------------
neither Company nor any of its Subsidiaries has made any valuable non-public
information of either Company available to any person other than employees of
the Companies and their Subsidiaries, except pursuant to written agreements
requiring the recipients to maintain the confidentiality of such information and
appropriately restricting the use thereof. Neither Company nor any Stockholder
has any knowledge of any infringement by others of any material Intellectual
Property rights of either Company or any Subsidiary.
(f) The present and contemplated business, activities, products and
services of the Companies and their Subsidiaries do not infringe any
Intellectual Property of any other person. No proceeding charging either
Company or any of its Subsidiaries with infringement of any adversely held
Intellectual Property has been filed or is threatened to be filed. To the
knowledge of the Companies and the Stockholders, there exists no unexpired
patent or patent application which includes claims that would be infringed by or
otherwise adversely affect the products, activities or business of either
Company or any Subsidiary. Neither Company nor any of its Subsidiaries is
making unauthorized use of any confidential information or trade secrets of any
person, including, without limitation, to the knowledge of the Companies, any
former employer of any past or present employee of either Company or any of its
Subsidiaries. Except as set forth in Schedule 2.17, neither Company or any
-------------
Subsidiary nor, to the knowledge of the Companies and the Stockholders, any of
their employees have any agreements or arrangements with any persons other than
a Company or its Subsidiaries related to confidential information or trade
secrets of such persons or restricting any such employee's ability to engage in
business activities of any nature. The activities of their employees on behalf
of the Companies or any Subsidiary do not violate any such agreements or
arrangements known to the Companies.
2.18 Contracts. Except for contracts, commitments, plans, agreements and
---------
licenses described in Schedule 2.18 attached hereto (true and complete copies of
-------------
which have been
20
<PAGE>
delivered to Buyer) and excluding Laundry Leases, neither Company nor any of its
Subsidiaries is a party to or subject to:
(a) Any plan or contract providing for bonuses, pensions, options,
stock purchases, deferred compensation, retirement payments, profit sharing,
collective bargaining or the like, or any contract or agreement with any labor
union;
(b) Any employment contract, consulting contract or contract for
services which is not terminable within thirty (30) days by the relevant Company
or a Subsidiary without liability for any penalty or severance payment;
(c) Any contract or agreement for the purchase of any commodity,
material or equipment except purchase orders in the ordinary course for less
than $10,000 each, such orders not exceeding $50,000 in the aggregate;
(d) Any other contracts or agreements creating any obligations of
either Company or any of its Subsidiaries of $10,000 or more with respect to any
such contract or agreement not specifically disclosed elsewhere under this
Agreement;
(e) Any contract or agreement providing for the purchase of all or
substantially all of its requirements of a particular product from a supplier;
(f) Any contract or agreement which by its terms does not terminate
or is not terminable without penalty by the relevant Company or a Subsidiary or
their successors within one (1) year after the date hereof;
(g) Any contract or agreement for the sale or lease of its products
not made in the ordinary course of business;
(h) Any contract with any sales agent or distributor of products of
either Company or any of its Subsidiaries;
(i) Any contract containing covenants limiting the freedom of either
Company or any of its Subsidiaries to compete in any line of business or with
any person or entity;
(j) Any contract or agreement for the purchase of any fixed asset
for a price in excess of $10,000, whether or not such purchase is in the
ordinary course of business;
(k) Any license agreement (as licensor or licensee);
(l) Any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for the borrowing of money;
21
<PAGE>
(m) Any contract or agreement with any officer, employee, director
or stockholder of either Company or any of its Subsidiaries or with any persons
or organizations controlled by or affiliated with any of them; or
(n) Any contract, agreement or understanding whether in writing or
otherwise for either Company or any of its Subsidiaries to take any of the
actions specified in paragraphs (a) through (m) above.
Neither Company nor any of its Subsidiaries individually or in the
aggregate is in default under any such contracts, commitments, plans, agreements
or licenses described in said Schedule or has any knowledge of conditions or
facts which, with notice or the passage of time, or both, would constitute a
default.
2.19 Litigation. Schedule 2.19 attached hereto lists all currently
---------- -------------
pending litigation and governmental or administrative proceedings or
investigations to which either Company or any of its Subsidiaries is a party.
Except for matters described in Schedule 2.19 attached hereto, there is no
-------------
litigation or governmental or administrative proceeding or investigation pending
or, to the knowledge of the Companies and the Stockholders, threatened against
either Company or any of its Subsidiaries or their affiliates (including,
without limitation, directors and officers) which may have, either individually
or in the aggregate, a Material Adverse Effect on the Companies and their
Subsidiaries taken as a whole, or which would prevent or hinder the consummation
of the transactions contemplated by this Agreement. With respect to each matter
set forth therein, Schedule 2.19 attached hereto sets forth a description of the
-------------
matter, the forum (if any) in which it is being conducted, the parties thereto
and the type and amount of relief sought.
2.20 Compliance with Laws. Except as set forth in Schedule 2.20 attached
-------------------- -------------
hereto, each Company and each of its Subsidiaries is in compliance in all
material respects with all applicable statutes, ordinances, orders, judgments,
decrees, rules and regulations promulgated by any federal, state, municipal or
foreign entity, agency, court or other governmental authority applicable to it
or to the conduct of its business, and neither Company nor any of its
Subsidiaries has received notice of a violation or alleged violation of any such
statute, ordinance, order, rule or regulation, except where the failure to be in
such compliance would not have, either individually or in the aggregate, a
Material Adverse Effect on the Companies and their Subsidiaries taken as a
whole, and neither Company nor any of its Subsidiaries has received notice of a
material violation or alleged material violation of any such statute, ordinance,
order, rule or regulation.
2.21 Insurance. The physical properties, assets, business, operations,
---------
employees, officers and directors of each Company and each of its Subsidiaries
are insured to the extent disclosed in Schedule 2.21 attached hereto, and all
-------------
such insurance policies and arrangements are disclosed in said Schedule. There
is no claim by either Company or any of its Subsidiaries pending under any such
policies as to which coverage has been questioned, denied or disputed by the
insurer. Said insurance policies and arrangements are in full force and effect,
all
22
<PAGE>
premiums due with respect thereto are currently paid, and each Company and
each of its Subsidiaries is in compliance in all material respects with the
terms thereof. Said insurance is adequate and customary for the business
engaged in by the Companies and their Subsidiaries and is sufficient for
compliance by each Company and each of its Subsidiaries with all requirements of
law and all agreements and leases to which such Company or any of its
Subsidiaries is a party.
2.22 Warranty or Other Claims. There are no existing or threatened
------------------------
product liability, warranty or other similar claims, or any facts upon which a
material claim of such nature could be based, against either Company or any of
its Subsidiaries for products or services which are defective or fail to meet
any product or service warranties except as disclosed in Schedule 2.22 hereto.
-------------
No claim has been asserted against either Company or any of its Subsidiaries for
renegotiation or price redetermination of any business transaction, and there
are no facts upon which any such claim could be based.
2.23 Powers of Attorney. Neither Company, any Subsidiary nor any
------------------
Stockholder has any outstanding power of attorney.
2.24 Finder's Fee. Neither Company nor any of its Subsidiaries has
------------
incurred or become liable for any broker's commission or finder's fee relating
to or in connection with the transactions contemplated by this Agreement.
2.25 Permits; Burdensome Agreements. Schedule 2.25 lists all material
------------------------------ -------------
permits, registrations, licenses, franchises, certifications and other approvals
(collectively, the "Approvals") required from federal, state or local
authorities in order for each Company and each of its Subsidiaries to conduct
its business. Each Company and each of its Subsidiaries has obtained all such
Approvals, which are valid and in full force and effect, and is operating in
material compliance therewith. Except as disclosed in Schedule 2.25 or in any
-------------
other Schedule hereto, neither Company nor any of its Subsidiaries is subject to
or bound by any agreement, judgment, decree or order which may have, either
individually or in the aggregate, a Material Adverse Effect on the Companies
and their Subsidiaries taken as a whole. Schedule 2.25 lists all registrations,
-------------
certifications and similar approvals necessary or customary in the Companies'
business for use in the manufacture, marketing, maintenance, leasing, sales and
distribution of the Companies' and their Subsidiaries' products and services.
2.26 Corporate Records; Copies of Documents. The corporate record and
--------------------------------------
minute books of each Company and each of its Subsidiaries accurately record all
corporate action taken by their respective stockholders and board of directors
and committees. The copies of the corporate records of each Company and each of
its Subsidiaries, as made available to Buyer for review, are true and complete
copies of the originals of such documents. Each Company has made available for
inspection and copying by Buyer and its counsel true and correct copies of all
documents referred to in this Section or in the Schedules delivered to Buyer
pursuant to this Agreement.
23
<PAGE>
2.27 Transactions with Interested Persons. Except as set forth in
------------------------------------
Schedule 2.27 attached hereto, neither Company, any of its Subsidiaries, any
- -------------
Subsidiary nor, Stockholder, officer, supervisory employee or director of either
Company or to the knowledge of the Companies and the Stockholders, any of their
respective spouses or family members, owns directly or indirectly on an
individual or joint basis any material interest in, or serves as an officer or
director or in another similar capacity of, any competitor or supplier of either
Company or any Subsidiary, or any organization which has a material contract or
arrangement with either Company or any of its Subsidiaries. Except as set forth
in Schedule 2.27 attached hereto, there are no loans, leases or other continuing
-------------
transactions between either Company or any Subsidiary and any present, or
former, stockholder, director, officer or employee or, to the knowledge of the
Companies and the Stockholders, any member of such stockholder's, director's,
officer's or employee's immediate family, or any business organization
controlled by any such stockholder, director, officer, employee or his or her
immediate family.
2.28 Employee Benefit Programs. Schedule 2.28 lists every Employee
------------------------- -------------
Program (as defined below) that has been maintained (as defined below) by either
Company or any of their Subsidiaries at any time during the three-year period
ending on the Closing Date.
(a) Each Employee Program which has ever been maintained by either
Company or any of its Subsidiaries and which has at any time been intended to
qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable
determination or approval letter from the IRS regarding its qualification under
such Section and has, in fact, been qualified under the applicable section of
the Code from the effective date of such Employee Program through and including
the Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). No event or omission has occurred which would cause any such
Employee Program to lose its qualification under the applicable Code section.
(b) Neither Company nor any Stockholder knows or has reason to know,
of any failure of any party to comply with any laws applicable to the Employee
Programs that have been maintained by either Company or any of its Subsidiaries.
With respect to any Employee Program ever maintained by either Company or any of
its Subsidiaries, there has occurred no "prohibited transaction," as defined in
Section 406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code, or breach of any duty under ERISA or
other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could result, directly
or indirectly, in any taxes, penalties or other liability to either Company, any
Subsidiary or Buyer. No litigation, arbitration, governmental administrative
proceeding (or investigation) or other proceeding (other than those relating to
routine claims for benefits) is pending or threatened with respect to any such
Employee Program. No Employee Program has any material unfunded or underfunded
obligation to provide benefits to any past, current or future participant
therein.
(c) Neither Company, any Subsidiary nor any Affiliate (as defined
below) (i) has ever maintained any Employee Program which has been subject to
Title IV of ERISA
24
<PAGE>
(including, but not limited to, any Multiemployer Plan (as defined below)) or
(ii) has ever provided health care or any other non-pension benefits to any
employees after their employment is terminated (other than as required by Part 6
of Subtitle B of Title I of ERISA) or has ever promised to provide such post-
termination benefits.
(d) With respect to each Employee Program maintained by either
Company or any Subsidiary within the three (3) years preceding the Closing,
complete and correct copies of the following documents (if applicable to such
Employee Program) have previously been delivered to Buyer: (i) all documents
embodying or governing such Employee Program, and any funding medium for the
Employee Program (including, without limitation, trust agreements), as they may
have been amended; (ii) the most recent IRS determination or approval letter
with respect to such Employee Program under Code Section 401 or 501(c)(9), and
any applications for determination or approval subsequently filed with the IRS;
(iii) the three (3) most recently filed IRS Forms 5500, with all applicable
schedules and accountants' opinions attached thereto; (iv) the summary plan
description for such Employee Program (or other descriptions of such Employee
Program provided to employees) and all modifications thereto; (v) any insurance
policy (including any fiduciary liability insurance policy) related to such
Employee Program; (vi) any documents evidencing any loan to an Employee Program
that is a leveraged employee stock ownership plan; and (vii) all other materials
reasonably necessary for Buyer to perform any of its responsibilities with
respect to any Employee Program subsequent to the Closing (including, without
limitation, health care continuation requirements).
(e) For purposes of this Section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA Section
3(4)), plans to which more than one unaffiliated employer contributes and
employee benefit plans (such as foreign or excess benefit plans) which are not
subject to ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, deferred compensation agreements,
supplemental income arrangements, vacation plans, and all other employee benefit
plans, agreements and arrangements not described in (A) above. In the case of an
Employee Program funded through an organization described in Code Section
501(c)(9), each reference to such Employee Program shall include a reference to
such organization.
(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide) benefits
under such Employee Program, or has any obligation (by agreement or under
applicable law) to contribute to or provide benefits under such Employee
Program, or if such Employee Program provides benefits to or otherwise covers
employees of such entity, or their spouses, dependents or beneficiaries.
25
<PAGE>
(iii) An entity is an "Affiliate" of a Company or a Subsidiary
if it would have ever been considered a single employer with such Company or any
of its Subsidiaries under ERISA Section 4001(b) or part of the same "controlled
group" as such Company or any of its Subsidiaries for purposes of ERISA Section
302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and which is
maintained pursuant to one or more collective bargaining agreements.
2.29 Environmental Matters.
---------------------
(a) Except as set forth in Schedule 2.29 attached hereto, (i)
-------------
neither Company nor any of its Subsidiaries has ever generated, transported,
used, stored, treated, disposed of or managed any Hazardous Waste (as defined
below); (ii) no Hazardous Material (as defined below) has ever been or is
threatened to be spilled, released or disposed of at any site presently or
formerly owned, operated, leased or used by either Company or any of its
Subsidiaries, or has ever been located in the soil or groundwater at any such
site; (iii) no Hazardous Material has ever been transported from any site
presently or formerly owned, operated, leased or used by either Company or any
of its Subsidiaries for treatment, storage or disposal at any other place; (iv)
neither Company nor any of its Subsidiaries presently owns, operates, leases or
uses, nor has it previously owned, operated, leased or used any site on which
underground storage tanks are or were located; and (v) no lien has ever been
imposed by any governmental agency on any property, facility, machinery or
equipment owned, operated, leased or used by either Company or any of its
Subsidiaries in connection with the presence of any Hazardous Material.
(b) Except as set forth in Schedule 2.29 attached hereto, (i)
-------------
neither Company nor any of its Subsidiaries has any material liability under,
nor has it ever violated, any Environmental Law (as defined below); (ii) each
Company and each of its Subsidiaries, any property owned, operated, leased or
used by any of them, and any facilities and operations thereon, are presently in
compliance with all applicable Environmental Laws; (iii) neither Company nor any
of its Subsidiaries has ever entered into or been subject to any judgment,
consent decree, compliance order or administrative order with respect to any
environmental or health and safety matter or received any request for
information, notice, demand letter, administrative inquiry or formal or informal
complaint or claim with respect to any environmental or health and safety matter
or the enforcement of any Environmental Law; and (iv) neither Company nor any of
its Subsidiaries has any reason to believe that any of the items enumerated in
clause (iii) of this Subsection will be forthcoming.
(c) Except as set forth in Schedule 2.29 attached hereto, no site
-------------
owned, operated, leased or used by either Company or any of its Subsidiaries
contains any asbestos or asbestos-containing material, any polychlorinated
biphenyls (PCBs) or equipment containing PCBs, or any urea formaldehyde foam
insulation.
26
<PAGE>
(d) The Companies have provided to Buyer copies of all documents,
records, and information available to the Companies or any of their Subsidiaries
concerning any environmental or health and safety matter relevant to either
Company or any of its Subsidiaries, whether generated by either Company, its
Subsidiaries or others, including, without limitation, environmental audits,
environmental risk assessments, site assessments, documentation regarding off-
site disposal of Hazardous Materials, spill control plans and reports,
correspondence, permits, licenses, approvals, consents and other authorizations
related to environmental or health and safety matters issued by any governmental
agency.
(e) For purposes of this Section 2.29, (i) "Hazardous Material"
shall mean and include any hazardous waste, hazardous material, hazardous
substance, petroleum product, oil, toxic substance, pollutant, contaminant or
other substance which may pose a threat to the environment or to human health or
safety, as defined or regulated under any Environmental Law; (ii) "Hazardous
Waste" shall mean and include any hazardous waste as defined or regulated under
any Environmental Law; (iii) "Environmental Law" shall mean any environmental or
health and safety-related law, regulation, rule, ordinance or by-law at the
foreign, federal, state or local level, whether existing as of the date hereof,
previously enforced or subsequently enacted; and (iv) "Company" shall mean and
include both Companies, each of their respective Subsidiaries and all other
entities for whose conduct either Company or any of its Subsidiaries is or may
be held responsible under any Environmental Law.
2.30 List of Directors and Officers. Schedule 2.30 attached hereto
------------------------------ -------------
contains a true and complete list of all current directors and officers of each
Company and each of its Subsidiaries. In addition, Schedule 2.30 attached
-------------
hereto contains a list of all managers, employees and consultants of each
Company and any Subsidiary who, individually, have received or are scheduled to
receive compensation from either Company or any of its Subsidiaries for the year
ending December 31, 1997, in excess of $50,000. In each case, such Schedule
includes the current job title and aggregate annual compensation of each such
individual.
2.31 Employees; Labor Matters. The Companies and their Subsidiaries
------------------------
employ a total of approximately 96 full-time employees and 2 part-time employees
and generally enjoy good employer-employee relationships. The Companies and
their Subsidiaries do not employ a total of 100 or more employees (excluding
employees who work less than 20 hours per week or who have worked for a Company
or any of its Subsidiaries less than six (6) of the last twelve (12) months) and
will not have employed 100 or more employees at any point during the 90 days
prior to and including the Closing Date. Neither Company nor any of its
Subsidiaries is delinquent in payments to any of its employees for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees. Upon termination of the employment of any of said employees, neither
Company, any Subsidiary nor Buyer will by reason of the transactions
contemplated under this Agreement or anything done prior to the Closing be
liable to any of said employees for so-called "severance pay" or any other
payments, except as set forth in Schedule 2.31. Neither Company nor any
-------------
Subsidiary has any
27
<PAGE>
policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment, except
as set forth in said Schedule. Each Company and each of its Subsidiaries is in
compliance with all applicable laws and regulations respecting labor,
employment, fair employment practices, work place safety and health, terms and
conditions of employment and wages and hours. There are no charges of employment
discrimination or unfair labor practices, nor are there any strikes, slowdowns,
stoppages of work or any other concerted interference with normal operations
which are existing, pending or threatened against or involving either Company or
any of its Subsidiaries. No question concerning representation exists respecting
any employees of either Company or any of its Subsidiaries. There are no
grievances, complaints or charges that have been filed against either Company or
any of its Subsidiaries under any dispute resolution procedure (including, but
not limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might have a Material Adverse Effect on
the Companies and their Subsidiaries taken as a whole, and there is no
arbitration or similar proceeding pending and no claim therefor has been
asserted. No collective bargaining agreement is in effect or is currently being
or is about to be negotiated by either Company or any of its Subsidiaries.
Neither Company nor any of its Subsidiaries has received any information
indicating that any of its employment policies or practices is currently being
audited or investigated by any federal, state or local government agency. Each
Company and each of its Subsidiaries is, and at all times since its organization
has been, in compliance with the requirements of the Immigration Reform Control
Act of 1986.
2.32 Non-Foreign Status. Neither Company nor any of its Subsidiaries is a
------------------
"foreign person" within the meaning of Section 1445 of the Code and Treasury
Regulations Section 1.1445-2.
2.33 Backlog. As of the date hereof, each Company and each of its
-------
Subsidiaries has a backlog of firm orders for the sale or lease of products or
services, for which revenues have not been recognized by such Company or any
Subsidiary, as set forth in Schedule 2.33.
-------------
2.34 Customers, Distributors and Suppliers. Schedule 2.34 sets forth any
------------------------------------- -------------
customer, sales representative or distributor (whether pursuant to a commission,
royalty or other arrangement) which accounts for more than 1% of the sales of
the Companies and their Subsidiaries on a consolidated basis for the twelve (12)
months ended December 31, 1997 (collectively, the "Customers and Distributors").
Schedule 2.34 lists all of the suppliers of each Company and each of its
- -------------
Subsidiaries to whom during the year ended December 31, 1997, the Companies or
any of their Subsidiaries made payments aggregating $50,000 or more, showing,
with respect to each, the name, address and dollar volume involved (the
"Suppliers"). The relationships of each Company and each of its Subsidiaries
with its Customers, Distributors and Suppliers are good commercial working
relationships. No Customer, Distributor or Supplier has canceled, materially
modified, or otherwise terminated its relationship with either Company or any
Subsidiary, or has during the last twelve (12) months decreased materially its
services, supplies or materials to either Company or any such Subsidiary or its
usage or purchase of the services or products of either Company or any
28
<PAGE>
Subsidiary, nor to the knowledge of the Companies, does any Customer,
Distributor or Supplier have any plan or intention to do any of the foregoing.
2.35 Transfer of Shares. No holder of stock of either Company or any
------------------
Subsidiary has at any time transferred any of such stock to any employee of
either Company or any Subsidiary, which transfer constituted or could be viewed
as compensation for services rendered to either Company or any Subsidiary by
said employee.
2.36 Stock Repurchase. Except as set forth in Schedule 2.36, neither
---------------- -------------
Company nor any Subsidiary has redeemed or repurchased any of its capital stock.
2.37 Disclosure. The representations, warranties and statements contained
----------
in this Agreement and in the Certificates, Exhibits and Schedules delivered by
the Companies and its Subsidiaries pursuant to this Agreement to Buyer do not
contain any untrue statement of a material fact, and, when taken together, do
not omit to state a material fact required to be stated therein or necessary in
order to make such representations, warranties or statements not misleading in
light of the circumstances under which they were made. There are no facts which
presently or may in the future have a Material Adverse Effect on the Companies
and their Subsidiaries taken as a whole which have not been specifically
disclosed herein or in a Schedule furnished herewith, other than general
economic conditions affecting the industries in which the Companies and their
Subsidiaries operate.
2.38 Commission Payments. Schedule 2.38 attached hereto lists each
------------------- -------------
obligation or commitment, whether current or future, of Amerivend to make
guaranteed commission, prepaid rent, laundry room renovations or similar
payments under any Laundry Lease or other contract, including the Laundry Lease
or contract which requires each such payment, the due date of each such payment
and the amount of each such payment.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------------------------------------------------------------
As a material inducement to Buyer to enter into this Agreement and
consummate the transactions contemplated hereby, each Stockholder hereby
severally makes to Buyer each of the representations and warranties set forth in
this Section 3 with respect to such Stockholder. No Stockholder shall have any
right of indemnity or contribution from Amerivend or any Subsidiary with respect
to the breach of any representation or warranty hereunder.
3.01 Amerivend Shares. Such Stockholder owns of record and beneficially
----------------
the number of Amerivend Shares set forth opposite such Stockholder's name in
Exhibit A attached hereto. Such Amerivend Shares are, and when delivered by
- ---------
such Stockholder to Buyer pursuant to this Agreement will be, duly authorized,
validly issued, fully paid, nonassessable and free and clear of any and
Encumbrances and restrictions on transfer, under Article 8 of any applicable
state version of the Uniform Commercial Code, including but not limited to
Massachusetts, Florida and Georgia, or otherwise, except restrictions on
transferability under applicable securities laws.
29
<PAGE>
3.02 Authority. Such Stockholder has full right, authority, power and
---------
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Stockholder
pursuant to this Agreement and to carry out the transactions contemplated hereby
and thereby. This Agreement and each agreement, document and instrument
constitute, or when executed and delivered will constitute, a valid and binding
obligation of such Stockholder, enforceable in accordance with their respective
terms, and such Stockholder has full power and authority to transfer, sell and
deliver the Amerivend Shares to Buyer pursuant to this Agreement. The
execution, delivery and performance of this Agreement and each such agreement,
document and instrument:
(i) does not and will not violate any federal, state or local laws
applicable to such Stockholder or require such Stockholder to obtain any
approval, consent or waiver from, or make any filing with, any person or entity
(governmental or otherwise) that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of, any indenture or loan or credit agreement or any other
agreement, contract, instrument, mortgage, lien, lease, permit, authorization,
order, writ, judgment, injunction, decree, determination or arbitration award to
which such Stockholder is a party or by which the property of such Stockholder
is bound or affected, or result in the creation or imposition of any Encumbrance
on any assets of either Company or any Subsidiary or on the Amerivend Shares
owned by such Stockholder.
3.03 Finder's Fee. Such Stockholder has not incurred or become liable for
------------
any broker's commission or finder's fee relating to or in connection with the
transactions contemplated by this Agreement.
3.04 Agreements. Each such Stockholder who is employed by either Company
----------
or any Subsidiary is not a party to any non-competition, trade secret or
confidentiality agreement with any party other than a Company or a Subsidiary.
There are no agreements or arrangements not contained herein or disclosed in a
Schedule hereto, to which such Stockholder is a party relating to the business
of either Company or any Subsidiary or to such Stockholder's rights and
obligations as a stockholder, director or officer of either Company or any
Subsidiary. Such Stockholder does not own, directly or indirectly, on an
individual or joint basis, any material interest in, or serve as an officer or
director of, any customer, competitor or supplier of either Company or any
Subsidiary, or any organization which has a contract or arrangement with either
Company or any Subsidiary. Such Stockholder has not at any time transferred any
of the stock of either Company or any Subsidiary held by or for such holder to
any employee of either Company or any Subsidiary, which transfer constituted or
could be viewed as compensation for services rendered to either Company or any
Subsidiary by said employee. The execution, delivery and performance of this
Agreement will not violate or result in a default or acceleration of any
obligation under any contract, agreement, indenture
30
<PAGE>
or other instrument involving either Company or any Subsidiary to which such
Stockholder is a party.
SECTION 4. COVENANTS OF THE COMPANIES AND THE STOCKHOLDERS.
- ------------------------------------------------------------
4.01 Making of Covenants and Agreements. Each Company and the
----------------------------------
jointly and severally hereby make the covenants and agreements set forth in this
Section 4 and the Stockholders agree to cause each Company and its Subsidiaries
to comply with such agreements and covenants.
4.02 Conduct of Business. Between the date of this Agreement and the
-------------------
Closing Date, each Company and each of its Subsidiaries will:
(a) Conduct its business only in the ordinary course and refrain
from changing or introducing any method of management or operations except in
the ordinary course of business and consistent with prior practices;
(b) Refrain from making any purchase, sale or disposition of any
asset or property other than in the ordinary course of business, from purchasing
any capital asset costing more than $50,000 and from mortgaging, pledging,
subjecting to a lien or otherwise encumbering any of its properties or assets
other than in the ordinary course of business, except that Amerivend may
distribute to its stockholders its interest in the partnership which owns
property in Crested Butte, Colorado (the "Partnership Distribution");
(c) Refrain from incurring any contingent liability as a guarantor
or otherwise with respect to the obligations of others, and from incurring any
other contingent or fixed obligations or liabilities except in the ordinary
course of business;
(d) Refrain from making any change or incurring any obligation to
make a change in its Articles of Incorporation, by-laws or similar
organizational documents or authorized or issued capital stock or ownership
interests;
(e) Except for the Partnership Distribution, refrain from (i)
declaring, setting aside or paying any dividend, making any other distribution
in respect of its capital stock or ownership interests, (ii) making any direct
or indirect redemption, purchase or other acquisition of its stock or ownership
interests or (iii) issuing, granting, awarding, selling, pledging, disposing of
or encumbering or authorizing the issuance, grant, award, sale, pledge,
disposition or encumbrance of any shares of, or securities convertible or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of its capital stock of any class thereof;
(f) Refrain from making any change in the compensation payable or to
become payable to any of its officers, employees, agents or independent
contractors, or
31
<PAGE>
granting any severance or termination pay to, or entering into or amending any
employment, severance or other agreement or arrangement with, any of its
directors, officers or other employees, or establishing, adopting or entering
into or amending any collective bargaining, bonus, incentive, deferred
compensation, profit sharing, stock option or purchase, insurance, pension,
retirement or other employee benefit plan;
(g) Refrain from (i) prepaying any loans (if any) from its
stockholders, officers or directors or any company affiliated with any of the
foregoing, including each of Southeast and Amerivend, (ii) making any change in
its borrowing arrangements, (iii) modifying, amending or terminating any of its
contracts except in as specifically provided in this Agreement and except with
respect to Laundry Leases in the ordinary course of business or (iv) waiving,
releasing or assigning any material rights or claims, except that Amerivend may
pay the Southeast Receivable;
(h) Refrain from changing accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
(i) Pay all accounts payable in the ordinary course of business and
in a manner consistent with past practice and in any event within 60 days unless
they are being disputed in good faith;
(j) Use its best efforts to prevent any change with respect to its
management and supervisory personnel and banking arrangements;
(k) Use its best efforts to keep intact its business organization,
to keep available its present officers and employees and to preserve the
goodwill of all suppliers, customers, independent contractors and others having
business relations with it;
(l) Have in effect and maintain at all times all insurance of the
kind, in the amount and with the insurers set forth in Schedule 2.21 attached
-------------
hereto or equivalent insurance with any substitute insurers approved in writing
by Buyer;
(m) Permit Buyer and its authorized representatives to have full
access to all its properties, assets, contracts, books, tax returns, records,
accounting, financial and other business files and information and furnish to
Buyer or its authorized representatives such financial and other information
with respect to its business or properties as Buyer may from time to time
reasonably request;
(n) refrain from entering into any executory agreement, commitment
or undertaking to do any of the activities prohibited by the foregoing
provisions; and
(o) provide monthly aging reports of accounts receivables and
monthly financial statements, including a balance sheet as of month-end and a
monthly income statement, as soon as practicable but not later than 21 days
after the last day of each month.
32
<PAGE>
4.03 Consents. Prior to the Closing Date, each Company, each of its
--------
Subsidiaries and the Stockholders shall make all filings with and notifications
of governmental authorities, regulatory agencies and other entities required to
be made by such parties in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby; and each
Company and the Stockholders shall obtain all authorizations, waivers, consents
and permits, in form and substance reasonably satisfactory to Buyer, from all
third parties, including, without limitation, applicable governmental
authorities, regulatory agencies, lessors, lenders and contract parties,
required to permit the continuation of the business of each Company and each
Subsidiary and the consummation of the transactions contemplated by this
Agreement, and to avoid any breach, default, termination, acceleration or
modification of any material agreement, contract, lease or permit as a result
of, or in connection with, the execution and performance of this Agreement.
4.04 Notice of Default. Promptly upon the occurrence of, or promptly upon
-----------------
either Company or any Stockholder becoming aware of the impending or threatened
occurrence of, any event which would cause or constitute a breach or default, or
would have caused or constituted a breach or default had such event occurred or
been known to such Company or such Stockholder prior to the date hereof, of any
of the representations, warranties or covenants of the Companies or the
Stockholders contained in or referred to in this Agreement or in any Schedule or
Exhibit referred to in this Agreement, the Companies or the Stockholders shall
give detailed written notice thereof to Buyer and the Companies and the
Stockholders shall use their best efforts to prevent or promptly remedy the
same.
4.05 Consummation of Agreement. Each Company and each Stockholder shall
-------------------------
use its or his best efforts to perform and fulfill all conditions and
obligations on their parts to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be fully
carried out. To this end, each Company will obtain prior to the Closing all
necessary authorizations or approvals of its stockholders and board of
directors.
4.06 Cooperation of the Companies and the Stockholders. Each Company and
-------------------------------------------------
each of the Stockholders shall cooperate with all reasonable requests of Buyer
and Buyer's counsel in connection with the consummation of the transactions
contemplated hereby.
4.07 No Solicitation of Other Offers. Unless and until this Agreement
-------------------------------
shall have been terminated, neither either Company nor any of the Stockholders
shall, nor shall the Company permit any of its directors, officers, employees or
agents to, directly or indirectly, (i) take any action to solicit, initiate
submission of or encourage, proposals or offers from any person relating to any
acquisition or purchase of all or (other than in the ordinary course of
business) a portion of the assets of, or any equity interest in, either Company,
any merger or business combination with either Company or any public or private
offering of interests in the Company (an "Acquisition Proposal"), (ii)
participate in any discussions or negotiations regarding an Acquisition Proposal
with any person or entity other than Buyer and its representatives, (iii)
furnish any information or afford access to the properties, books or records of
either Company to any person or entity that may consider making or has made an
33
<PAGE>
offer with respect to an Acquisition Proposal other than Buyer and its
representatives, or (iv) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do any of the foregoing. The Companies will promptly notify Buyer upon
receipt of any offer or indication that any person is considering making an
offer with respect to an Acquisition Proposal or any request for information
relative to either Company or for access to the properties, books and records of
either Company, and will promptly reject any such offer or request.
4.08 Confidentiality. The Companies and the Stockholders agree that,
---------------
unless and until the Closing has been consummated, each Company, its
Subsidiaries, its officers, directors, agents and representatives and the
Stockholders will hold in strict confidence, and will not use, any confidential
or proprietary data or information obtained from Buyer with respect to its
business or financial condition except for the purpose of evaluating,
negotiating and completing the transactions contemplated hereby. Information
generally known in Buyer's industry or which has been disclosed to the
Companies, any Subsidiary or the Stockholders by third parties which have a
right to do so shall not be deemed confidential or proprietary information for
purposes of this Agreement. If the transactions contemplated by this Agreement
are not consummated, each Company, its Subsidiaries and the Stockholders will
return to Buyer (or certify that they have destroyed) all copies of such data
and information, including, but not limited to, financial information, customer
lists, business and corporate records, worksheets, test reports, tax returns,
lists, memoranda and other documents prepared by or made available to the
Companies, its Subsidiaries or the Stockholders in connection with the
transactions.
4.09 Tax Returns. The Stockholders shall cooperate with Buyer to permit
-----------
Amerivend in accordance with applicable law to promptly prepare and file on or
before the due date or any extension thereof all federal, state and local tax
returns required to be filed by Amerivend with respect to taxable periods ending
on or before the Closing.
4.10 Filing Cooperation. Each Company and the Stockholders shall
------------------
cooperate with Buyer and it agents in connection with any filings to be made by
Buyer, including, without limitation, filings under (i) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "Hart-Scott-Rodino Act"),
(ii) the Securities Act or (iii) the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and shall furnish all information required in connection
therewith. Such cooperation shall include, but not be limited to, obtaining any
consent to inclusion of each Company's financial statements and the audit
reports with respect thereto in any filing made pursuant to any federal or state
securities laws (and any public disclosure related thereto), whether before or
after the Closing. The Stockholders acknowledge and agree that they have
provided this Section of this Agreement to the Companies' outside accountants
and have obtained assurances that such accountants will provide such consent.
4.11 No Transfer of Securities. Unless and until this Agreement shall
-------------------------
have been terminated in accordance with its terms, no Stockholder shall directly
or indirectly exchange,
34
<PAGE>
deliver, assign, pledge, encumber or otherwise transfer or dispose of any of the
capital stock of either Company (including any options in respect thereof), nor
shall any Stockholder directly or indirectly grant any right of any kind to
acquire, dispose of, vote or otherwise control in any manner any such
securities.
4.12 Use of Trade Name. After the Closing Date, neither Southeast nor any
-----------------
Stockholder, nor any person controlling, controlled by or under common control
with Southeast or any Stockholder will for any reason, directly or indirectly,
for itself or any other person, (a) use the name "Amerivend" or (b) use or
disclose any trade secrets, confidential information, know-how, proprietary
information or other intellectual property of Southeast transferred pursuant to
this Agreement. On the Closing Date, Southeast will file with the Georgia
Secretary of State a charter amendment changing its name such that it does not
include the word "Amerivend."
4.13 Updating of Information. Not later than the Closing Date, the
-----------------------
Companies and the Stockholders will deliver to Buyer information necessary to
update the Schedules hereto and the lists, documents and other information
furnished to Buyer as contemplated by this Agreement, in all cases consistent
with the terms of this Agreement.
4.14 2451 Brickell Avenue. To the extent that Amerivend does not have
--------------------
good and valid title to the laundry room located at 2451 Brickell Avenue, Miami,
Florida, free and clear of any and all Encumbrances, Amerivend and the
Stockholders shall take such actions as are necessary to cause Amerivend to
obtain such title prior to Closing.
SECTION 4A. CERTAIN TAX MATTERS.
--------------------------------
4A.01 Section 338(h)(10) Election.
---------------------------
(a) The Stockholders and Buyer shall jointly make, and the
Stockholders shall cause the beneficiaries of the Pulver Trust and any other
person required for a valid election to make, (i) the joint election provided
for in Section 338(h)(10) of the Code and Treasury Regulation (S) 1.338(h)(10)-
1(d) (the "Section 338 Regulations") with respect to Amerivend and (ii) such
other similar elections, if any, under the laws of any state or local
jurisdiction analogous to the election provided for in Section 338(h)(10) of the
Code (the elections described in (i) and (ii) collectively, the "Section 338
Elections"). The Stockholders and Buyer shall comply fully with all filing and
other requirements necessary to effectuate the Section 338 Elections on a timely
basis and agree to cooperate in good faith with each other in the preparation
and timely filing of any tax returns required to be filed in connection with the
making of the Section 338 Elections, including the exchange of information and
the joint preparation and filing of IRS Form 8023-A and related schedules.
Except for the tax imposed by Section 1374 of the Code, the Stockholders will
pay any Taxes attributable to the Section 338 Elections and will indemnify Buyer
in accordance with Section 10.01 against any adverse consequences arising out of
any failure to pay such Taxes.
(b) At or prior to the Closing, Buyer and the Stockholders shall
jointly allocate the deemed sale price for the assets of Amerivend as determined
under Section 338 among the assets of Amerivend, which allocation shall be set
forth in Schedule 4A attached hereto, provided that Buyer and the Stockholders
-----------
agree that between $6,700,000 and
35
<PAGE>
$7,000,000 of such deemed sale price shall be allocated to assets of Amerivend
which are depreciable for federal income tax purposes. Such allocation shall be
binding upon Buyer and the Stockholders for all purposes (including financial
accounting purposes, financial and regulatory reporting purposes and tax
purposes). Buyer and each Stockholder further agrees to file their Federal
income tax returns, any other tax returns, and any other reports required by
the Code, in accordance with said Schedule 4A and the foregoing.
-----------
(c) Mr. Pulver, directly or through his designated representatives
and at his expense, shall have the right to, and Buyer agrees to take such
reasonable measures as may be necessary to permit Mr. Pulver or his designated
representatives to, actively participate in the currently pending audit of
[Amerivend's and Mr. Pulver's 1993 and 1994 federal income tax returns] (the
"Audit"). Mr. Pulver further agrees not to concede, compromise or settle any
issue which may arise in connection with the Audit which could, directly or
indirectly, give rise to a tax deficiency against which (i) Buyer has agreed to
indemnify Mr. Pulver, without the prior consent of Buyer or (ii) could adversely
affect Buyer in any way. Buyer agrees to permit Mr. Pulver, directly or through
his designated representatives and at his expense, to exclusively control all
stages of all administrative or judicial proceedings relating to the Audit
provided that such actions do not have any adverse impact on Buyer; provided,
however, that Buyer shall have the right to participate in such administrative
or judicial proceedings, and Mr. Pulver agrees at all times to notify Buyer of
any significant developments with respect thereto.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER.
- ----------------------------------------------------
5.01 Making of Representations and Warranties. As a material inducement
----------------------------------------
to the Companies and the Stockholders to enter into this Agreement and
consummate the transactions contemplated hereby, Buyer hereby makes the
representations and warranties to the Companies and the Stockholders contained
in this Section 5.
5.02 Organization of Buyer. Buyer is a corporation duly organized,
---------------------
validly existing and in good standing under the laws of the State of Delaware
with full corporate power to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is conducted by it.
5.03 Authority of Buyer. Buyer has full right, authority and power to
------------------
enter into this Agreement and each agreement, document and instrument to be
executed and delivered by the Buyer pursuant to this Agreement and to carry out
the transactions contemplated hereby and thereby. The execution, delivery and
performance by Buyer of this Agreement and each such other agreement, document
and instrument have been duly authorized by all necessary corporate action of
Buyer and no other action on the part of Buyer is required in connection
therewith. This Agreement and each other agreement, document and instrument
constitute, or when executed and delivered will constitute, valid and binding
obligations of Buyer enforceable in accordance with their terms, except as
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting
36
<PAGE>
enforcement of creditors' rights and (ii) general principles of equity that
restrict the availability of equitable remedies. The execution, delivery and
performance by Buyer of this Agreement and each such agreement, document and
instrument:
(A) does not and will not violate any provision of the Certificate of
Incorporation or by-laws of Buyer; and
(B) does not and will not violate any federal, state or local laws
applicable to Buyer or require Buyer to obtain any approval, consent or waiver
of, or make any filing with, any person or entity (governmental or otherwise)
which has not been obtained or made.
5.04 Litigation. There is no litigation pending or, to Buyer's knowledge,
----------
threatened against Buyer which would prevent or hinder the consummation of the
transactions contemplated by this Agreement.
5.05 Finder's Fee. Buyer has not incurred or become liable for any
------------
broker's commission or finder's fee which would be payable by any Stockholder or
either Company relating to or in connection with the transactions contemplated
by this Agreement.
SECTION 6. COVENANTS OF BUYER.
-------------------------------
6.01 Making of Covenants and Agreements. Buyer hereby makes the covenants
----------------------------------
and agreements set forth in this Section 6.
6.02 Confidentiality. Buyer agrees that, unless and until the Closing has
---------------
been consummated, Buyer and its officers, directors, agents and representatives
will hold in strict confidence, and will not use, any confidential or
proprietary data or information obtained from the Companies or the Stockholders
with respect to the business or financial condition of the Companies and its
Subsidiaries except for the purpose of evaluating, negotiating and completing
the transactions contemplated hereby. Information generally known in the
industries of the Companies and its Subsidiaries or which has been disclosed to
Buyer by third parties which have a right to do so shall not be deemed
confidential or proprietary information for purposes of this Agreement. If the
transactions contemplated by this Agreement are not consummated, Buyer will
return to the Companies (or certify that it has destroyed) all copies of such
data and information, including, but not limited to, financial information,
customer lists, business and corporate records, worksheets, test reports, tax
returns, lists, memoranda and other documents prepared by or made available to
Buyer in connection with the transactions. Notwithstanding the foregoing, Buyer
shall be permitted to disclose such information about the Companies, their
Subsidiaries, the Stockholders and the transactions contemplated hereby as may
be legally required, and otherwise reasonably necessary, in the preparation,
completion, filing and distribution of such reports, filings and other documents
required by the Securities Act, the Exchange Act or New York Stock Exchange
rules.
37
<PAGE>
6.03 Consents. Buyer shall make all filings with and notifications of
--------
governmental authorities, regulatory agencies and other entities required to be
made by Buyer in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby; and Buyer shall
obtain all authorizations, waivers, consents and permits, from all third
parties, including, without limitation, applicable governmental authorities,
regulatory agencies, lessors, lenders and contract parties, required to permit
the consummation of the transactions contemplated by this Agreement, and to
avoid any breach, default, termination, acceleration or modification of any
material agreement, contract, lease or permit as a result of, or in connection
with, the execution and performance of this Agreement.
6.04 Consummation of Agreement. Buyer shall use its best efforts to
-------------------------
perform and fulfill all conditions and obligations on its part to be performed
and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
SECTION 7. CONDITIONS.
-----------------------
7.01 Conditions to the Obligations of Buyer. The obligation of Buyer to
--------------------------------------
consummate this Agreement and the transactions contemplated hereby are subject
to the fulfillment, prior to or at the Closing, of the following conditions
precedent:
(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of the Companies and the Stockholders contained
in this Agreement shall be true and correct in all material respects (except for
such representations and warranties that are qualified by their terms as to
materiality, which representations and warranties as so qualified shall be true
in all respects) as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing; and each Company and each of the
Stockholders shall, on or before the Closing, have performed all of their
obligations hereunder which by the terms hereof are to be performed on or before
the Closing.
(b) No Material Change. There shall have been no change in the
------------------
financial condition, prospects, properties, assets, liabilities, business or
operations of either Company or any Subsidiary since the date hereof which has
resulted in or is reasonably likely to result in a Material Adverse Effect on
the Companies and theirs Subsidiaries taken as a whole, whether or not in the
ordinary course of business.
(c) Net Worth. Immediately prior to giving effect to the
---------
transactions contemplated by this Agreement, the consolidated net worth of
Amerivend (total assets minus total liabilities determined in accordance with
GAAP) at the Closing Date shall not be less than $4,691,503, which the parties
hereto agree was the consolidated net worth of Amerivend at December 31, 1996.
38
<PAGE>
(d) Certificate from Officers. The Stockholders shall have
-------------------------
delivered to Buyer a certificate signed by each Stockholder and by each
Company's President and Chief Financial Officer or Treasurer dated as of the
Closing Date to the effect that the statements set forth in paragraphs (a), (b)
and (c) above are true and correct.
(e) Approval of Buyer's Counsel. All actions, proceedings,
---------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by Goodwin, Procter & Hoar LLP, as
counsel for Buyer, and such counsel shall have received on behalf of Buyer such
other certificates, opinions and documents in form satisfactory to such counsel,
as Buyer may reasonably require from the Companies and the Stockholders to
evidence compliance with the terms and conditions hereof as of the Closing and
the correctness as of the Closing of the representations and warranties of the
Companies and the Stockholders and the fulfillment of their respective
covenants.
(f) Opinion of Counsel. On the Closing Date, Buyer shall have
------------------
received from the Law Offices of Stephen L. Vinson, Jr., P.A., counsel for the
Companies and the Stockholders, an opinion as of said date, in the form attached
hereto as Exhibit C.
---------
(g) No Litigation. There shall have been no determination by Buyer,
-------------
acting in good faith, that the consummation of the transactions contemplated by
this Agreement has become inadvisable or impracticable by reason of the
institution or threat by any person or any federal, state, foreign or other
governmental authority of litigation, proceedings or other action against Buyer,
either Company, any Subsidiary or any Stockholder.
(h) Consents. Each Company and the Stockholders shall have made all
--------
filings with and notifications of governmental authorities, regulatory agencies
and other entities required to be made by the Companies, their Subsidiaries or
the Stockholders in connection with the execution and delivery of this
Agreement, the performance of the transactions contemplated hereby and the
continued operation of the business of the Companies and their Subsidiaries by
Buyer subsequent to the Closing. The Companies, the Stockholders and Buyer
shall have received all authorizations, waivers, consents and permits, in form
and substance reasonably satisfactory to Buyer, from all third parties,
including, without limitation, the landlord of Amerivend's office space in
Orlando, Florida, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Companies and each Subsidiary and the consummation of the
transactions contemplated by this Agreement, and to avoid a breach, default,
termination, acceleration or modification of any indenture, loan or credit
agreement or any other material agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award as a result of, or in connection with, the
execution and performance of this Agreement.
(i) Hart-Scott-Rodino. All required filings under the Hart-Scott-
-----------------
Rodino Act shall have been completed and all applicable time limitations under
such Act shall have expired
39
<PAGE>
without a request for further information by the relevant federal authorities
under such Act, or in the event of such a request for further information, the
expiration of all applicable time limitations under the Act shall have occurred
without the objection of such federal authorities.
(j) Non-Competition Agreement. Mr. Pulver shall have executed and
-------------------------
delivered to Buyer a Non-Competition Agreement in substantially the form of
Exhibit D attached hereto.
- ---------
(k) FIRPTA Withholding. At or prior to the Closing, Buyer shall
------------------
have received from each Stockholder a "transferor's certificate of non-foreign
status" as provided in the Treasury Regulations under Section 1445 of the Code
in the form attached hereto as Exhibit E.
---------
(l) Employee Programs. Amerivend shall have taken all steps
-----------------
necessary under the relevant documents and applicable law to maintain the
qualification of each Employee Program of Amerivend identified in Schedule 2.28
-------------
notwithstanding the purchase of the Amerivend Shares by Buyer.
(m) Resignations. Amerivend shall have delivered to Buyer
------------
resignations of all of the directors of Amerivend and of such officers of
Amerivend as may be requested by Buyer at least five (5) days prior to the
Closing, such resignations to be effective at the Closing.
(n) Releases. Amerivend shall have delivered to Buyer general
--------
releases signed by each Stockholder and by each officer and director of
Amerivend and each of its Subsidiaries of all claims which any of them have
against Amerivend, any Subsidiary and Buyer in the form attached hereto as
Exhibit F.
- ---------
(o) Real Estate. Buyer and Mr. Pulver shall have entered into,
-----------
and Mr. Pulver shall cause any co-owners of any of the Pulver Real Estate to
enter into, mutually satisfactory documentation providing for the purchase by
Buyer from Mr. Pulver (and any co-owners) of the real property, together with
buildings and improvements thereon, owned by Mr, Pulver at 4101 SW 73rd Avenue,
Miami, Florida 33155 (the "Miami Property"), 5411 Boran Place, Tampa, Florida
33610 (the "Tampa Property" and 7105 Oakridge Parkway, Ausell, Georgia 30168-
5832 (the "Ausell Property") and, together with the Miami Property and the Tampa
Property, the "Pulver Real Estate") for cash purchase prices equal to either, in
Buyer's sole discretion, (A) $900,000 for the Miami Property, $385,000 for the
Tampa Property and the appraised value for the Ausell Property determined by
reference to the appraisal report currently being prepared by NationsBank of
Florida, N.A. (each, a "NationsBank Appraised Value") or (B) the average of the
NationsBank Appraised Value for a property and the appraised value of such
property determined by reference to an appraisal by a second qualified real
estate appraiser engaged by Buyer (each, an "Average Appraised Value"). If the
purchase of one or more of the properties comprising the Pulver Real Estate
cannot be consummated by the Closing Date, then, until the closing of such
purchase can occur, Amerivend (or Buyer, as its successor) and Mr. Pulver will
continue to operate under the terms of the existing lease(s) to
40
<PAGE>
which they are parties with respect to such property or properties (the
"Existing Leases"). In addition, in the event that Buyer cannot obtain a written
commitment to issue a title insurance policy and survey with respect to any
property comprising the Pulver Real Estate, which title commitment and survey
shows (i) the state of title to such property to be as represented in this
Agreement, (ii) no exceptions for gaps in the chain of title, (iii) no
Encumbrances, encroachments or title defects, and (iv) no violations of any
applicable zoning or other ordinance, statute, rule or regulation, which
violation could materially impair the use of such property by Buyer, then Buyer
shall not be obligated to purchase such property and Amerivend (or Buyer, as its
successor) and Mr. Pulver will continue to operate under the terms of the
Existing Lease with respect to such property.
(p) Clearwater Lease. Amerivend and Mr. Pulver shall have
----------------
terminated the lease by Amerivend of Mr. Pulver's condominium in Clearwater,
Florida, and Amerivend and Buyer shall have been released from all obligations
thereunder, all pursuant to documentation in form and substance satisfactory to
Buyer.
(q) Release of Liens. All Encumbrances on the assets of Amerivend
----------------
and the Southeast Assets shall have been terminated and released (other than the
non-monetary judgments described under Item 5 on Schedule 2.05 attached hereto)
and Buyer shall have received UCC-3 termination statements and such other
documents evidencing such terminations.
(r) Parachute Payments. Amerivend shall have paid $1,000,000 to
------------------
each of John A. Manfrediz and Karen G. Sylvester pursuant to Section 3.C of
their respective employment agreements with Amerivend, each of Mr. Manfrediz and
Ms. Sylvester shall have released Amerivend and Buyer from all obligations under
such Section and each such employment agreement shall be amended as of the
Closing to delete such Section, all pursuant to documentation in form and
substance satisfactory to Buyer.
(s) Payoff Letters. Amerivend shall have delivered to Buyer payoff
--------------
letters with respect to the indebtedness described on Schedule 1.03 attached
-------------
hereto.
(t) Asset Transfer. Southeast shall have delivered to Buyer the
--------------
bills of sale, assignments, and other instruments of transfer and assignment in
accordance with the provisions hereof, transferring to Buyer all of Southeast's
right, title and interest in and to the Southeast Assets, free and clear of all
Encumbrances.
(u) Retainer Agreement. Amerivend and Stephen L. Vinson, Jr., P.A.
------------------
shall have terminated the Professional Services Agreement to which they are
parties and entered into a new agreement, in form and substance reasonably
satisfactory to Buyer, which may be terminated by Amerivend on and after
December 31, 1998 without any payment or penalty.
41
<PAGE>
(v) Escrow Agreement. The Escrow Agreement shall have been executed
----------------
and delivered by the parties thereto.
7.02 Conditions to Obligations of the Companies and the Stockholders. The
---------------------------------------------------------------
obligations of the Companies and the Stockholders to consummate this Agreement
and the transactions contemplated hereby is subject to the fulfillment, prior to
or at the Closing, of the following conditions precedent:
(a) Representations; Warranties; Covenants. Each of the
--------------------------------------
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects as though made on and as of the
Closing Date. Buyer shall, on or before the Closing, have performed all of its
obligations hereunder which by the terms hereof are to be performed on or before
the Closing. Buyer shall have delivered to the Companies and the Stockholders a
certificate of the President or any Vice President of Buyer dated the Closing
Date to such effect.
(b) Approval of the Companies' Counsel. All actions, proceedings,
----------------------------------
instruments and documents required to carry out this Agreement and the
transactions contemplated hereby and all related legal matters contemplated by
this Agreement shall have been approved by the Law Offices of Stephen L. Vinson,
Jr., P.A., as counsel for the Companies and the Stockholders, and such counsel
shall have received on behalf of the Companies and the Stockholders such other
certificates, opinions and documents in form satisfactory to such counsel, as
the Companies may reasonably require from Buyer to evidence compliance with the
terms and conditions hereof as of the Closing and the correctness as of the
Closing of the representations and warranties of Buyer and the fulfillment of
its covenants.
(c) No Litigation. There shall have been no determination by the
-------------
Companies, acting in good faith, that the consummation of the transactions
contemplated by this Agreement has become inadvisable or impracticable by reason
of the institution or threat by any person or any federal, state, foreign or
other governmental authority of litigation, proceedings or other action against
Buyer, either Company, any Subsidiary or any Stockholder.
(d) Hart-Scott-Rodino. All required filings under the Hart-Scott-
-----------------
Rodino Act shall have been completed and all applicable time limitations under
such Act shall have expired without a request for further information by the
relevant federal authorities under such Act, or in the event of such a request
for further information, the expiration of all applicable time limitations under
the Act shall have occurred without the objection of such federal authorities.
42
<PAGE>
(e) Non-Competition Agreement. Buyer shall have executed and
-------------------------
delivered to Mr. Pulver a Non-Competition Agreement in substantially the form of
Exhibit D attached hereto.
- ---------
(f) Real Estate. Buyer and Mr. Pulver shall have entered into
-----------
mutually satisfactory documentation providing for the purchase by Buyer from Mr.
Pulver of the Pulver Real Estate for cash purchase prices equal to either, in
Buyer's sole discretion, (A) the NationsBank Appraised Values or (B) the Average
Appraised Values. If the purchase of one or more of the properties comprising
the Pulver Real Estate cannot be consummated by the Closing Date, then, until
the closing of such purchase can occur, Amerivend (or Buyer, as its successor)
and Mr. Pulver will continue to operate under the terms of the Existing Lease(s)
with respect to such property or properties.
(g) The Escrow Agreement shall have been executed and delivered by
the parties thereto.
SECTION 8. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
--------------------------------------------------------
8.01 Termination. At any time prior to the Closing, this Agreement may be
-----------
terminated as follows:
(i) by mutual written consent of all of the parties to this
Agreement;
(ii) by Buyer, provided that Buyer is not in material breach of
this Agreement, (A) if either Company or any Stockholder is in material breach
of this Agreement and such breach shall remain uncured for a period of five (5)
business days after Buyer shall have given written notice of such breach to
Amerivend and, if applicable, such Stockholder, (B) if either Company or any
Stockholder shall have explicitly or by conduct repudiated this Agreement and
such repudiation shall have remained uncured for a period of five (5) business
days after Buyer shall have given written notice thereof to Amerivend and, if
applicable, such Stockholder, or (C) if at or prior to Closing, any of the
conditions in Section 7.01 shall not have been satisfied, complied with or
performed in all material respects (unless such failure of satisfaction,
noncompliance or nonperformance is the result directly or indirectly of any
action or failure to act on the part of Buyer) and Buyer shall not have waived
such failure of satisfaction, noncompliance or nonperformance;
(iii) by Amerivend, provided that neither Company nor any of the
Stockholders is in material breach of this Agreement, (A) if Buyer is in
material breach of this Agreement and such breach shall remain uncured for a
period of five (5) business days after Amerivend shall have given written notice
of such breach to Buyer, (B) if Buyer shall have explicitly or by conduct
repudiated this Agreement and such repudiation shall have remained uncured for a
period of five (5) business days after Amerivend shall have given written notice
thereof to Buyer, or (C) if at or prior to Closing, any of the conditions in
Section 7.02 shall not
43
<PAGE>
have been satisfied, complied with or performed in all material respects (unless
such failure of satisfaction, noncompliance or nonperformance is the result
directly or indirectly of any action or failure to act on the part of either
Company or any Stockholder) and Amerivend shall not have waived such failure of
satisfaction, noncompliance or nonperformance; or
(iv) by Buyer or Amerivend, if the Closing has not occurred on
or before April 30, 1998.
8.02 Effect of Termination. All obligations of the parties hereunder
---------------------
shall cease upon any termination pursuant to Section 8.01; provided, however,
-------- -------
that (i) the provisions of this Section 8, Section 4.08, Section 6.02 and
Section 11 hereof shall survive any termination of this Agreement, (ii) nothing
herein shall relieve any party from any liability for a material error or
omission in any of its representations or warranties contained herein or a
material failure to comply with any of its covenants, conditions or agreements
contained herein, and (iii) any party may proceed as further set forth in
Section 8.03 below.
8.03 Right to Proceed. Anything in this Agreement to the contrary
----------------
notwithstanding, if any of the conditions specified in Section 7.01 hereof have
not been satisfied, Buyer shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder, and if any of
the conditions specified in Section 7.02 hereof have not been satisfied, the
Stockholders shall have the right to proceed with the transactions contemplated
hereby without waiving any of their rights hereunder.
SECTION 9. SURVIVAL
--------------------
9.01 Survival of Warranties. Each of the representations, warranties,
----------------------
agreements, covenants and obligations herein or in any Schedule, Exhibit,
Certificate or financial statement delivered by any party to the other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto.
SECTION 10. INDEMNIFICATION
----------------------------
10.01 Indemnification by Southeast and the Stockholders. Southeast and
-------------------------------------------------
the Stockholders jointly and severally agree subsequent to the Closing to
indemnify and hold Amerivend, each Subsidiary, Buyer and their respective
subsidiaries and affiliates and persons serving as officers, directors, partners
or employees thereof (individually, a "Buyer Indemnified Party" and,
collectively, the "Buyer Indemnified Parties") harmless from and against any
damages, liabilities, losses, taxes, fines, penalties, costs and expenses
(including, without limitation, reasonable fees of counsel) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or
44
<PAGE>
settlement of the foregoing) which may be sustained or suffered by any of them
arising out of or based upon any of the following matters:
(a) Fraud, intentional misrepresentation or a deliberate or willful
breach by either Company or any Stockholder of any of their representations,
warranties or covenants under this Agreement or in any Certificate, Schedule or
Exhibit delivered pursuant hereto;
(b) Any other breach of any representation, warranty or covenant of
either Company or any Stockholder under this Agreement or in any Certificate,
Schedule or Exhibit delivered pursuant hereto, or by reason of any claim, action
or proceeding asserted or instituted arising out of any matter or thing
constituting a breach of such representations, warranties or covenants;
(c) Any liability of Amerivend or any Subsidiary for Taxes arising
from an event or transaction prior to the Closing or as a result of the Closing
which have not been paid or provided for or reserved against by Amerivend in the
Base Balance Sheet, including, without limitation, any increase in Taxes due to
the unavailability of any loss or deduction claimed by Amerivend or a
Subsidiary; provided, however, that neither Southeast nor the Stockholders shall
have any obligation under this Section 10.01(c) for any Taxes imposed by Section
1374 of the Code which arise by virtue of any election under Section 338(h)(10)
of the Code; and
(d) Any liability of Southeast.
10.02 Limitations on Indemnification by Southeast and the Stockholders.
----------------------------------------------------------------
Notwithstanding the foregoing, the right of Buyer Indemnified Parties to
indemnification under Section 10.01 shall be subject to the following
provisions:
(a) No indemnification shall be payable pursuant to Subsection
10.01(b) above to any Buyer Indemnified Party, unless the total of all claims
for indemnification pursuant to Section 10.01 shall exceed $25,000 in the
aggregate, whereupon the full amount of such claims shall be recoverable in
accordance with the terms hereof; and
(b) No indemnification shall be payable to a Buyer Indemnified Party
with respect to claims under Subsection 10.01(b) which are asserted after the
date which is eighteen (18) months after the Closing Date (the "Expiration
Date"); provided that (i) if on or prior to the Expiration Date a specific state
of facts shall have become known which may give rise to a claim for
indemnification under Subsection 10.01(b) and a Buyer Indemnified Party shall
have given written notice to the Stockholders of such facts known by such Buyer
Indemnified Party at such time, then the right to indemnification with respect
to such claim shall remain in effect without regard to when such matter shall be
finally determined and disposed of and (ii) claims under Subsection 10.01(b) for
indemnification for Taxes or environmental matters or based upon or related to a
breach of any representation, warranty or covenant with respect to Taxes
45
<PAGE>
or tax related matters or environmental matters may be asserted until the 60th
day following expiration of the statute of limitations (if any) applicable to
such claim.
The limitations contained in this Subsection 10.02 shall not apply to the
indemnification obligations of Southeast and the Stockholders arising under
Subsections 10.01(a) and 10.01(c).
10.03 Indemnification by Buyer. Buyer agrees to indemnify and hold
------------------------
Southeast and the Stockholders (individually, each a "Stockholder Indemnified
Party" and, collectively, the "Stockholder Indemnified Parties") harmless from
and against any damages, liabilities, losses and expenses (including, without
limitation, reasonable fees of counsel) of any kind or nature whatsoever
(whether or not arising out of third-party claims and including all amounts paid
in investigation, defense or settlement of the foregoing) which may be sustained
or suffered by any of them arising out of or based upon (a) any breach of any
representation, warranty or covenant made by Buyer in this Agreement or in any
Certificate delivered by Buyer hereunder, or by reason of any claim, action or
proceeding asserted or instituted arising out of any matter or thing
constituting such a breach and (b) any Taxes imposed by Section 1374 of the Code
which arise by virtue of any election under Section 338(h)(10) of the Code.
10.04 Limitation on Indemnification by Buyer. Notwithstanding the
--------------------------------------
foregoing, the right of Stockholder Indemnified Parties to indemnification under
Section 10.03 shall be subject to the following provisions:
(a) No indemnification pursuant to Section 10.03(a) shall be payable
to any Stockholder Indemnified Party, unless the total of all claims for
indemnification pursuant to Section 10.03 shall exceed $25,000 in the aggregate,
whereupon the full amount of such claims shall be recoverable in accordance with
the terms hereof; and
(b) No indemnification shall be payable to any Stockholder
Indemnified Party with respect to claims under Section 10.03(a) above which are
asserted after the Expiration Date; provided that if on or prior to the
Expiration Date a specific state of facts shall have become known which may give
rise to a claim for indemnification under Subsection 10.03(a) and a Stockholder
Indemnified Party shall have given written notice to Buyer of such facts known
by such Stockholder Indemnified Party at such time, then the right to
indemnification with respect to such claim shall remain in effect without regard
to when such matter shall be finally determined and disposed of.
The limitations contained in this Section 10.04 shall not apply to the
indemnification obligations of Buyer arising under Section 10.03(b).
10.05 Notice; Defense of Claims. An indemnified party may make claims for
-------------------------
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or
46
<PAGE>
liability being asserted, but the failure to do so shall not relieve the
indemnifying party from any liability except to the extent that it is prejudiced
by the failure or delay in giving such notice. Such notice shall summarize the
bases for the claim for indemnification and any claim or liability being
asserted by a third party. Within 20 days after receiving such notice the
indemnifying party shall give written notice to the indemnified party stating
whether it disputes the claim for indemnification and whether it will defend
against any third-party claim or liability at its own cost and expense. If the
indemnifying party fails to give notice that it disputes an indemnification
claim within 20 days after receipt of notice thereof, it shall be deemed to have
accepted and agreed to the claim, which shall become immediately due and
payable. The indemnifying party shall be entitled to direct the defense against
a third-party claim or liability with counsel selected by it (subject to the
consent of the indemnified party, which consent shall not be unreasonably
withheld) as long as the indemnifying party is conducting a good faith and
diligent defense. The indemnified party shall at all times have the right to
fully participate in the defense of a third-party claim or liability at its own
expense directly or through counsel; provided, however, that if the named
-----------------
parties to the action or proceeding include both the indemnifying party and the
indemnified party and the indemnified party is advised that representation of
both parties by the same counsel would be inappropriate under applicable
standards of professional conduct, the indemnified party may engage separate
counsel at the expense of the indemnifying party. If no such notice of intent to
dispute and defend a third-party claim or liability is given by the indemnifying
party, or if such good faith and diligent defense is not being or ceases to be
conducted by the indemnifying party, the indemnified party shall have the right,
at the expense of the indemnifying party, to undertake the defense of such claim
or liability (with counsel selected by the indemnified party), and to compromise
or settle it, exercising reasonable business judgment. If the third-party claim
or liability is one that by its nature cannot be defended solely by the
indemnifying party, then the indemnified party shall make available such
information and assistance as the indemnifying party may reasonably request and
shall cooperate with the indemnifying party in such defense, at the expense of
the indemnifying party.
10.06 Claims Against Indemnification Escrow. In the event that a Buyer
-------------------------------------
Indemnified Party sustains or incurs losses (including, without limitation,
attorneys fees) for which it is entitled to indemnification from Southeast or
the Stockholders under this Agreement, in addition to all other rights or
remedies that such Buyer Indemnified Party may have (including the right to
collect directly from Southeast or the Stockholders), such Buyer Indemnified
Party shall be entitled to receive in cash from the Escrow Agent an amount equal
to the losses (including, without limitation, attorneys fees), sustained or
incurred by such Buyer Indemnified Party, in accordance with the Escrow
Agreement.
SEC MISCELLANEOUS.
------------------
11.01 Fees and Expenses. Buyer shall pay its own expenses and costs
-----------------
associated with the preparation of this Agreement and the consummation of the
transactions contemplated hereby. Each of Southeast and the Stockholders shall
pay all of their fees and expenses and all
47
<PAGE>
fees and expenses of Amerivend in connection with the preparation of this
Agreement and the consummation of the transactions contemplated hereby, and no
expenses of either Company or the Stockholders relating in any way to the
transactions contemplated hereby, including, without limitation, legal,
accounting or other professional expenses and any broker's commission or
finder's fee, shall be charged to, paid by or reflected in any account of
Amerivend, any Subsidiary or Buyer.
11.02 Governing Law. This Agreement shall be construed under and governed
-------------
by the internal laws of The Commonwealth of Massachusetts without regard to its
conflict of laws provisions.
11.03 Notices. Any notice, request, demand or other communication
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been given if delivered or sent by facsimile transmission, upon receipt, or if
sent by registered or certified mail, upon the sooner of the date on which
receipt is acknowledged or the expiration of three (3) days after deposit in
United States post office facilities properly addressed with postage prepaid.
All notices to a party will be sent to the addresses set forth below or to such
other address or person as such party may designate by notice to each other
party hereunder:
TO BUYER: Mac-Gray Corporation
- -------- 22 Water Street
Cambridge, MA 02141
Fax: (617) 492-5386
Attn: Chief Executive Officer
With a copy to: Goodwin, Procter & Hoar LLP
Exchange Place
53 State Street
Boston, MA 02109
Fax: (617) 523-1231
Attn: Stuart M. Cable, Esq.
TO EITHER COMPANY Gerald E. Pulver
- ------------------- 1865 Brickell Avenue
OR ANY STOCKHOLDER: Apt. PH-5
- ------------------- Miami, FL 33129
Fax: (305) 858-6116
With a copy to: Law Offices of Stephen L. Vinson, Jr., P.A.
1200 Brickell Avenue
Suite 1680
Miami, FL 33131
Fax: (305) 375-9511
Attn: Stephen L. Vinson, Jr., Esq.
48
<PAGE>
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
11.04 Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings, including the letter of intent
among Amerivend, Mac-Gray Corporation and Mr. Pulver dated February 18, 1998.
11.05 Assignability; Binding Effect. This Agreement shall only be
-----------------------------
assignable by Buyer, whether in whole or in part, to an entity controlling,
controlled by or under common control with Buyer upon written notice to the
Companies and the Stockholders, and such assignment shall not relieve Buyer of
any liability hereunder. This Agreement may not be assigned by either Company
or the Stockholders without the prior written consent of Buyer. This Agreement
shall be binding upon and enforceable by, and shall inure to the benefit of, the
parties hereto and their respective successors and permitted assigns.
11.06 Captions and Gender. The captions in this Agreement are for
-------------------
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
11.07 Execution in Counterparts. For the convenience of the parties and
-------------------------
to facilitate execution, this Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document.
11.08 Amendments. This Agreement may not be amended or modified, nor may
----------
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by Buyer, each Company and the Stockholders'
Representative, or in the case of a waiver, the party waiving compliance.
11.09 Publicity and Disclosures. No press releases or public disclosure,
-------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement without the prior knowledge and
written consent of Buyer, the Companies and the Stockholders' Representative;
provided, however, that Buyer shall be permitted to disclose such information
- -------- -------
about the Companies, their Subsidiaries, the Stockholders and the transactions
contemplated hereby as may be legally required, and otherwise reasonably
necessary, in the preparation, completion, filing and distribution of such
reports, filings and other documents required by the Securities Act, the
Exchange Act or New York Stock Exchange rules; provided, further, that Buyer
-------- -------
shall be permitted to make such press releases related to the execution of this
Agreement as may be reasonably approved by the Stockholders' Representative.
49
<PAGE>
11.10 Consent to Jurisdiction. Each of the parties hereby consents to
-----------------------
personal jurisdiction, service of process and venue in the federal or state
courts of The Commonwealth of Massachusetts for any claim, suit or proceeding
arising under this Agreement, or in the case of a third-party claim subject to
indemnification hereunder, in the court where such claim is brought.
11.11 Specific Performance. The parties agree that it would be
--------------------
difficult to measure damages which might result from a breach of this Agreement
by either Company or the Stockholders and that money damages would be an
inadequate remedy for such a breach. Accordingly, if there is a breach or
proposed breach of any provision of this Agreement by either Company or the
Stockholders, and Buyer does not elect to terminate under Section 8, Buyer shall
be entitled, in addition to any other remedies which it may have, to an
injunction or other appropriate equitable relief to restrain such breach without
having to show or prove actual damage to Buyer.
11.12 Bulk Sales Law. Buyer hereby waives compliance by Southeast of any
--------------
applicable bulk sales law and Southeast agrees to make full and prompt payment
of all amounts owed by Southeast to its creditors. Southeast and Mr. Pulver,
jointly and severally, agree (in addition to and independent of the
indemnification obligations contained in Section 10) to indemnify and hold Buyer
harmless from, and reimburse Buyer for, any loss, cost, expense, liability or
damage (including reasonable counsel fees and disbursements and expenses) which
Buyer may suffer or incur by virtue of the non-compliance by Southeast with such
laws.
[End of Text]
50
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
MAC-GRAY SERVICES, INC.
By:
--------------------------
Name:
Title:
AMERIVEND CORPORATION
By:
--------------------------
Name:
Title:
AMERIVEND SOUTHEAST
CORPORATION
By:
--------------------------
Name:
Title:
--------------------------
Gerald E. Pulver
GERALD E. PULVER GRANTOR
RETAINED ANNUITY TRUST
By: NationsBank, N.A., as Trustee
By:
--------------------------
Name:
Title:
51
<PAGE>
List of Exhibits and Schedules
------------------------------
Exhibit A List of Stockholders, Stockholdings and Consideration to be Paid
B Form of Indemnification Escrow Agreement
C Form of Opinion of Counsel for the Companies and the Stockholders
D Form of Non-Competition Agreement
E FIRPTA Representation
F Form of General Release
Schedule
1.02(a)(i) Southeast Inventory
1.02(a)(ii) Southeast Equipment
1.02(b) Southeast Vehicles
1.03 Indebtedness
1.08 Southeast Allocation
2.03 Voting Agreements, etc.
2.04 Subsidiaries
2.05 Liens, etc.
2.06(a) Real Property
2.06(b) Personal Property
2.07 Laundry Leases
2.08 Equipment
2.09 Title
2.10 Financial Statements
2.11 Tax Disclosures
2.12 Affiliated Accounts Receivable
2.13 Inventories
2.14 Absence of Changes
2.16 Banking Arrangements
2.17 Intellectual Property
2.18 Contracts, etc.
2.19 Litigation
2.20 Compliance with Laws
2.21 Insurance
2.22 Warranty Claims
2.25 Permit; Burdensome Agreements
2.27 Transactions with Interested Persons
2.28 Employee Benefit Programs
2.29 Environmental Matters
2.30 Officers and Directors
2.31 Labor Matters
2.33 Backlog
2.34 Customers, Distributors and Suppliers
2.36 Stock Repurchases
4A Amerivend Allocation
52
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EXHIBIT A
---------
List of Stockholders, Stockholdings and Consideration to be Paid
----------------------------------------------------------------
==========================================================
Name of Ownership of Consideration
Stockholder Company Shares Payable
by Buyer
----------------------------------------------------------
Gerald E. Pulver 382 Amerivend Shares 76.4% of
Amerivend
Purchase Price
----------------------------------------------------------
Gerald E. Pulver
Grantor Retained 118 Amerivend Shares 23.6% of
Annuity Trust Amerivend
Purchase Price
==========================================================
53
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EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus/Proxy Statement constituting
part of this Registration Statement on Form S-4 of Mac-Gray Corporation of our
report dated January 30, 1998 relating to the consolidated financial
statements of Mac-Gray Corporation and our report dated May 2, 1997 relating
to the combined financial statements of Sun Services of America, Inc. and R.
Bodden Coin-Op Laundry, Inc., which appear in such Prospectus/Proxy Statement.
We also consent to the references to us under the headings "Experts" and
"Selected Historical Financial Data" in such Prospectus/Proxy Statement.
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
March 5, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus/Proxy Statement constituting
part of this Registration Statement on Form S-4 of Mac-Gray Corporation of our
report dated August 22, 1997 relating to the financial statements of Intirion
Corporation, which appears in such Prospectus/Proxy Statement. We also consent
to the application of such report to the Financial Statement Schedule for the
three years ended June 30, 1997 listed under Item 21(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report
also included these schedules. We also consent to the references to us under
the headings "Experts" and "Selected Historical Financial Data" in such
Prospectus/Proxy Statement. 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
March 5, 1998
