UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

SCHEDULE 14A

 

(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(A) of

the Securities Exchange Act of 1934 (Amendment No. 1)

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

COINMACH SERVICE CORP.

(Name of Registrant as Specified in its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

 

 

Coinmach Service Corp. class A common stock, $0.01 par value (“Class A Common Stock”)

 

Coinmach Service Corp. class B common stock, $0.01 par value (“Class B Common Stock” and together with Class A Common Stock, collectively “Common Stock”)

 

 

 

Class A Common Stock: 29,263,595

 

Class B Common Stock: 23,374,450

 

 

 

The filing fee was determined based upon the sum of (1) 52,395,637 shares of Common Stock multiplied by the merger consideration of $13.55 per share and (2) 242,208 restricted shares of Class A Common Stock multiplied by the merger consideration of $13.55 per share.

 

In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying $0.0000307 by the sum of the preceding sentence.

 

 

 

 

 

 

 

 

 

 

 

 

 

COINMACH SERVICE CORP.
303 Sunnyside Blvd., Suite 70
Plainview, New York 11803

 

PROPOSED CASH MERGER — YOUR VOTE IS VERY IMPORTANT

 

[    l    ], 2007

 

Dear Fellow Stockholder:

 

You are cordially invited to attend a special meeting of stockholders of Coinmach Service Corp. to be held on [    l    ], 2007, starting at [    l    ] a.m., local time, at [    l    ]. At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger (which we refer to as the “merger agreement”), dated as of June 14, 2007, by and among Coinmach, Spin Holdco Inc. and Spin Acquisition Co., a wholly-owned subsidiary of Spin Holdco, pursuant to which Spin Acquisition will merge with and into Coinmach. If the merger agreement is adopted and the merger is completed, you will be entitled to receive $13.55 in cash, without interest and less any applicable withholding tax, for each share of our Class A Common Stock or Class B Common Stock (which we refer to, collectively, as “Common Stock”) you own, as more fully described in the enclosed proxy statement. If the merger agreement is adopted and the merger is completed, all shares of our Class A Common Stock and notes underlying our income deposit securities will separate and our income deposit securities will no longer be outstanding.

 

Our board of directors after careful consideration of a variety of factors has unanimously determined that the merger agreement and the transactions contemplated thereby are advisable and fair to and in the best interests of Coinmach and its stockholders, and has approved the merger agreement, the merger and the other transactions contemplated thereby. Accordingly, our board of directors unanimously recommends that you vote “FOR” the adoption of the merger agreement.

 

Your vote is important, regardless of the number of shares of our Class A Common Stock and/or Class B Common Stock you own. The adoption of the merger agreement requires the affirmative approval of the holders of a majority of the voting power of the outstanding shares of our Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as one class. Even if you plan to attend the special meeting in person, we request that you sign and return the enclosed proxy prior to the special meeting and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card and do not attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the adoption of the merger agreement. GTCR-CLC, LLC, Coinmach Holdings, LLC, certain members of our senior management and one of our non-management directors, who collectively own approximately 61.7% of the voting power of the outstanding shares of our Common Stock entitled to vote on the adoption of the merger agreement, have entered into a voting agreement, pursuant to which they have agreed to vote in favor of the adoption and approval of the merger

agreement and the transactions contemplated thereby, unless such voting agreement is terminated in accordance with its terms. Accordingly, the proposal will be approved without the vote of any other stockholder.

 

The attached proxy statement provides you with detailed information about the special meeting, the merger agreement, the other transaction documents and the merger. Copies of the merger agreement, the voting agreement, and the exchange agreement are attached as Annex A, Annex B and Annex C, respectively, to the proxy statement. We encourage you to read the entire proxy statement, the merger agreement, and other appendices carefully. You may also obtain more information about Coinmach from documents we have filed with the Securities and Exchange Commission.

 

Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying reply envelope. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

 

This special meeting of stockholders of Coinmach is being held to consider and vote on the merger agreement and the proposed merger. Accordingly, Coinmach has delayed scheduling its 2007 annual meeting of stockholders pending the outcome of this special meeting of stockholders.

 

Thank you in advance for your cooperation and continued support.

 

Sincerely,

 

Stephen R. Kerrigan
Chairman of the Board and Chief
Executive Officer

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AGENCY HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

This proxy statement is dated [    l    ], 2007 and is first being mailed to stockholders of Coinmach on or about [    l    ], 2007.

 

COINMACH SERVICE CORP.
303 Sunnyside Blvd., Suite 70
Plainview, New York 11803

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [    l    ], 2007

 

To Our Stockholders:

 

Notice is hereby given that a special meeting of stockholders of Coinmach Service Corp., a Delaware corporation (which we refer to as the “Company” or “Coinmach”), will be held at [    l    ], on [    l    ], 2007, at [    l    ] a.m., local time, for the following purposes:

 

(1) To consider and vote upon a proposal to adopt the Agreement and Plan of Merger (which we refer to as the “merger agreement”), dated as of June 14, 2007, by and among the Company, Spin Holdco Inc. (which we refer to as “Parent”) and Spin Acquisition Co. (which we refer to as “Merger Sub”), as it may be amended from time to time, pursuant to which Merger Sub will be merged with and into the Company, with the Company surviving as a wholly-owned subsidiary of Parent as more fully described in the enclosed proxy statement (a copy of the merger agreement is included as Annex A to the proxy statement); and

 

(2) To transact any other business that may properly come before the special meeting or any adjournment or postponement thereof.

 

The board of directors of the Company has fixed the close of business on [    l    ], 2007 as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting. Only Coinmach stockholders of record as of the close of business on that date will be entitled to notice of and to vote at the special meeting.

 

We urge you to read the accompanying proxy statement carefully as it sets forth details of the proposed merger and other important information related to the merger.

 

Your vote is important, regardless of the number of shares of the Company’s Class A Common Stock and/or Class B Common Stock you own. The adoption of the merger agreement requires the affirmative approval of the holders of a majority of the voting power of the outstanding shares of our Class A Common Stock and Class B Common Stock entitled to vote thereon, voting together as one class. Even if you plan to attend the special meeting in person, we request that you sign and return the enclosed proxy prior to the special meeting and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card and do not attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the meeting and will have the same effect as a vote against the adoption of the merger agreement.

Registration will begin at [    l    ] a.m., local time. If you attend, please note that you may be asked to present valid picture identification. “Street name” holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the special meeting.

 

Stockholders of the Company who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares of the Company’s Class A Common Stock and/or Class B Common Stock if they deliver a demand for appraisal before the vote is taken on the merger agreement and comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

 

This special meeting of stockholders of the Company is being held to consider and vote on the merger agreement and the proposed merger. Accordingly, the Company has delayed scheduling its 2007 annual meeting of stockholders pending the outcome of this special meeting of stockholders.

 

 

By Order of the Board of Directors,

 

Robert M. Doyle
Corporate Secretary

 

Plainview, New York
[    l    ], 2007

 

YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE (WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES). IF YOU DO ATTEND THE SPECIAL MEETING, YOU MAY VOTE ON THE ADOPTION OF THE MERGER AGREEMENT IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY CARD. PLEASE VOTE AT YOUR FIRST OPPORTUNITY.

 

COINMACH’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

 

Table of Contents

 

 

* * * * *

 

 

SUMMARY

 

This summary provides a brief description of the material terms of the merger agreement, the merger and certain related agreements. This summary highlights selected information contained in this proxy statement and may not contain all of the information that is important to you. You are urged to read this entire proxy statement carefully, including the information referred to herein incorporated by reference and attached as appendices. Each item in this summary includes a page reference directing you to a more complete description of that item.

 

References in this proxy statement, unless the context requires otherwise, to “Coinmach,” the “Company,” “we,” “our,” “ours,” and “us” refer to Coinmach Service Corp.; “Parent” refers to Spin Holdco Inc.; “Merger Sub” refers to Spin Acquisition Co.; “Class A Common Stock” refers to our class A common stock, par value $0.01 per share; “Class B Common Stock” refers to our class B common stock, par value $0.01 per share, and “Common Stock” refers to, collectively, Class A Common Stock and Class B Common Stock.

 

Parties to the Merger.  Coinmach Service Corp., a Delaware corporation, through its operating subsidiaries, is a leading supplier of outsourced laundry equipment services for multi-family housing properties in North America. Coinmach’s core business involves leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment and collecting revenues generated from laundry machines. Spin Holdco Inc., a Delaware corporation, and Spin Acquisition Co., a Delaware corporation and wholly-owned subsidiary of Parent, are affiliates of Babcock & Brown Limited, a global investment and advisory firm operating from 29 offices across Australia, North America, Europe, Asia, United Arab Emirates and Africa, with capabilities in structured finance and the creation, syndication and management of asset and cash flow-based investments. Babcock & Brown was founded in 1977 and is listed on the Australian Stock Exchange. Parent and Merger Sub were formed solely for the purpose of effecting the merger (as defined below) and transactions related to the merger. Neither Parent nor Merger Sub has engaged in any business except in connection with the merger. See “The Parties to the Merger” beginning on page 19.

 

The Merger and Related Transactions.  You are being asked to adopt the merger agreement providing for the acquisition of Coinmach by Parent. Pursuant to the merger agreement, Merger Sub will merge with and into Coinmach (which we refer to as the “merger”). Coinmach will be the surviving corporation in the merger and will become a wholly-owned subsidiary of Parent. We encourage you to read the merger agreement, which is attached as Annex A, in its entirety. See “The Merger Agreement — Structure of the Merger” beginning on page 63.

 

Simultaneously with the execution of the merger agreement, Parent, Coinmach Holdings, LLC (our controlling stockholder and owner of all of our outstanding shares of Class B Common Stock), GTCR-CLC, LLC, certain members of our senior management and one of our non-management directors entered into a voting agreement (which we refer to as the “voting agreement”), pursuant to which, unless the voting agreement is terminated in accordance with its terms, such parties agreed to vote certain of their respective shares of our Class A Common Stock and Class B Common Stock in favor of adoption and approval of the merger agreement.

We encourage you to read the voting agreement, which is attached as Annex B, in its entirety. See “The Voting Agreement” beginning on page 86.

 

Simultaneously with the execution of the merger agreement, Parent, Coinmach Laundry Corporation (our wholly-owned subsidiary), the secretary of Coinmach Laundry Corporation, certain members of our senior management and one of our non-management directors, entered into an exchange agreement (which we refer to as the “exchange agreement”), pursuant to which, immediately prior to completion of the merger, such members of our senior management and such director will exchange, in the aggregate, 407,380 shares of our Class B Common Stock owned by them representing approximately 0.77% of the outstanding shares of our Common Stock, for shares of Parent’s common stock representing approximately 1.74% of the outstanding shares of Parent’s common stock. As contemplated by the voting agreement and the exchange agreement, the remainder of the shares of our Class A Common Stock and Class B Common Stock held by such members of our senior management and such director, which have not been so exchanged, would be purchased, immediately prior to completion of the merger, by a person or persons designated by Babcock & Brown Spinco LLC, an affiliate of Parent. We encourage you to read the exchange agreement, which is attached as Annex C, in its entirety. See “The Exchange Agreement” beginning on page 89.

 

Board Recommendation and Reasons for the Merger.  The purpose of the merger for Coinmach is to enable its stockholders to immediately realize the value of their investment in Coinmach through their receipt of the per share merger consideration of $13.55 in cash, which represents a premium over the current and historical market prices of the Company’s Class A Common Stock, including a premium of approximately 15.7% to the $11.71 closing price of the Class A Common Stock on the American Stock Exchange on June 14, 2007, the last trading day before public disclosure of execution of the merger agreement. Our board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests of Coinmach and its stockholders and recommends that Coinmach stockholders adopt the merger agreement. Accordingly, our board of directors unanimously recommends that Coinmach’s stockholders vote “FOR” the adoption of the merger agreement. See “The Merger — Recommendation of our Board of Directors and Reasons For the Merger” beginning on page 35.

 

Merger Consideration.  If the merger is completed, you will be entitled to receive $13.55 in cash, without interest and less any applicable withholding tax, for each share of our Class A Common Stock and Class B Common Stock that you own (we refer to this amount as the “merger consideration”). However, shares held by us or any of our direct or indirect wholly-owned subsidiaries, by Parent or any of Parent’s direct or indirect subsidiaries or by stockholders who have properly demanded and perfected statutory appraisal rights will not be so converted. See “The Merger Agreement — Merger Consideration” beginning on page 64.

 

Treatment of Outstanding Restricted Stock.  At the effective time of the merger, all outstanding shares of our restricted stock will no longer be restricted and will be converted into the right to receive an amount of cash equal to $13.55 per share, without interest and less applicable withholding taxes. See “The Merger Agreement — Treatment of Restricted Stock” beginning on page 64.

Procedure for Receiving Merger Consideration.  As soon as reasonably practicable after the effective time of the merger, a paying agent appointed by Parent, with our approval, will mail instructions to all our stockholders. These instructions will tell you how to surrender your Coinmach Class A Common Stock and/or Class B Common Stock certificates in exchange for the merger consideration. See “The Merger Agreement — Payment Procedures” beginning on page 65.

 

Financing of the Merger.  Parent will fund the merger and the related transactions, including the payment of certain related transaction costs, charges, fees and expenses, with a combination of debt and equity commitments and available cash. Parent estimates that the total amount of funds necessary to complete the proposed merger and related transactions is approximately $[    l    ] billion. Parent has received a debt commitment letter, dated June 14, 2007, from The Royal Bank of Scotland plc, RBS Securities Corporation, Deutsche Bank Trust Company Americas, Deutsche Bank Securities Inc. and Deutsche Bank AG Cayman Islands Branch, pursuant to which and subject to the conditions set forth therein, they have committed to provide to Parent an aggregate amount of $1.225 billion (to which we refer as the “debt commitment letter”) and six equity commitment letters, dated June 14, 2007, which subject to the conditions set forth therein, provide for equity commitments in an aggregate amount of $312.3 million, in each case, to fund the payment of the merger consideration, related amounts required to be paid by Parent under the merger agreement and to pay transaction costs.

 

The consummation of the merger is not conditioned on Parent or Merger Sub receiving the proceeds contemplated by the debt and equity commitment letters. See “The Merger — Financing of the Merger” beginning on page 53.

 

Conditions to Closing.  Before we can complete the merger, a number of conditions must be satisfied or waived (to the extent permitted by law), including receipt of approval of our stockholders, the absence of any law or order prohibiting the transaction and our delivery of a certain tax related certificate. The obligations of Parent and Merger Sub to effect the merger are additionally subject to, among other things:

 

 

Our obligation to effect the merger is additionally conditioned on, among other things:

 

(read for purposes of this condition without giving effect to any materiality or a material adverse effect qualification in any such representation or warranty) would not and could not reasonably be likely to materially delay or impair the ability of Parent and/or Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement; and

 

 

Termination of the Merger Agreement.  Coinmach and Parent may agree in writing to terminate the merger agreement at any time without completing the merger, even after the stockholders of Coinmach have adopted the merger agreement. The merger agreement may also be terminated in certain other circumstances, including:

 

 

 

 

and such breach is not curable within 60 days after written notice of the breach is given by the terminating party; or

 

 

 

 

Termination Fees and Expenses.  If the merger agreement is terminated,

 

 

No Solicitation Covenant.  We have agreed that we will not, and will cause any of our subsidiaries not to, and we will cause our and our subsidiaries’ officers, directors, employees, agents, investment bankers, attorneys, accountants and representatives not to, directly or indirectly:

 

Notwithstanding these restrictions, at any time after the date of the merger agreement and before our stockholders adopt the merger agreement, we may:

 

 

In addition, we may terminate the merger agreement and enter into a definitive agreement with respect to a superior proposal under certain circumstances. See “The Merger Agreement — Acquisition Proposals” beginning on page 73.

 

Debt Tender Offer/Redemption of Notes.  Upon Parent’s request, we will commence an offer to purchase all of our outstanding 11% senior secured notes (which we refer to as the “debt tender offer”). Parent will finance the full payment of the notes. The completion of the debt tender offer is not a condition to completion of the merger. However, if the debt tender offer has not been consummated prior to the merger, then we expect to issue a notice of redemption with respect to the redemption of all our outstanding notes in accordance with the terms of the indenture governing our notes immediately prior to the effective time of the merger. See “The Merger Agreement — Debt Tender Offer; Redemption of Notes; Credit Facility” beginning on page 80.

Opinion of Houlihan Lokey.  On June 14, 2007, Houlihan Lokey Howard & Zukin Financial Advisors, Inc. (which we refer to as “Houlihan Lokey”) rendered its oral opinion to our board of directors (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion dated the same date) to the effect that, as of June 14, 2007, the merger consideration to be received by the holders of shares of our Class A Common Stock (other than members of our management that will retain or acquire a direct or indirect equity interest in Parent, GTCR-CLC, LLC and their respective affiliates, whom we refer to, collectively, as the “excluded stockholders”) in the merger is fair to such holders from a financial point of view.

 

Houlihan Lokey’s opinion was addressed to our board of directors and only addressed the fairness from a financial point of view of the merger consideration to be received by the holders of our Class A Common Stock (other than the excluded stockholders) in the merger and did not address any other aspect or implication of the merger. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex D to this proxy statement (including such modifications solely to protect the confidentiality of the names of parties providing the equity commitments to Parent) and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. Neither Houlihan Lokey’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to the merger. See “The Merger — Opinion of Houlihan Lokey” beginning on page 38.

 

Record Date and Voting.  You are entitled to vote at the special meeting if you owned shares of our Class A Common Stock and/or Class B Common Stock at the close of business on [    l    ], 2007, the record date for the special meeting. Each outstanding share of our Class A Common Stock on the record date entitles the holder to one vote, and each outstanding share of our Class B Common Stock on the record date entitles the holder to two votes, on the proposal to adopt the merger agreement. Holders of shares of our Class A Common Stock and holders of shares of our Class B Common Stock vote together as one class. As of the record date, there were [    l    ] shares of Class A Common Stock of Coinmach entitled to be voted and [    l    ] shares of Class B Common Stock of Coinmach entitled to be voted. See “The Special Meeting — Record Date and Quorum” beginning on page 20.

 

Stockholder Vote Required to Adopt the Merger Agreement.  For us to complete the merger, stockholders holding at least a majority of the voting power of our Class A Common Stock and Class B Common Stock outstanding at the close of business on the record date, voting together as one class, must vote “FOR” the adoption of the merger agreement. Under the terms of the voting agreement (which would terminate upon the earlier to occur of (a) the effective time of the merger, (b) the date on which our board of directors effects a change of recommendation in accordance with the merger agreement, (c) the date on which the merger agreement is terminated or (d) December 30, 2007), holders of shares of our Class A Common Stock and Class B Common Stock having a majority of the voting power of our outstanding shares of Class A Common Stock and Class B Common Stock have agreed to vote their respective shares for the adoption of the merger agreement. Their shares represent more than the number of votes necessary to adopt the merger agreement at the special meeting even if every

other stockholder of Coinmach votes against the adoption of the merger agreement. See “The Special Meeting — Vote Required” beginning on page 21 and “The Voting Agreement” beginning on page 86.

 

Share Ownership of Directors and Executive Officers.  As of [    l    ], 2007, the record date for the special meeting, John R. Scheessele, Woody M. McGee and William M. Kelly, James N. Chapman and our executive officers collectively held and are entitled to vote [    l    ] shares of our Class A Common Stock representing approximately [    l    ]% of the total voting power of our outstanding Common Stock. In addition, some of our directors and executive officers hold common units and class C preferred units of Coinmach Holdings, LLC, our controlling stockholder (which we refer to as “Coinmach Holdings”). David A. Donnini and Bruce V. Rauner are principals of GTCR-CLC, LLC which controls Coinmach Holdings, which controls 61.5% of the voting power of our outstanding Common Stock. Stephen R. Kerrigan, Robert M. Doyle, Michael E. Stanky, Ramon Norniella and James N. Chapman, who beneficially own approximately 0.23% of the voting power of our outstanding Common Stock, have entered into a voting agreement to support the merger. Like all our other stockholders, our directors and executive officers (other than Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman) will be entitled to receive $13.55 per share in cash for each of their shares of our Class A Common Stock and/or Class B Common Stock (including shares of restricted stock), whether or not then vested. Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman, as contemplated by the voting agreement and the exchange agreement, immediately prior to completion of the merger, will exchange, in the aggregate, 407,380 shares of our Class B Common Stock owned by them, representing approximately 0.77% of the outstanding shares of our Common Stock, for shares of Parent’s common stock representing approximately 1.74% of the outstanding shares of Parent’s common stock, and the remainder of our shares of Class A Common Stock and Class B Common Stock held by them, which has not been so exchanged, will be purchased by a person or persons designated by Babcock & Brown Spinco LLC. See “The Special Meeting — Vote Required” beginning on page 21, “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 47, “The Voting Agreement” beginning on page 86 and “The Exchange Agreement” beginning on page 89.

 

Interests of the Company’s Directors and Executive Officers in the Merger.   In considering the recommendation of our board of directors, you should be aware that our directors and executive officers may have interests in the merger that are different from, or in addition to, their interests as stockholders, and that may present actual or potential conflicts of interest. With respect to Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman, such interests include, as applicable, (i) exchange, in the aggregate, of 407,380 shares of our Class B Common Stock owned by them, representing approximately 0.77% of the outstanding shares of our Common Stock, for shares of Parent’s common stock representing approximately 1.74% of the outstanding shares of Parent’s common stock, (ii) accelerated vesting of their restricted shares of Class A Common Stock immediately prior to the effective time of the merger, (iii) entering into new employment or consulting arrangements with Parent and Coinmach, which will become effective upon the closing of the merger, (iv) adoption of an equity incentive plan by Parent or Coinmach to which executive officers will be subject, (v) payment of certain transaction bonuses in connection with the consummation of the merger and (vi) participation in the voting and exchange agreements. Additionally, our executive officers and directors will have rights under the merger agreement to continued indemnification and insurance coverage after the merger for acts or omissions occurring prior to the merger. See “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 47.

Tax Consequences.  If you are a U.S. holder of our Common Stock, the merger will be a taxable transaction to you. For U.S. federal income tax purposes, your receipt of cash (whether as merger consideration or pursuant to the proper exercise of appraisal rights) in exchange for your shares of Coinmach Common Stock generally will cause you to recognize gain or loss measured by the difference, if any, between the cash you receive pursuant to the merger and your adjusted tax basis in your shares.

 

For a more complete discussion of the U.S. federal income tax consequences of the merger including a description of the consequences of the merger to certain non-U.S. holders, see “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 56.

 

Tax matters can be complicated and the tax consequences of the merger to our stockholders will depend on each stockholder’s particular tax situation. You should consult your tax advisors to understand fully the tax consequences of the merger to you.

 

Appraisal Rights.  Delaware law provides you, as a stockholder, with statutory appraisal rights in the merger. This means that you are entitled to have the fair value of your shares determined by the Delaware Court of Chancery, which will determine the shares’ fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value, and to receive payment based on that valuation. The ultimate amount you receive in an appraisal proceeding may be less or more than, or the same as, the amount you would have received under the merger agreement. To exercise your appraisal rights, you must submit a written demand for appraisal to Coinmach before the vote is taken on the merger agreement at the special meeting, you must not vote in favor of the adoption of the merger agreement and you must otherwise comply with the applicable requirements of Section 262 of the General Corporation Law of the State of Delaware. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Statutory Appraisal Rights” beginning on page 93 and Annex E — Section 262 of the General Corporation Law of the State of Delaware.

 

Market Price of Coinmach’s Common Stock.  Our Class A Common Stock is listed on the American Stock Exchange under the trading symbol “DRA” and our units of income deposit securities are listed on the American Stock Exchange under the trading symbol “DRY.” On June 14, 2007, which was the last trading day before the announcement of the execution of the merger agreement, our Class A Common Stock closed at $11.71 per share, and our units of income deposit securities closed at $19.29 per unit. On [    l    ], 2007, which was the last trading day before the date of this proxy statement, our Class A Common Stock and our units of income deposit securities closed at $[    l    ] per share and $[    l    ] per unit, respectively.

 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

The following section provides brief answers to some commonly asked questions regarding the special meeting and the proposed merger. This section is not intended to contain all of the information that is important to you. You are urged to read the entire proxy statement carefully, including the information in the appendices.

 

Q:  What is the proposed transaction?

 

A:  The proposed transaction is the acquisition of Coinmach by Parent, pursuant to the Agreement and Plan of Merger, dated as of June 14, 2007, by and among Coinmach, Parent and Merger Sub, which is referred to in this proxy statement as the merger agreement. Once the merger agreement has been adopted by Coinmach’s stockholders at the special meeting and the other closing conditions under the merger agreement have been satisfied or waived, Merger Sub will be merged with and into Coinmach, with Coinmach continuing as a wholly-owned subsidiary of Parent.

 

Q:  What will I be entitled to receive pursuant to the merger?

 

A:  Upon completion of the merger, holders of shares of our Class A Common Stock and holders of shares of our Class B Common Stock, which are referred to in this proxy statement as holders of our Common Stock, other than any holders who choose to exercise and perfect their appraisal rights under Delaware law, will be entitled to receive $13.55 in cash, without interest and less any required withholding taxes, for each share of our Common Stock held by them.

 

For example, if you own 100 shares of our Class A Common Stock or Class B Common Stock, you will receive $1,355.00 in cash without interest, in exchange for your shares of our Class A Common Stock or Class B Common Stock, less any applicable withholding tax. You will not own any shares in the surviving corporation.

 

Q:  When and where is the special meeting?

 

A:  The special meeting of stockholders of the Company will be held on [    l    ], 2007, at [    l    ] a.m., local time, at [    l    ].

 

Q:  What vote of stockholders is required to adopt the merger agreement?

 

A:  The merger agreement must be adopted by the affirmative vote of holders of a majority of the voting power of the outstanding shares of our Class A Common Stock and Class B Common Stock entitled to vote as of the record date, voting together as one class, in accordance with Delaware law, our Amended and Restated Certificate of Incorporation and our Amended and Restated By-Laws. Under the terms of the voting agreement (which would terminate upon the earlier to occur of (a) the effective time of the merger, (b) the date on which our board of directors effects a change of recommendation in accordance with the merger agreement, (c) the date on which the merger agreement is terminated or (d) December 30, 2007),

the holders of more than a majority of our outstanding shares of Class A Common Stock and Class B Common Stock have agreed to vote their respective shares for the adoption of the merger agreement. Their shares represent more than the number of votes necessary to adopt the merger agreement at the special meeting even if every other stockholder of the Company votes against the adoption of the merger agreement.

 

Q:  How does the Company’s board of directors recommend that I vote?

 

A:  Our board of directors unanimously recommends that you vote “FOR” the proposal to adopt the merger agreement. Before voting, you should read “The Merger — Recommendation of our Board of Directors and Reasons for the Merger” beginning on page 35 for a discussion of the factors that our board of directors considered in deciding to recommend the adoption of the merger agreement.

 

Q:  Who may vote at the special meeting?

 

A:  If you were a holder of shares of our Class A Common Stock and/or Class B Common Stock at the close of business on [    l    ], 2007, the record date, you may vote at the special meeting.

 

Q:  How many shares are entitled to vote at the special meeting?

 

A:  Each share of our Class A Common Stock outstanding and each share of our Class B Common Stock outstanding on the record date is entitled to vote, together as one class, on the proposal to adopt the merger agreement. Each share of our Class A Common Stock is entitled to one vote and each share of our Class B Common Stock is entitled to two votes. On the record date, there were (A) [    l    ] shares of our Class A Common Stock outstanding, and (B) [    l    ] shares of our Class B Common Stock outstanding. GTCR-CLC, LLC, Coinmach Holdings LLC, certain members of our senior management and one of our non-management directors who collectively own shares of our Class A Common Stock and Class B Common Stock representing approximately 61.7% of the aggregate voting power of all outstanding shares of our Class A Common Stock and Class B Common Stock entitled to vote on the adoption of the merger agreement, have entered into a voting agreement pursuant to which they have agreed to vote in favor of the adoption of the merger agreement.

 

Q:  What effect will the proposed merger have on the Company?

 

A:  As a result of the merger, the Company will cease to be a publicly traded company and will become a subsidiary of Parent. You will no longer have any interest as stockholders in our future earnings or growth. Following consummation of the merger, the registration of our shares of Class A Common Stock and our units of income deposit securities and our reporting obligations with respect to our shares of Class A Common Stock and our units of income deposit securities under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”), will be terminated upon application to the Securities and Exchange Commission (which we refer to as the “SEC”). In addition, upon completion of the proposed merger, our shares of Class A Common Stock and our units of income deposit

securities will no longer be listed on any stock exchange or quotation system, including the American Stock Exchange (which we refer to as the “AMEX”).

 

Q:  What happens if the merger is not consummated?

 

A:  If the merger agreement is not adopted by stockholders or if the merger is not completed for any other reason, stockholders will not receive any payment for their shares in connection with the merger. Instead, the Company will remain an independent public company and our shares of Class A Common Stock and our units of income deposit securities will continue to be listed and traded on the AMEX. Under certain specified circumstances, (a) the Company may be required to pay to Parent a termination fee and reimburse Parent and Merger Sub for its out-of-pocket expenses or (b) Parent and Merger Sub may be required to pay to the Company a termination fee and reimburse the Company for its out-of-pocket expenses. See “The Merger Agreement — Termination Fees and Expenses” beginning on page 83.

 

Q:  What does it mean if I get more than one proxy card?

 

A:  If you have shares of our Class A Common Stock and/or Class B Common Stock or if you have units of our income deposit securities that are registered differently and are in more than one account, you will receive more than one proxy card. Please follow the directions for voting on each of the proxy cards you receive to ensure that all of your shares are voted.

 

Q:  How do I vote?

 

A:  In order to vote, you must either designate a proxy to vote on your behalf or attend the special meeting and vote your shares in person. Our board of directors requests your proxy, even if you plan to attend the special meeting, so your shares will be counted toward a quorum and be voted at the meeting even if you later decide not to attend.

 

Q:  How can I vote in person at the special meeting?

 

A:  If you hold shares in your name as the stockholder of record, you may vote those shares in person at the meeting by giving us a signed proxy card or ballot before voting is closed. If you wish to attend the meeting, please bring picture identification with you to the special meeting. Even if you plan to attend the meeting, we recommend that you submit a proxy for your shares in advance as described above, so your vote will be counted even if you later decide not to attend. If you hold shares in “street name” (that is, through a broker, bank or other nominee), you may vote those shares in person at the meeting only if you obtain and bring with you a signed proxy from the necessary nominees giving you the right to vote the shares. To do this, you should contact your broker, bank or other nominee.

 

Q:  How can I vote without attending the special meeting?

 

A:  If you hold shares in your name as the stockholder of record, then you received this proxy statement and a proxy card from us. In that event, you may complete, sign, date and return your proxy card in the postage-paid envelope provided. If your shares are held in

street name, please follow the instructions on your proxy card to instruct your broker or other nominee to vote your shares. Without those instructions, your shares will not be voted.

 

Q:  How can I revoke my proxy?

 

A:  If you are a registered owner, you may change your mind and revoke your proxy at any time before it is voted at the meeting by any of the following ways:

 

 

Coinmach Service Corp

303 Sunnyside Blvd, Suite 70

Plainview, New York 11803

Attention: Robert M. Doyle, Secretary

 

 

Please note that attendance at the special meeting will not by itself constitute revocation of a proxy. If you hold your shares in street name, you should contact your broker, bank or other nominee for instructions on revoking your proxy.

 

Q:  What is a quorum?

 

A:  A quorum of the holders of the outstanding shares of our Class A Common Stock and Class B Common Stock counted as a single class must be present for the special meeting to be held. A quorum is present if the holders of shares of our Class A Common Stock and Class B Common Stock having a majority of the aggregate voting power of all outstanding shares of our Class A Common Stock and Class B Common Stock entitled to vote at the meeting are present at the meeting, either in person or represented by proxy. Withheld votes, abstentions and broker non-votes are counted as present for the purpose of determining whether a quorum is present.

 

Q:  How are votes counted?

 

A:  You may vote “FOR,” “AGAINST” or “ABSTAIN” on the proposal to adopt the merger agreement. Abstentions will count for the purpose of determining whether a quorum is present. If you “ABSTAIN” with respect to the proposal to adopt the merger agreement, it has the same effect as if you vote “AGAINST” the approval of the merger agreement.

 

A broker non-vote generally occurs when a broker, bank or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received

your voting instructions and lacks discretionary power to vote the shares. Broker non-votes will count for the purpose of determining whether a quorum is present, but will not count as votes cast on a proposal. A broker non-vote will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

 

A properly executed proxy card received by the Secretary of the Company before the meeting, and not revoked, will be voted as directed by you. If you properly execute and deliver your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the merger agreement, and in accordance with the discretion of the persons appointed as proxies on any other matters properly brought before the meeting for a vote.

 

Q:  Who is soliciting my vote?

 

A:  This proxy solicitation is being made by the Company. We will pay the cost of this solicitation, which will be made primarily by mail. Proxies also may be solicited in person, or by telephone, facsimile or similar means, by our directors, officers or employees without additional compensation. We will, on request, reimburse stockholders who are brokers, banks or other nominees for their reasonable expenses in sending proxy materials and special reports to the beneficial owners of the shares they hold of record.

 

Q:  When do you expect the merger to be completed?

 

A:  We are working toward completing the merger as quickly as possible. However, pursuant to the terms of the merger agreement, completion of the merger will not occur prior to September 28, 2007, unless Parent notifies the Company that Parent and Merger Sub have and would have as of an earlier date all necessary funds to complete the merger. If Parent so notifies the Company on or prior to obtaining stockholders approval, we anticipate that we will complete the merger promptly after the stockholder meeting. In order to complete the merger, we must obtain stockholder approval and the other closing conditions under the merger agreement must be satisfied or waived (as permitted by law). See “The Merger Agreement — Conditions to the Merger” beginning on page 80 and “The Merger Agreement — Effective Time” beginning on page 63.

 

Q:  What happens if I sell my shares before the special meeting?

 

A:  The record date of the special meeting is earlier than the special meeting and the date that the merger is expected to be completed. If you sell or otherwise transfer your shares of Class A Common Stock and/or Class B Common Stock after the record date but before the special meeting, you will retain your right to vote at the special meeting, but will have transferred the right to receive $13.55 per share in cash to be received by our stockholders in the merger. In order to receive the $13.55 per share, you must hold your shares through completion of the merger.

 

Q:  Who will count the votes?

 

A:  A representative of our transfer agent, The Bank of New York Mellon Corporation, will count the votes and act as an inspector of the election.

Q:  Am I entitled to exercise appraisal rights instead of receiving the merger consideration for my shares?

 

A:  Yes. As a holder of Class A Common Stock and/or Class B Common Stock, you are entitled to appraisal rights under Delaware law in connection with the merger if you meet certain conditions. See “Statutory Appraisal Rights” beginning on page 93.

 

Q:  Should I send in my stock certificates now?

 

A:  No. Shortly after the merger is completed, you will receive by mail instructions informing you how to send your stock certificates to the paying agent in order to receive the merger consideration, without interest and less any required withholding taxes. If your shares are held in street name by your broker, you will receive instructions from your broker as to how to effect the surrender of your shares and receive cash for those shares. Do not send any stock certificates with your proxy.

 

Q:  What will happen to any units of income deposit securities that I own prior to the record date if the merger is consummated?

 

A:  If the merger agreement is adopted by our stockholders at the special meeting and the merger is consummated, all of our outstanding shares of Class A Common Stock will be cancelled and holders thereof, unless such holders exercise and perfect appraisal rights under Delaware law, will be entitled to receive $13.55 in cash, without interest and less any required withholding tax, for each share held by them. As a consequence of the merger and the transactions contemplated by the merger agreement, all shares of our Class A Common Stock and notes underlying our income deposit securities will separate, and our income deposit securities will no longer be outstanding. See “The Merger — Delisting and Deregistration of Class A Common Stock and Income Deposit Securities” beginning on page 62.

 

Q:  Do I need to take any action with respect to any income deposit securities that I own prior to the record date in order to receive $13.55 per share of Class A Common Stock underlying such units?

 

A:  No. Each share of Class A Common Stock outstanding is entitled to vote on the proposal to adopt the merger agreement, whether or not each such share of Class A Common Stock forms a part of an income deposit security. In order to vote at the meeting with respect to any share of Class A Common Stock you may hold that underlies an income deposit security, you must follow the voting procedures set forth in this proxy statement and the accompanying proxy materials that are applicable to all shares of our Class A Common Stock.

Q:  Who can help answer my other questions?

 

A:  If you have more questions about the special meeting or the merger, or if you have any questions about or need assistance in voting your shares, you should contact:

 

Robert M. Doyle

Chief Financial Officer and Secretary

Coinmach Service Corp.

303 Sunnyside Blvd., Suite 70

Plainview, New York 11803

Telephone: (516) 349-8555

email: rmdoyle@coinmachcorp.com

 

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements based on estimates and assumptions. Forward-looking statements include information concerning possible or assumed future results of operations of Coinmach, the expected completion and timing of the merger and other information relating to the merger. There are forward-looking statements throughout this proxy statement, including, without limitation, under the headings “Summary,” “The Merger,” “The Merger Agreement,” “The Voting Agreement,” “The Exchange Agreement,” and in statements containing the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “may,” “will,” or other similar expressions. You should be aware that forward-looking statements involve known and unknown risks and uncertainties. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that the actual results or developments we anticipate will be realized, or even if realized, that they will have the expected effects on the business or operations of Coinmach. These forward-looking statements speak only as of the date on which the statements were made and we undertake no obligation to publicly update or revise any forward-looking statements made in this proxy statement or elsewhere as a result of new information, future events or otherwise. In addition to other factors and matters contained or incorporated in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

 

 

 

 

Many of the factors that will determine our future results are beyond our ability to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement represent our views as of the date of this proxy statement, and it should not be assumed that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons that actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

THE PARTIES TO THE MERGER

 

The Company

 

We believe we are the leading provider of outsourced laundry equipment services for multi-family housing properties in North America, based on information provided by the Multi-Housing Laundry Association, a national trade association of multi-housing laundry operators and suppliers. Our core business (which we refer to as the “route business”) involves leasing laundry rooms from building owners and property management companies, installing and servicing laundry equipment and collecting revenues generated from laundry machines. For the fiscal year ended March 31, 2007, our route business represented approximately 89% of our total revenue. The existing customer base for our route business is comprised of owners of rental apartment buildings, property management companies, condominiums and cooperatives, universities and other multi-family housing properties.

 

In addition to our route business, we rent laundry machines and other household appliances and electronic items to corporate relocation entities, property owners, managers of multi-family housing properties and individuals through our subsidiary Appliance Warehouse of America, Inc., a Delaware corporation. Appliance Warehouse of America, Inc. is jointly owned by us and Coinmach Corporation, a Delaware corporation which is our indirect wholly-owned subsidiary. We also operate a laundry equipment distribution business through Super Laundry Equipment Corp., a Delaware corporation and our indirect wholly-owned subsidiary.

 

We are a Delaware corporation. We maintain our corporate headquarters at 303 Sunnyside Boulevard, Suite 70, Plainview, New York 11803, and our telephone number is (516) 349-8555. Our shares of Class A Common Stock and our units of income deposit securities are publicly traded on the American Stock Exchange under the symbols “DRA” and “DRY”, respectively.

 

Parent

 

Spin Holdco Inc. (which we refer to as “Parent”) is a Delaware corporation formed on June 7, 2007 solely for the purpose of acquiring the Company. Parent has not engaged in any business except as contemplated by the merger agreement. The principal office of Parent is c/o Babcock & Brown Limited, 1 Dag Hammarskjold Plaza, New York, New York 10017, and the telephone number is (212) 935-7800.

 

Merger Sub

 

Spin Acquisition Co. (which we refer to as “Merger Sub”) is a Delaware corporation and wholly-owned subsidiary of Parent. Merger Sub was formed on June 7, 2007 solely for the purpose of completing the proposed merger and upon the consummation of the proposed merger will cease to exist and the Company will continue as the surviving corporation. Merger Sub has not engaged in any business except as contemplated by the merger agreement. The principal office of Merger Sub is c/o Babcock & Brown Limited, 1 Dag Hammarskjold Plaza, New York, New York 10017, and the telephone number is (212) 935-7800.

 

THE SPECIAL MEETING

 

Time, Place and Purpose of the Special Meeting

 

This proxy statement is being furnished to Coinmach’s stockholders as part of the solicitation of proxies by Coinmach’s board of directors for use at the special meeting to be held at [    l    ], on [    l    ], 2007, at [    l    ] a.m., local time. The purpose of the special meeting is to consider and vote upon a proposal to adopt the merger agreement, which will constitute approval of the merger and the other transactions contemplated by the merger agreement, and to transact any other business that may properly come before the special meeting or any adjournment or postponement thereof. Our stockholders must adopt the merger agreement for the merger to occur. A copy of the merger agreement is attached to this proxy statement as Annex A and is incorporated by reference herein.

 

The board of directors of Coinmach has approved and declared advisable the merger, the merger agreement and the transactions contemplated by the merger agreement and has declared that the merger, the merger agreement and the transactions contemplated by the merger agreement are fair to, advisable and in the best interests of, Coinmach and its stockholders. The board of directors recommends that Coinmach’s stockholders vote “FOR” the adoption of the merger agreement.

 

Record Date and Quorum

 

The holders of record of our Class A Common Stock and the holders of record of our Class B Common Stock, in each case, as of the close of business on [    l    ], 2007, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. On the record date, there were (A) [    l    ] shares of our Class A Common Stock outstanding, of which (i) [    l    ] shares of our Class A Common Stock are part of income deposit securities and (ii) [    l    ] are restricted shares of our Class A Common Stock and (B) [    l    ] shares of our Class B Common Stock outstanding.

 

The holders of shares of our Class A Common Stock and Class B Common Stock, counted as a single class, having a majority of the votes which could be cast by holders of all outstanding shares of our Class A Common Stock and Class B Common Stock on the record date represented at the special meeting in person or by proxy will constitute a quorum for purposes of the special meeting. Each share of our Class A Common Stock is entitled to one vote and each share of our Class B Common Stock is entitled to two votes. A quorum is necessary to hold the special meeting. Any shares of Class A Common Stock or Class B Common Stock held in treasury by Coinmach are not considered to be outstanding for purposes of determining whether a quorum is present. Once a share is represented at the special meeting, including any shares of Class A Common Stock or Class B Common Stock for which proxies have been received but for which stockholders have abstained, it will be counted for the purpose of determining a quorum at the special meeting and any adjournment of the special meeting. If a quorum is not present, the special meeting may be adjourned from time to time without further notice, if the time and place of the adjourned meeting are announced at the meeting, until a quorum is obtained.

 

Vote Required

 

Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the voting power of the outstanding shares of our Class A Common Stock and Class B Common Stock as of the record date. Each outstanding share of our Class A Common Stock on the record date entitles the holder to one vote on this proposal while each outstanding share of our Class B Common Stock on the record date entitles the holder to two votes on this proposal. The holders of shares of our Class A Common Stock and the holders of shares of our Class B Common Stock vote together as one class.

 

As of the record date, the directors and executive officers of Coinmach owned, in the aggregate, [    l    ] shares of Class A Common Stock and no shares of Class B Common Stock. These shares represent approximately [    l    ]% of the aggregate voting power of our Class A Common Stock and Class B Common Stock entitled to vote on the adoption of the merger agreement. Two of our directors, David A. Donnini and Bruce V. Rauner are principals of GTCR-CLC, LLC, which controls Coinmach Holdings, which owns 23,374,450 shares of Class B Common Stock representing approximately 61.5% of the aggregate voting power of our Class A Common Stock and Class B Common Stock entitled to vote on the adoption of the merger agreement. Therefore, as of the record date, the directors and executive officers of Coinmach beneficially own shares representing [    l    ]% of the aggregate voting power of our Class A Common Stock and Class B Common Stock. Coinmach expects that all of these shares will be voted in favor of the proposal to adopt the merger agreement.

 

GTCR-CLC, LLC, Coinmach Holdings, certain members of our senior management and one of our non-management directors, who collectively own shares representing approximately 61.7% of the aggregate voting power of shares of our Class A Common Stock and Class B Common Stock entitled to vote on the adoption of the merger agreement have entered into a voting agreement, pursuant to which they have agreed to vote in favor of the adoption of the merger agreement.

 

Proxies; Revocation

 

If you are a stockholder of record and submit a proxy by mail, your shares will be voted at the special meeting as you indicate on your proxy card. If no instructions are indicated on your proxy card, your shares of our Class A Common Stock and Class B Common Stock will be voted “FOR” the adoption of the merger agreement and on any other matter considered at the meeting as the persons named as proxies in their discretion decide.

 

If your shares are held in street name by your broker, bank or other nominee, you should instruct your broker how to vote your shares using the instructions provided by your broker. If you have not received voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee for directions on how to vote your shares. Brokers who hold shares in street name for customers may not be permitted to exercise their voting discretion with respect to the approval of the proposal before the special meeting and in such instance, absent specific instructions from the beneficial owner of such shares, are not empowered to vote such shares with respect to the adoption of the merger agreement. Such shares will constitute “broker non-votes.” Shares of Class A Common Stock and

Class B Common Stock held by persons attending the special meeting but not voting, or shares for which Coinmach has received proxies with respect to which holders have abstained from voting, will be considered abstentions. Abstentions and broker non-votes will be treated as shares that are present and entitled to vote at the special meeting for purposes of determining whether a quorum exists, but will have the same effect as a vote “AGAINST” adoption of the merger agreement.

 

You may revoke your proxy at any time before the vote is taken at the special meeting. You may revoke your proxy:

 

 

Coinmach does not expect that any matter other than the adoption of the merger agreement will be brought before the special meeting. If, however, any other matter is properly presented at the special meeting (or any adjournment or postponement thereof), the persons appointed as proxies will have authority to vote the shares represented by duly executed proxies in accordance with their discretion.

 

Solicitation of Proxies

 

This proxy solicitation is being made and paid for by Coinmach on behalf of its board of directors. Coinmach is bearing the cost of this proxy solicitation. In addition to soliciting proxies by mail, directors, officers and employees of Coinmach may solicit proxies personally and by telephone, facsimile or other electronic means of communication. These persons will not receive additional or special compensation for such solicitation services. Coinmach will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions.

 

Rights of Stockholders Who Object to the Merger

 

Stockholders of Coinmach are entitled to appraisal rights under Delaware law in connection with the merger. This means that you are entitled to have the value of your shares determined by the Delaware Court of Chancery and to receive payment based on that valuation. The ultimate amount you receive as a dissenting stockholder in an appraisal proceeding may be more than, the same as or less than the amount you would have received under the merger agreement.

 

To exercise your appraisal rights, you must submit a written demand for appraisal to Coinmach before the vote is taken on the merger agreement and you must not vote in favor of the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights. See “Statutory Appraisal Rights” beginning on page 93 and the text of the Delaware appraisal rights statute reproduced in its entirety as Annex E to this proxy statement.

 

Questions and Additional Information

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call 1-800-524-4458, The Bank of New York Mellon Corporation, 101 Barclay Street Proxy, Services Dept., A-Level, New York, NY 10286.

 

THE MERGER

 

Background of the Merger

 

Our board of directors and management, in their ongoing effort to maximize stockholder value, have periodically reviewed and assessed our business strategy, a variety of strategic opportunities and various trends and conditions impacting our business in general. Against the background of our initial public offering of income deposit securities in November 2004 and subsequent offering of Class A common stock in February 2006, our board of directors has considered a number of strategic alternatives, including:

 

 

In connection with the pursuit of strategic alternatives, we engaged Jefferies & Co., Inc. to assist in connection with a potential strategic acquisition of Mac-Gray Corporation, our largest competitor. On November 9, 2006, we made an unsolicited written offer to Mac-Gray Corporation to acquire all of its outstanding capital stock for a cash price ranging from $13.00 to $13.75 per share, which represented a premium of between 21% and 28% over that day’s closing price of Mac-Gray Corporations’s common stock. Following our offer, a representative of Coinmach contacted representatives of Mac-Gray Corporation to discuss the proposed combination of the two companies. Mac-Gray was unwilling to entertain our offer and, on December 4, 2006, our offer was unanimously rejected by the board of directors of Mac-Gray Corporation.

 

In December 2006, we initiated a dialogue with Deutsche Bank Securities Inc., Merrill Lynch & Co. and Jefferies & Co., Inc. to explore other options to maximize stockholder value.

 

In January 2007, our board of directors determined that it would be in our and our stockholders’ best interest to conduct a formal process to evaluate a potential sale of Coinmach. Based on Deutsche Bank’s and Merrill Lynch’s expertise and experience in our industry, including familiarity with our business and operations having participated as lead banks in previous capital market transactions involving Coinmach, on February 1, 2007, the board of directors approved the engagement of Deutsche Bank and Merrill Lynch to act as Coinmach’s financial advisors to assist in exploring a possible merger or sale of Coinmach.

 

In early February 2007, Deutsche Bank and Merrill Lynch, based on their experience and expertise in advising on acquisition transactions and their familiarity with our business operations and financial condition, identified and then contacted on our behalf, 13

potential purchasers or merger partners that they believed might have an interest in pursuing a transaction with us at the highest possible valuation levels.

 

Throughout February and March 2007, representatives of Deutsche Bank and Merrill Lynch held numerous discussions with the 13 potential purchasers including in-depth calls to review a presentation containing public information about our business and operations to ascertain interest in pursuing a transaction with us. Of the parties contacted, (a) Babcock & Brown L.P., a global investment advisory fund, which we refer to as Babcock & Brown, (b) an infrastructure investment fund, referred to as potential purchaser #1, (c) a foreign bank, which we refer to as potential purchaser #2 and (d) another infrastructure investment fund, which we refer to as potential purchaser #3, each indicated interest in acquiring us. During this period, Coinmach entered into confidentiality agreements with each of Babcock & Brown, potential purchaser #1 and potential purchaser #2, and Deutsche Bank and Merrill Lynch sent an initial bid process letter to the three parties with whom we entered into confidentiality agreements. The letter set forth a two-phase process involving, first, the submission of written indications of interest and, thereafter, the opportunity for selected potential bidders to perform due diligence and submit a final proposal.

 

In early February 2007, a director of Mac-Gray Corporation, which we refer to as potential purchaser #4, contacted one of our directors indicating that potential purchaser #4 may be interested in pursuing a transaction with us. Following various communications between certain of our directors and one of the directors of potential purchaser #4, on or about February 28, 2007, one of our directors was advised that potential purchaser #4 would be interested in pursuing a potential acquisition of all of our outstanding Common Stock at the then current trading price of our Class A common stock. At or about such time, potential purchaser #4 was advised by one of our directors that we would not be interested in pursuing a transaction with potential purchaser #4 at the then current trading price of our Class A common stock.

 

On or about the same time, a representative of potential purchaser #3 informed representatives of Deutsche Bank that potential purchaser #3 was withdrawing from independently considering a potential transaction with us as one of its affiliates was providing financial advisory services to potential purchaser #4 in connection with the bidding process. Potential purchaser #3 advised, however, that it would consider working together with potential purchaser #4.

 

On February 28, 2007, members of our senior management made a presentation to representatives of potential purchaser #1 and potential purchaser #2 in New York regarding our industry and our business and financial performance.

 

On March 9, 2007, a director of potential purchaser #4 contacted one of our directors and indicated orally that potential purchaser #4 would be willing, subject to completing its due diligence investigations, to acquire all of our outstanding shares Common Stock for a cash price ranging from $12.75 to $13.25 per share. Over the next several weeks, certain of our directors had various conversations with representatives of potential purchaser #4’s financial advisor and one of potential purchaser #4’s directors regarding such proposed offer, potential purchaser #4’s ability to finance any proposed transaction and various diligence matters.

On March 15, 2007, representatives of potential purchaser #2 informed representatives of Deutsche Bank that potential purchaser #2 was not going to submit a written indication of interest as they believed our Class A common stock was “fully” valued and would not be willing to offer any premium over the then current trading price of our Class A common stock.

 

On March 15, 2007, members of our senior management made a presentation to representatives of Babcock & Brown in New York regarding our industry and our business and financial performance.

 

That same day, potential purchaser #1 submitted a written indication of interest to representatives of Deutsche Bank and Merrill Lynch to acquire all of the outstanding shares of our Common Stock for a cash price ranging from $12.11 to $13.21 per share, which indication of interest was communicated by representatives of Deutsche Bank and Merrill Lynch to Mr. Chapman on behalf of the board of directors.

 

On March 21, 2007, Babcock & Brown submitted to our financial advisors a written indication of interest to acquire all of the outstanding shares of our Common Stock for a cash price of $13.50 per share, which offer was communicated to Mr. Chapman.

 

Following further discussions with its financing sources, representatives of potential purchaser #1 officially informed representatives of Deutsche Bank on March 28, 2007 that potential purchaser #1 was withdrawing from the bidding process because it would only consider moving forward at the low end of its price range, subject to entering into an exclusive arrangement with us, which our financial advisors advised potential purchaser #1 was not acceptable to Coinmach at that point in the bidding process.

 

Consistent with the second phase of the bidding process, potential purchasers were given access, subject to the terms of their confidentiality agreements, to due diligence information and other materials through an electronic virtual data room made available by us and our financial and legal advisors. Commencing in early April 2007, Babcock & Brown began detailed due diligence, including numerous conference calls, meetings and site visits with our senior management. In particular, on April 4th and 5th, representatives of Babcock & Brown met with members of our senior management and Mr. Chapman at the offices of one of our subsidiaries in Texas.

 

On April 13, 2007, one of our directors, who had previously been in communication with potential purchaser #4 regarding our potential sale, advised a director of potential purchaser #4 to contact one of our financial advisors regarding an interest in pursuing a transaction with us. On April 15, 2007, potential purchaser #4’s financial advisor informed Deutsche Bank that potential purchaser #4 would be willing to consider moving forward with a potential transaction to acquire us at the high end of its indicated price range provided on March 9, 2007. The following day, a representative of Deutsche Bank communicated with a representative of potential purchaser #4’s financial advisor to invite potential purchaser #4 to begin second phase due diligence and provided potential purchaser #4’s financial advisor with a preliminary index of diligence information made available through a strategic purchaser virtual data room created to control disclosure of material competitively sensitive information while still

providing material non-public information to assist in bidder due diligence and valuation. The following day, a confidentiality agreement was sent to potential purchaser #4’s legal counsel for its review, and potential purchaser #4’s financial advisor was advised of a final bid deadline of the end of the first week of May.

 

On April 17, 2007, our board of directors held a special telephonic meeting to review with our financial and legal advisors the progress and status of the bidding process. Also in attendance at the meeting were representatives from our legal advisor, White & Case LLP, and our financial advisors, Merrill Lynch and Deutsche Bank. Mr. Chapman described the efforts of our financial advisors to obtain indications of interest from potential purchasers and updated the board of directors on discussions with potential purchasers. White & Case discussed with our board of directors its fiduciary duties relating to any proposed transaction. A representative of Deutsche Bank described the contents of the bid letter, process outline and bidding instructions and form of agreement and plan of merger, hereinafter collectively referred to as the bidding documents, prepared by Deutsche Bank, Merrill Lynch and White & Case and previously distributed to the board of directors. After discussion and based on the information presented at the meeting, the board of directors authorized Mr. Chapman to continue, on behalf of the board of directors, discussions with Babcock & Brown, potential purchaser #4 and any other potential purchasers with the assistance of Deutsche Bank, Merrill Lynch and White & Case. After review and comment, the board of directors further authorized the distribution of the bid documents to Babcock & Brown, potential purchaser #4 and other potential purchasers, if any.

 

On April 19, 2007, our financial advisors sent the bidding documents (other than the form of agreement and plan of merger) to Babcock & Brown, indicating a deadline of May 7, 2007 by which to submit a final bid.

 

On April 24, 2007, potential purchaser #4 executed a confidentiality agreement with us and was provided access to the strategic purchaser virtual data room, which was updated with additional information requested by potential purchaser #4. Later that day, our financial advisors forwarded the bidding documents (other than the form of agreement and plan of merger) to potential purchaser #4, indicating a deadline of May 7, 2007 by which to submit a final bid.

 

Over the next two days, our financial advisors delivered a draft of the merger agreement to each of Babcock & Brown and potential purchaser #4.

 

Over the next few weeks, our representatives and our financial advisors provided legal, financial, business and operational information to, and engaged in discussions with, representatives of each of Babcock & Brown and potential purchaser #4 in response to their due diligence requests. On April 30, 2007, members of senior management of Coinmach and Mr. Chapman, together with representatives of Deutsche Bank, Merrill Lynch and White & Case, also met with the financial advisors and other representatives of potential purchaser #4 for a diligence session in New York. Following this diligence session later that day, a representative of the financial advisor to potential purchaser #4 expressed a concern to a representative of Deutsche Bank that important information requested by potential purchaser #4 with respect to Coinmach and its operations had not been provided. We concluded, after further discussions

with potential purchaser #4 and its financial advisor, that any information not previously shared with potential purchaser #4 or its financial advisor was information believed by our management to be competitively sensitive information that should not be disclosed to potential purchaser #4 given that it was one of our competitors and that we believed the absence of such information would not prevent potential purchaser #4 from presenting a final bid. We and our financial advisors, together with the assistance of our outside legal counsel, agreed to make ourselves available to address any other of potential purchaser #4’s diligence concerns and encouraged potential purchaser #4 to continue with its diligence review.

 

On May 1, 2007, Messrs. Kerrigan and Chapman, together with representatives of Deutsche Bank and Merrill Lynch, met with representatives of Babcock & Brown for a due diligence session in New York.

 

On May 2, 2007, Messrs. Kerrigan and Chapman, together with representatives of Deutsche Bank and Merrill Lynch, met with their financial advisors and other representatives of potential purchaser #4 for a due diligence session in New York.

 

On May 7, 2007, Babcock & Brown and potential purchaser #4 submitted their final bids. Babcock & Brown’s final bid contained an offer to acquire all of our outstanding shares of Common Stock for $13.55 per share in cash. Babcock & Brown’s bid was accompanied by a mark-up of the draft merger agreement and four commitment letters from three major banks with commitments for debt financing. Babcock & Brown’s bid was not subject to a due diligence contingency (other than completion of confirmatory due diligence), and did not condition the merger on obtaining financing. However, Babcock & Brown’s bid (i) was subject to satisfaction of certain minimum liquidity conditions immediately following consummation of the merger and (ii) contained a statement that Babcock & Brown would expect to discuss customary equity rollover and incentive compensation arrangements with members of Coinmach’s senior management in advance of executing final deal documentation, but the results of such discussions should not affect the purchase price proposed by Babcock & Brown. As part of the bid, Babcock & Brown also required that our controlling stockholder, Coinmach Holdings, GTCR-CLC and certain members of our senior management enter into a voting agreement, pursuant to which such parties would vote in favor of the proposed transaction and adoption of the merger agreement. Potential purchaser #4’s bid contained an indication of interest to acquire all of our outstanding shares of Common Stock for a cash price equal to $13.25 per share, subject to completing additional due diligence, which was estimated to take an additional three to four weeks. Potential purchaser #4’s bid was not accompanied by a mark-up of the merger agreement nor any debt or equity financing commitments.

 

On May 9, 2007, our board of directors held a regular meeting in Charlotte, North Carolina, to, among other things, review with members of our senior management and our financial and legal advisors the progress and status of the bidding process, including the bid submitted by Babcock & Brown and the indication of interest submitted by potential purchaser #4. Representatives of Deutsche Bank and Merrill Lynch reviewed with our board of directors various strategic alternatives available to us and also provided an analysis regarding strategic alternatives and information regarding our historical stock price ranges and our trading multiple ranges. They also updated our board of directors on the status of discussions of the bidding process to date and the terms and conditions of the bid and indication of interest submitted by Babcock & Brown and potential purchaser #4, respectively. White & Case advised our board of

 

directors further on its fiduciary duties in light of the proposals of Babcock & Brown and potential purchaser #4. Our board of directors then discussed with its financial and legal advisors the terms of Babcock & Brown’s proposal and potential purchaser #4’s indication of interest, including, among other things, price, structure, closing conditions, break-up fee and reverse break-up fee, financing commitments and timing. Our board of directors also discussed potential conflicts of interests of the members of our board of directors in connection with the proposed transactions. In that regard, our board of directors determined that Mr. Kerrigan, who is our chief executive officer and director, had conflicting interests as Babcock & Brown’s bid was subject to entering into satisfactory arrangements with members of our senior management upon consummation of the transaction. Following a discussion, our board of directors authorized Mr. Chapman, on behalf of our board of directors, to continue discussions with Babcock & Brown and potential purchaser #4 with the assistance of Deutsche Bank, Merrill Lynch and White & Case. Following Babcock & Brown’s request to enter into management arrangements as part of its proposal, our board of directors authorized Mr. Kerrigan, on behalf of members of our senior management, to discuss management arrangements (including, terms of management’s future employment, terms of the exchange by management of Coinmach’s equity for Parent’s equity and Parent’s equity incentive plan) with Babcock & Brown with the assistance of independent legal counsel. Finally, our board of directors determined to engage an independent financial advisor to provide its opinion as to the fairness of the consideration to be received by holders of our Class A common stock should our board of directors determine to go forward with any of the proposed transactions. To that end, our board of directors authorized Messrs. Chapman and Donnini to contact potential financial advisors, obtain from each such financial advisor a proposal to retain their services in connection with such fairness opinion and negotiate the terms of any engagement letter with such financial advisors.

 

Following the board of directors meeting on May 9, 2007, representatives of Deutsche Bank encouraged potential purchaser #4 to increase its offer and comply as soon as possible with the terms of the bidding documents by submitting a markup of the merger agreement and evidence of its ability to finance the proposed acquisition. Potential purchaser #4 was also advised that our board of directors would consider an offer comprised of cash, stock or any combination thereof and encouraged potential purchaser #4 to submit its best offer. Representatives of potential purchaser #4 advised that at least three to four additional weeks would be required for it to complete its due diligence, and that additional information regarding Coinmach, including information believed by our management to be material competitively sensitive information, would need to be provided. Potential purchaser #4 also confirmed that it would need additional time to arrange financing commitments, obtain internal approvals from its investment committees and to review and mark-up the merger agreement prior to submitting a final bid. Also, on May 9, 2007, representatives of Deutsche Bank and Merrill Lynch requested that Babcock & Brown increase its offer price from $13.55 per share and discussed with representative of Babcock & Brown certain issues with respect to Babcock & Brown’s comments to the merger agreement, including, among other things, the break-up fee, reverse break-up fee and closing conditions.

 

On May 10, 2007, representatives of Deutsche Bank notified potential purchaser #4 that we received a higher bid than the one submitted by potential purchaser #4 and encouraged potential purchaser #4 to increase its bid and submit its final bid as soon as possible in compliance with the bidding documents. Also, on May 10, 2007, representatives from Babcock & Brown advised representatives of Deutsche Bank and Merrill Lynch that Babcock &

Brown was firm on its offer price of $13.55 per share and was amenable to agreeing to certain changes to the merger agreement requested by our board of directors, including creating parity in the aggregate amount of the break-up fee and reverse breakup-fee and the removal of certain Parent closing conditions.

 

That same day, Messrs. Chapman and Donnini also contacted three independent financial advisors, including Houlihan Lokey, with respect to engaging such firms to render a fairness opinion should our board of directors determine to go forward with any of the proposed transactions and requested from each such financial advisor a proposal to retain their services.

 

On May 11, 2007, Mr. Chapman, on behalf of our board of directors, and Mr. Kerrigan met with representatives of Babcock & Brown in New York to discuss current employment agreements of Coinmach’s senior management and began preliminary discussions regarding the terms of new employment agreements of Coinmach’s senior management following the completion of the merger. The parties at such meeting agreed that each of Messrs. Kerrigan, Doyle, Stanky and Norniella would execute new employment agreements with Coinmach and Parent. From May 11 through June 13, 2007, the parties negotiated various issues regarding management arrangements, including base salaries, guaranteed bonuses and discretionary bonuses, specific terms of the change in control provisions, severance payments, non-competition and non-solicitation clauses, the definitions of “Cause” and “Good Reason” in the context of termination for Cause or resignation with Good Reason, the terms of the exchange by certain members of our senior management and one of our non-management directors of Coinmach’s equity for Parent’s equity, the vesting requirement of an equity incentive plan and the terms of the exchange agreement.

 

On or about May 14, 2007, each member of the board of directors of Coinmach received a letter, dated May 11, 2007, from potential purchaser #4, a competitor of Coinmach, in which potential purchaser #4 contended that it did not have access to sufficient information to perform its due diligence investigation, alleging contrary to Coinmach’s view, that Coinmach’s only confidential information should be the names of its customers. Potential purchaser #4 claimed that it could provide synergies “critical to the aggressive price” it had indicated, and advised that, without reviewing further information to validate its assumptions, it was being prevented from confirming an offer.

 

On May 14, 2007, our board of directors held a special telephonic meeting to review with members of our senior management and our financial and legal advisors the progress and status of negotiations with Babcock & Brown and potential purchaser #4. Mr. Donnini also described the terms of the letter he had received from potential purchaser #4 (which had previously been distributed to the other board members). Our board of directors discussed the issues raised by potential purchaser #4’s request to obtain competitively sensitive information and discussed various alternatives through which any such information could be provided. Following such discussions, our board of directors reiterated their collective concerns about sharing any competitively sensitive information with any strategic bidder, determined that providing competitively sensitive information to potential purchaser #4 under the facts and circumstances would likely be detrimental to Coinmach if an acquisition of Coinmach were not to be consummated with potential purchaser #4 or consummated with any other purchaser. At the meeting, Messrs. Chapman and Donnini also described the terms of three proposals obtained by them from financial advisors to provide a fairness opinion. Our board of directors authorized the engagement of Houlihan Lokey due to Houlihan Lokey’s familiarity with Coinmach and its securities (arising from prior engagements), its experience, reputation and the terms of its proposal.

 

During the week of May 14, 2007, certain members of our senior management and Mr. Chapman responded to inquiries of representatives of Houlihan Lokey regarding our business, operations and financial condition in connection with preparation of Houlihan Lokey’s fairness opinion.

 

On May 17, 2007, representatives of White & Case and Debevoise & Plimpton

LLP, Babcock & Brown’s outside legal counsel, met in New York to discuss and negotiate the terms of the merger agreement and the voting agreement. In particular, representatives of the two firms negotiated, among other things, the materiality standards applicable to various representations and warranties, the terms of the closing conditions, the circumstances under which the break up fee and reverse-break up fee would be paid, timing considerations relating to Babcock & Brown’s financing commitments and the terms of the no-shop and fiduciary out provisions.

 

On May 17, 2007, White & Case, on behalf of our board of directors, responded in writing to potential purchaser #4’s May 11th letter. In such response, White & Case noted that potential purchaser #4’s submission failed to comply with the conditions and requirements set forth in the bidding documents. Specifically, potential purchaser #4’s indication of interest contained a broad due diligence condition, failed to include sources and uses of funds information relative to the proposed acquisition financing, failed to include potential purchaser #4’s strategic plans for Coinmach going forward, failed to include evidence of financing commitments and failed to provide requested comments to the proposed form of merger agreement. Additionally, the response letter noted that, notwithstanding the “aggressive price” alluded to in potential purchaser #4’s letter, such price was lower than that of any other final bid. It was further noted that the failure to demonstrate an ability to finance the proposed transaction coupled with the failures to comply with the bidding documents made it impossible to evaluate potential purchaser #4’s indication of interest. It was also noted that since potential purchaser #4 operated in the same industry, that it should require less due diligence to evaluate Coinmach than a financial buyer, and potential purchaser #4 was cautioned that disclosure of competitively sensitive information of the type requested could be detrimental to Coinmach if a potential transaction were not consummated. Potential purchaser #4 was urged to immediately submit a final bid in cash, stock or any combination thereof in compliance with the conditions and requirements set forth in the bidding documents and was invited to request any specific further due diligence information which was not of a competitively sensitive nature, and that we would consider any such request. Potential purchaser #4 never responded to our letter or submitted another bid.

 

On May 21, 2007, a representative of Babcock & Brown informed Deutsche Bank and Merrill Lynch that Babcock & Brown did not yet have the full amount of its equity commitment in place, but that it was in discussions with several third party investors to obtain the required equity commitments. Representatives of Babcock & Brown also advised that it was confident that such additional equity would be obtained and affirmed its proposed offer price of $13.55 per share.

 

On or about May 22, 2007, representatives of Babcock & Brown sent draft employment agreements to Mr. Kerrigan based on the executives’ existing employment agreements for review. On May 24, 2007, members of our senior management engaged their own legal advisor, Olshan Grundman Frome Rosenzweig & Wolosky LLP, or “Olshan,” in connection with such members of our senior management’s discussions and negotiations of management arrangements (including, terms of such members of our senior management’s future employment, terms of the exchange by them of Coinmach’s equity for Parent’s equity and equity incentive plan) with Coinmach and Babcock & Brown following consummation of the transaction.

 

On May 24, 2007, our board of directors held a special telephonic meeting to review with members of our senior management and our financial and legal advisors the progress and status of negotiations with Babcock & Brown and potential purchaser #4. Representatives of Deutsche Bank and Merrill Lynch informed our board of directors of Babcock & Brown’s efforts to obtain the necessary equity commitments to acquire Coinmach. They further informed our board of directors that there had not been any further communications with potential purchaser #4 since May 17, 2007, the date on which White & Case responded to potential purchaser #4’s letter to our board of directors. After further discussion, our board of directors instructed its financial advisors to notify Babcock & Brown that our board of directors expected Babcock & Brown to obtain all financing approvals and debt and equity commitments by June 1, 2007.

 

On May 30, 2007, White & Case provided a draft of the disclosure schedules to the merger agreement to Debevoise & Plimpton. On May 31, 2007, senior management’s legal counsel provided initial comments on the employment agreements prepared by Debevoise & Plimpton.

On June 1, 2007, a representative of Babcock & Brown notified a representative of one of our financial advisors that Babcock & Brown had obtained all financing approvals and reached agreements in principle to secure the necessary debt and equity commitments to fund the proposed transaction and would work to promptly finalize the terms of such commitments.

 

On June 4, 2007, Debevoise & Plimpton provided to White & Case and to Olshan a draft of an exchange agreement, pursuant to which certain members of our senior management and Mr. Chapman, immediately prior to completion of the merger, would exchange a portion of their shares of Coinmach’s Common Stock for certain shares of Parent. On June 5, 2007, Messrs. Kerrigan and Doyle, representatives of Babcock & Brown and their respective legal counsel had a conference call to negotiate employment agreement terms, including base salary levels, minimum bonus levels for 2008, incentive bonus targets, severance provisions and post-employment non-competition restrictions. The parties continued to exchange drafts with respect to these issues until June 10, 2007.

 

On June 7, 2007, Debevoise & Plimpton sent to Olshan a draft consulting services agreement for Mr. Chapman based on his existing consulting services agreement. Between June 7, 2007 and June 10, 2007, the parties exchanged drafts of the consulting services agreement, in which the parties negotiated terms including contract termination rights, restrictive covenants and tax reimbursements.

 

On June 8, 2007, our board of directors held a special telephonic meeting to review with members of our senior management and our financial and legal advisors, the progress and status of the negotiations with Babcock & Brown. Representatives of Deutsche Bank and Merrill Lynch informed our board of directors that Babcock & Brown obtained the necessary equity commitments to consummate the proposed transaction. Representatives of White & Case updated our board of directors on the status of the debt commitment letters and related proposed debt financing and outstanding material issues under the merger agreement, including the definition of “Company Material Adverse Effect”, circumstances under which we would be permitted to continue to pay dividends on our outstanding capital stock, and the scope and nature of our and our management’s obligations to assist Babcock & Brown in obtaining its debt and equity financing, namely, that (i) the chief executive officer, chief financial officer or other necessary members of senior management or individual performing the functions customarily associated with such titles and positions of Coinmach who may be reasonably expected to participate in such cooperation, be available to meet with rating agencies, lenders, auditors and investors to assist with road shows, presentations and diligence, and (ii) Coinmach provide Parent with necessary financial and other information customarily provided in Rule 144A private placements to assist Parent in consummating the debt financing. Representatives of White & Case further updated our board of directors that there were no outstanding material issues under the other transaction documents. Mr. Kerrigan updated our board of directors on the discussions among Mr. Kerrigan, our senior management’s legal advisor, representatives of Babcock & Brown and their legal advisor relating to proposed management arrangements with Babcock & Brown upon consummation of the proposed transaction.

 

On June 10, 2007, Mr. Kerrigan, Babcock & Brown and their respective legal representatives discussed the management arrangements, including the terms of certain members of our senior management’s and Mr. Chapman’s participation in the Parent equity following closing of the transaction, and the exchange agreement. These discussions primarily involved limitations on such members of senior management’s right to receive severance, the tax treatment of the exchange by such members of our senior management and Mr. Chapman of Coinmach’s equity for Parent’s equity, and certain of the terms of such Parent equity, including put and call rights upon termination of employment and in the event of a future sale transaction. The parties also discussed the steps under the exchange agreement and senior management’s participation in the Parent’s management incentive equity plan following closing of the transaction. Further discussions among Mr. Kerrigan, Babcock & Brown and their respective legal representatives continued through June 14, 2007. During this period Debevoise & Plimpton and Olshan exchanged drafts of the employment agreements and the exchange agreement, which where finalized on June 14, 2007.

 

Further discussions between us and our legal and financial advisors and Babcock & Brown and their legal advisor continued through June 14, 2007. During this period, White & Case and Debevoise & Plimpton exchanged several drafts of the merger agreement, the voting

agreement, the exchange agreement, the equity and debt commitment letters and other ancillary documents relating to the proposed transaction.

 

In the morning of June 14, 2007, our board of directors held a meeting to consider the proposed transaction with Babcock & Brown. Prior to the meeting, our board of directors was provided with substantially final drafts of the merger agreement, the Company’s disclosure schedules to the merger agreement, the voting agreement, the exchange agreement and a detailed summary of the merger agreement and proposed resolutions relating to the proposed transaction. At the meeting:

 

consummation of the proposed transaction. See “ — Transaction Bonuses”;

 

After further discussion, our board of directors determined to adjourn the board meeting and reconvene later that afternoon to afford our board members an opportunity to further consider the proposed payments to certain members of our senior management and Mr. Chapman.

 

Later that afternoon, our board of directors reconvened to continue their consideration of the proposed transaction with Babcock & Brown. After discussions with its financial and legal advisors, and based on the presentations made at the board meeting held earlier that morning, our board of directors, after motion duly made and seconded, unanimously (with the exception of Messrs. Kerrigan and Chapman, who each abstained) approved payments to four members of our senior management and to Mr. Chapman to be made upon consummation of the proposed transaction with Babcock & Brown in an aggregate amount of approximately $8.6 million. After discussions with its financial and legal advisors, our board of directors determined that those certain management loans in an aggregate principal amount of approximately $2 million should not be forgiven, but rather should be repaid by management on or prior to consummation of the proposed transaction. Then, representatives of White & Case reviewed with our board of directors each of the proposed resolutions relating to the transaction. After brief discussion and motion duly made and seconded, our board of directors then unanimously determined it to be in our best interest and the best interests of our stockholders to enter into the merger agreement and consummate the merger on the terms and conditions set forth in the merger agreement. Our board of directors resolved unanimously to approve and adopt (a) the merger agreement and the other transactions contemplated by the merger agreement, and (b) the voting agreement and the exchange agreement for purposes of Section 203 of the General Corporation Law of the State of Delaware, and resolved unanimously to recommend that our stockholders vote to approve and adopt the merger agreement and the transactions contemplated by the merger agreement.

 

Immediately following the meeting of our board of directors on June 14, 2007, the board of managers of our controlling stockholder, Coinmach Holdings, held a meeting in connection with the proposed transaction with Babcock & Brown. After discussion and motion duly made and seconded, the board of managers of our controlling stockholder unanimously approved certain payments in an aggregate amount of approximately $3.5 million to three members of our senior management and one of our directors (in consideration for their assistance with the proposed transaction and their agreement to contribute a portion of their Common Stock to Babcock & Brown pursuant to the terms of the exchange agreement).

 

The merger agreement was executed by the parties on the evening of June 14, 2007, concurrently with the execution of the voting agreement and the exchange agreement by certain members of our senior management and Mr. Chapman and the other parties thereto.

 

On June 15, 2007, we and Babcock & Brown each issued a press release publicly announcing the transaction and execution and delivery of the merger agreement.

 

Recommendation of our Board of Directors and Reasons for the Merger

 

Our board of directors unanimously determined that the terms of the merger agreement, including the merger consideration of $13.55 in cash per share of our Class A Common Stock and Class B Common Stock, and the merger are advisable and fair to, and in the best interests of, our stockholders.

 

Our board of directors unanimously determined that the merger agreement and the merger were advisable and fair to and in the best interests of Coinmach and our stockholders. Our board of directors unanimously approved and declared advisable the merger agreement and the merger, and recommends that our stockholders vote “FOR” the adoption of the merger agreement.

 

In deciding to adopt the merger agreement and to recommend approval of the merger to our stockholders as discussed below, our board of directors considered a number of factors, including the factors listed below. In view of the number and wide variety of factors considered in connection with its evaluation of the merger, our board of directors did not attempt to quantify or otherwise assign weight to the information and specific factors it considered in reaching its determination, and individual directors may have given different weight to different information and different factors. Our board of directors viewed its approval and recommendation as being based on the totality of the information and factors presented to and considered by it. In reaching its decision, our board of directors consulted with our management team. Our board of directors also consulted with Deutsche Bank and Merrill Lynch with respect to the financial aspects of the transaction, with Houlihan Lokey with respect to the fairness from a financial point of view of the merger consideration to be received by the holders of our Class A Common Stock (other than to excluded stockholders) in the merger and with White & Case with respect to the merger agreement and related issues. Our board of directors considered the following factors, among others:

 

 

Coinmach’s board of directors also considered a variety of risks and other potentially negative factors concerning the merger agreement and the merger, including the following:

 

 

In light of the number and variety of factors our board of directors considered in connection with the evaluation of the merger and the merger agreement, our board of directors did not find it practicable to quantify or otherwise assign relative weights to any of the foregoing factors and, accordingly, our board of directors did not do so. After considering these factors, our board of directors has unanimously:

 

 

Our board of directors unanimously recommends that you vote for “FOR” the adoption of the merger agreement.

 

Opinion of Houlihan Lokey

 

At the June 14, 2007 meeting of our board of directors, Houlihan Lokey rendered its oral opinion to our board of directors (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion dated the same date) to the effect that, as of June 14, 2007, the merger consideration to be received by the holders of shares of our Class A Common Stock (other than the excluded stockholders) in the merger was fair to such holders from a financial point of view.

 

Houlihan Lokey’s opinion was directed to our board of directors and only addressed the fairness from a financial point of view of the merger consideration to be received by the holders of our Class A Common Stock other than the excluded stockholders in the merger and did not address any other aspect or implication of the merger. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex D to this proxy statement (including such modifications solely to protect the confidentiality of the names of parties providing the equity commitments to Parent) and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in preparing its opinion. Stockholders are urged to read this opinion in its entirety. Neither Houlihan Lokey’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to the merger.

 

In arriving at its opinion, Houlihan Lokey, among other things:

 

1. reviewed Coinmach’s annual reports to stockholders on Form 10-K for the years ended March 31, 2005, March 31, 2006 and March 31, 2007;

 

2. reviewed Coinmach’s Form 10-Q for the quarter ended December 31, 2006;

 

3. reviewed certain of Coinmach’s filings with the Securities and Exchange Commission including the Form 8-K dated February 1, 2007, the Form 8-K dated May 14, 2007, the Schedule 14A relating to the Company’s 2006 annual meeting of shareholders, and Form S-1/A dated February 2, 2006;

 

4. reviewed drafts of the following agreements and documents:

 

(a) a draft, dated June 14, 2007, of the merger agreement;

 

(b) a draft, dated June 14, 2007, of the voting agreement; and

 

(c) the Deutsche Bank Securities Inc. debt commitment letter dated June 14, 2007, the Merrill Lynch Capital Corporation debt commitment letter, the RBS Securities Corporation debt commitment letter dated June 14, 2007, and drafts of seven equity commitment letters from

those parties that ultimately provided the equity commitments to Parent in connection with the merger;

 

5. reviewed letters from prospective purchasers regarding their interest in acquiring all or a substantial portion of Coinmach;

 

6. met and spoke with certain members of management of Coinmach regarding the operations, financial condition, future prospects and projected operations and performance of Coinmach and regarding the merger;

 

7. reviewed Coinmach’s financial forecasts and projections as prepared by Coinmach’s management for the fiscal years ending March 31, 2008 through March 31, 2011;

 

8. spoke with Coinmach’s financial and other advisors regarding the proposed merger;

 

9. reviewed the historical market prices and trading volume for Coinmach’s publicly traded securities and those of certain companies with publicly traded securities which Houlihan Lokey deemed relevant;

 

10. reviewed certain other publicly available financial data for certain companies that Houlihan Lokey deemed relevant and publicly available transaction prices and premiums paid in other change of control and similar transactions that Houlihan Lokey deemed relevant for companies in related industries to Coinmach; and

 

11. conducted such other financial studies, analyses and inquiries and reviewed such other documents as Houlihan Lokey deemed appropriate.

 

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to it, discussed with or reviewed by it, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, management of Coinmach advised Houlihan Lokey, and Houlihan Lokey assumed, that the financial forecasts and projections reviewed by it had been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of such management as to the future financial results and condition of Coinmach, and Houlihan Lokey expressed no opinion with respect to such forecasts and projections or the assumptions on which they were based. Houlihan Lokey relied upon and assumed, without independent verification, that there had been no material change in the assets, liabilities, financial condition, results of operations, business or prospects of Coinmach since the date of the most recent financial statements provided to it, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading. Houlihan Lokey did not consider any aspect or implication of any other transaction or agreement, including the voting

agreement and the exchange to which Coinmach or its security holders was a party (except as expressly set forth in Houlihan Lokey’s opinion).

 

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the agreements identified above and all other related documents and instruments that are referred to therein were true and correct, (b) each party to all such agreements would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the merger would be satisfied without waiver thereof, and (d) the merger would be consummated in a timely manner in accordance with the terms described in the agreements and documents provided to Houlihan Lokey, without any amendments or modifications thereto material to its analyses or any adjustment to the aggregate merger consideration (through offset, reduction, indemnity claims, post-closing purchase price adjustments or otherwise) or any other financial term of the merger. Houlihan Lokey also relied upon and assumed, without independent verification, that (i) the merger would be consummated in a manner that complies in all material respects with all applicable federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the merger would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would result in the disposition of any material portion of the assets of Coinmach, or otherwise have an adverse effect on Coinmach or any expected benefits of the merger. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final forms of the draft documents identified above would not differ in any material respect from such draft documents.

 

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal of any of the assets, properties or liabilities (fixed, contingent, derivative, off-balance-sheet or otherwise) of Coinmach or any other party, nor was Houlihan Lokey provided with any such appraisal. Houlihan Lokey expressed no opinion regarding the liquidation value of any entity. Houlihan Lokey did not undertake an independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Coinmach was or may be a party or was or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which Coinmach was or may be a party or was or may be subject and, at our direction and with our consent, Houlihan Lokey’s opinion made no assumption concerning, and therefore did not consider, the potential effects of any such litigation, claims or investigations or possible assertion of claims, outcomes or damages arising out of any such matters.

 

Houlihan Lokey was not requested to, and did not, (a) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, businesses or operations of Coinmach, or any alternatives to the merger, (b) negotiate the terms of the merger, or (c) advise our board of directors or any other party with respect to alternatives to the merger. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Houlihan Lokey did not undertake, and are under no obligation, to

update, revise, reaffirm or withdraw it’s opinion, or otherwise comment on or consider events occurring after the date of the opinion.

 

Houlihan Lokey’s opinion was furnished for the use and benefit of our board of directors in connection with its consideration of the merger and was not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, for any other purpose, without our prior written consent. Houlihan Lokey’s opinion should not be construed as creating any fiduciary duty on Houlihan Lokey’s part to any party. Houlihan Lokey’s opinion was not intended to be, and does not constitute, a recommendation to any security holder of Coinmach or any other person as to how such person should act or vote with respect to the merger.

 

Houlihan Lokey was not requested to opine as to, and its opinion does not address: (i) the underlying business decision of Coinmach, its security holders or any other party to proceed with or effect the merger, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form or any other portion or aspect of, the merger or otherwise, except as expressly addressed in Houlihan Lokey’s opinion, (iii) the fairness of any portion or aspect of the merger to the holders of any class of securities, creditors or other constituencies of Coinmach, or any other party other than those set forth in Houlihan Lokey’s opinion, (iv) the relative merits of the merger as compared to any alternative business strategies that might exist for Coinmach, or any other party or the effect of any other transaction in which Coinmach, or any other party might engage, (v) the tax or legal consequences of the merger to either Coinmach, its security holders, or any other party, (vi) the fairness of any portion or aspect of the merger to any one class or group of Coinmach’s or any other party’s security holders vis-à-vis any other class or group of Coinmach’s or any other party’s security holders (including without limitation the allocation of any consideration amongst or within such classes or groups of security holders), (vii) whether or not Coinmach, its security holders or any other party is receiving or paying reasonably equivalent value in the merger, or (viii) the solvency, creditworthiness or fair value of Coinmach, or any other participant in the merger under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It was assumed that such opinions, counsel or interpretations have been or would be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with our consent, on the assessment by the Company and its advisers, as to all legal, regulatory, accounting, insurance and tax matters with respect to the Company and the merger.

 

In preparing its opinion to our board of directors, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s valuation analyses is not a complete description of the analyses underlying Houlihan Lokey’s fairness opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses

undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, Houlihan Lokey believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

 

In performing its analyses, Houlihan Lokey considered business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of the written opinion. No company, transaction or business used in Houlihan Lokey’s analyses for comparative purposes is identical to Coinmach or the proposed merger. While the results of each analysis were taken into account in reaching its overall conclusion with respect to fairness, Houlihan Lokey did not make separate or quantifiable judgments regarding individual analyses. The implied reference range values indicated by Houlihan Lokey’s analyses are illustrative and not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond our control and the control of Houlihan Lokey. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

 

Houlihan Lokey’s opinion and analyses were provided to our board of directors in connection with its consideration of the proposed merger and were among many factors considered by our board of directors in evaluating the proposed merger. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the merger consideration or of the views of our board of directors or management with respect to the merger.

 

The following is a summary of the material valuation analyses performed in connection with the preparation of Houlihan Lokey’s opinion rendered to our board of directors on June 14, 2007. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying and the assumptions, qualifications and limitations affecting each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

 

For purposes of its analyses, Houlihan Lokey reviewed a number of financial metrics including:

 

 

Unless the context indicates otherwise, enterprise and per share equity values used in the selected companies analysis described below were calculated using the closing price of our Class A Common Stock and the common stock of the selected companies listed below as of June 13, 2007, and the transaction and per share equity values for the target companies used in the selected transactions analysis described below were calculated as of the announcement date of the relevant transaction based on the purchase prices paid in the selected transactions. Estimates of EBITDA and EBIT for Coinmach for the fiscal years ending March 31, 2008 and March 31, 2009 were based on estimates provided by our management. Estimates of EBITDA and EBIT for the selected companies listed below for the fiscal years ending 2008 and 2009 were based on publicly available research analyst estimates for those companies. For purposes of its analyses, Houlihan Lokey calculated enterprise values for the Company after taking into account the estimated present value of certain net operating losses and goodwill amortization tax shields. The aggregate present value of such net operating losses and goodwill amortization tax shields were estimated based on discussions with Coinmach’s management to be approximately $49 million to $52 million.

 

Selected Companies Analysis

 

Houlihan Lokey calculated multiples of enterprise value and considered certain financial data for Coinmach and selected companies.

 

The calculated multiples included:

 

Enterprise value as a multiple of fiscal 2007 EBITDA;
Enterprise value as a multiple of estimated 2008 EBITDA;
Enterprise value as a multiple of estimated 2009 EBITDA;
Enterprise value as a multiple of 2007 EBIT;
Enterprise value as a multiple of estimated 2008 EBIT; and
Enterprise value as a multiple of estimated 2009 EBIT.

 

The selected companies were:

 

Mac-Gray Corp.

 

Aaron Rents, Inc.

 

Rent-A-Center, Inc.

 

Cintas Corp.

 

G&K Services Inc.

Iron Mountain Inc.

 

H&E Equipment Services Inc.

 

United Rentals, Inc.

 

Coinstar Inc.

 

UniFirst Corp.

 

The selected companies analysis indicated the following:

 

 

Houlihan Lokey applied multiple ranges based on the selected companies analysis to corresponding financial data for Coinmach provided by Coinmach’s management. The selected companies analysis indicated an implied reference range value per share of our Class A Common Stock of $10.56 to $13.41, as compared to the proposed merger consideration of $13.55 per share of our Class A Common Stock.

 

Selected Transactions Analysis

 

Houlihan Lokey calculated multiples of enterprise value and per share equity value to certain financial data based on the purchase prices offered or paid in selected publicly-announced transactions involving target companies it deemed relevant.

 

The calculated multiples included:

 

The selected transactions were:

 

 

The selected transactions analysis indicated the following:

 

Houlihan Lokey applied multiple ranges based on the selected transactions analysis to corresponding financial data for Coinmach provided by Coinmach’s management. The selected transactions analysis indicated an implied reference range value per share of our Class A Common Stock of $12.65 to $15.31, as compared to the proposed merger consideration of $13.55 per share of our Class A Common Stock.

 

Discounted Cash Flow Analysis

 

Houlihan Lokey also calculated the net present value of Coinmach’s unlevered, after-tax cash flows based on the projections provided by our management. In performing this analysis, Houlihan Lokey used discount rates ranging from 10% to 14% based on Coinmach’s estimated weighted average cost of capital and terminal value multiples ranging from 5.5x to 9.5x based on the multiples indicated by its selected companies analyses. The discounted cash flow analyses indicated an implied reference range value per share of our Common Stock of $7.71 to $13.60, as compared to the proposed merger consideration of $13.55 per share of our Class A Common Stock.

 

Other Matters

 

We engaged Houlihan Lokey, pursuant to a letter agreement, dated as of May 11, 2007, to render an opinion to our board of directors with respect to the fairness from a financial point of view of the merger consideration to be received by the holders of our Class A Common Stock other than the excluded stockholders in the merger. We engaged Houlihan Lokey based on Houlihan Lokey’s experience and reputation. Houlihan Lokey is regularly engaged to render financial opinions in connection with mergers and acquisitions, financial restructuring, tax matters, ESOP and ERISA matters, corporate planning, and for other purposes. Under the terms of the letter agreement, Houlihan Lokey received a fee for its services a portion of which became payable upon the execution of the engagement letter with Houlihan Lokey, with the remainder to be paid on the delivery of Houlihan Lokey’s opinion. No portion of such fee is contingent upon the consummation of the merger or the conclusions set forth in Houlihan Lokey’s opinion. In addition, Coinmach has agreed to reimburse Houlihan Lokey for certain of its reasonable out-of-pocket expenses incurred in connection with the service rendered by Houlihan Lokey under its engagement letter with Coinmach. Coinmach has also agreed to indemnify Houlihan Lokey and certain related parties for certain liabilities and to reimburse Houlihan Lokey for certain expenses arising out of its engagement.

 

In the ordinary course of business, certain of Houlihan Lokey’s affiliates, as well as investment funds in which they may have financial interests, may acquire, hold or sell, long or short positions, or trade or otherwise effect transactions, in debt, equity, and other securities and financial instruments (including loans and other obligations) of, or investments in, Coinmach or any other party that may be involved in the merger and their respective affiliates or any currency or commodity that may be involved in the merger.

 

Houlihan Lokey and its affiliates have in the past and are currently providing certain valuation services to us. Houlihan Lokey also may in the future provide investment banking, financial advisory and other financial services to Coinmach and its affiliates for which Houlihan Lokey and its affiliates expect to receive and would expect to receive compensation.

 

Interests of the Company’s Directors and Executive Officers in the Merger

 

In considering the recommendation of Coinmach’s board of directors with respect to the merger, you should be aware that some of Coinmach’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Coinmach’s stockholders generally. These interests may present them with actual or potential conflicts of interest, and these interests, to the extent material, are described below. Our board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement and the merger.

 

Company Incentive Plans and Treatment of Restricted Stock

 

Coinmach’s 2004 Long-Term Incentive Plan and the restricted stock award agreements entered into with members of our senior management from time to time in respect of awards of Class A Common Stock under the plan contain “change of control” provisions, and the consummation of the merger will constitute a “change of control” for purposes of the plan and such agreements. Under the plan and those agreements, upon a “change of control”, all restricted awards of Class A Common Stock granted under the plan will become fully vested on the date of the “change of control” and the holder of such shares will become the owner of such shares free of all restrictions otherwise imposed by such agreements. In accordance with the foregoing, the merger agreement provides that at the consummation of the merger, each award of restricted Class A Common Stock granted under our 2004 Long-Term Incentive Plan and 2004 Unit Incentive Sub-Plan will no longer be subject to vesting, performance, forfeiture or other restriction provisions imposed on such restricted shares by their terms immediately prior to consummation of the merger, and will be converted automatically, by virtue of the merger, into a right to receive $13.55 per share. See “The Merger Agreement — Treatment of Restricted Stock” beginning on page 64.

 

As of June 14, 2007, there were approximately 242,208 shares of our Class A Common Stock represented by restricted stock awards, of which 199,723 were held by Coinmach’s directors and executive officers. At the effective time of the merger, all shares of restricted stock will become fully vested and all restrictions on such shares will lapse.

 

The following table summarizes the restricted stock awards held by each of Coinmach’s directors and executive officers as of June 14, 2007 and the approximate consideration that each of them will receive pursuant to the merger agreement (assuming no exercise of appraisal rights) for such awards:

 

Directorship Positions

 

Following completion of the merger, it is expected that Stephen R. Kerrigan will continue as a director of Coinmach and become a director of Parent.

 

Management Positions

 

Following completion of the merger, our executive officers are expected to hold the following positions at Coinmach and Parent:

 

 

In addition, some employees of Coinmach, including some of Coinmach’s executive officers, will remain employed by us following the completion of the merger unless their employment is terminated or they resign.

Executive Employment Arrangements

 

General.  On June 14, 2007, each of Messrs. Kerrigan, Doyle, Norniella and Stanky has entered into a senior management employment agreement with Parent and (upon the consummation of the merger) Coinmach that will become effective upon the effective time of the merger and will replace their current employment agreements. Each senior management employment agreement provides for a term of three years, commencing on the merger closing date, and subject to automatic one-year extensions until the executive’s 65th birthday, unless terminated earlier by either party under the terms of such senior management employment agreement.

 

Annual Salary, Bonuses and Stock Awards.  On May 9, 2007, the Compensation Committee approved base salaries for each of Messrs. Kerrigan, Doyle, Stanky and Norniella of $500,000, $340,000, $248,965 and $197,692, respectively. Such new salaries became effective on April 1, 2007. The senior management employment agreements provide for the payment of a base annual salary of $500,000, $375,000, $300,000 and $250,000 to Messrs. Kerrigan, Doyle, Stanky and Norniella respectively, which amounts will be reviewed and may be increased, but not decreased, annually by our board of directors. Each of Messrs. Kerrigan, Doyle, Stanky and Norniella will also be entitled to receive any bonus which the Parent board may grant in its discretion. Mr. Kerrigan’s bonus for the 2008 fiscal year will be an annual amount of no less than 60% of his annual base salary with a 2008 target bonus opportunity of 100% of his annual base salary. The bonus for each of Messrs. Doyle, Stanky and Norniella, for the 2008 fiscal year will be an annual amount of no less than 30% of his annual base salary with a 2008 target bonus opportunity of 50% of his annual base salary. For future years the bonus to be paid to Messrs. Kerrigan, Doyle, Stanky and Norniella will be paid under a bonus program established by the board of directors of Coinmach and Parent. The obligation to pay any such annual base salary and bonus is the joint and several obligations of Coinmach and Parent. Following the effective time of the merger, each executive will also be eligible to receive grants of equity securities of Parent pursuant to the terms of equity incentive plans adopted or established by Parent.

 

Termination.  If the employment of any of Messrs. Kerrigan, Doyle, Norniella and Stanky is terminated by Coinmach or Parent without “cause” (as defined in the senior management employment agreements), or if Coinmach or Parent provides written notice of its intention not to renew his agreement, or if the executive resigns during the 60-day period commencing on the six-month anniversary of a “change in control” (as defined in the senior management employment agreements) following the merger, or if such executive terminates employment for “good reason” (as defined in the senior management employment agreements), and not, in each case, by reason of his death or disability, he generally is entitled to receive severance pay. Each of Messrs. Kerrigan’s and Doyle’s severance payment is equal to two times his annual base salary plus the amount of the bonus paid for the most recently completed fiscal year. Each of Messrs. Stanky’s and Norniella’s severance payment is equal to 1.5 times his annual base salary. However, if an event of default (as defined in the senior management employment agreements) has occurred and is continuing at the time of an executive’s termination, the executive will only be entitled to receive severance pay in an amount equal to his annual base salary then in effect. Receipt of the severance pay is contingent upon such executive’s, Parent’s and Coinmach’s

execution of mutual release and such executive’s continued compliance with certain obligations surviving termination of the retention agreement, including obligations with respect to confidentiality, non-competition and non-solicitation. Each executive is subject to non-competition and non-solicitation covenants, for the two-year period (in the case of Messrs. Kerrigan and Doyle) or 18-month period (in the case of Messrs. Stanky and Norniella) following termination of employment.

 

Benefits.  Under the senior management employment agreements, each of Messrs. Kerrigan, Doyle, Norniella and Stanky is entitled to receive benefits consistent with past practices, as well as to such other benefits approved by the Parent’s board of directors and made available to Parent’s and Coinmach’s senior management.

 

Parachute Payments Limitation.  The senior management employment agreements also provide that if any payment or benefits provided for in the senior management employment agreement or any other agreement or arrangement with Mr. Kerrigan, Mr. Doyle, Mr. Norniella or Mr. Stanky, as the case may be, would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code or be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payments and benefits will be payable either in full or as to such lesser amount which would result in no portion of such payments and benefits being subject to excise tax under Section 4999 of the Internal Revenue Code, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999, results in such executive’s receipt on an after-tax basis, of the greatest amount of benefits under the applicable senior management employment agreement.

 

Consulting Agreement

 

General.  James N. Chapman and the Company are parties to a consulting services agreement, dated as of May 9, 2007, pursuant to which Mr. Chapman provides to the Company and its clients certain investment banking, financial advisory and consulting services related to the business of the Company. In connection with the merger agreement, on June 14, 2007, Mr. Chapman has entered into a consulting services agreement, with Parent and (upon consummation of the merger) Coinmach that will become effective upon the effective time of the merger and will replace the prior consulting agreement. Under the consulting agreement, Mr. Chapman will consult with and advise Coinmach in good faith and as an independent contractor on such business and financial matters as we may request from time to time.

 

Term and Termination.  The consulting agreement will have an initial term commencing as of completion of the merger and terminating on the first anniversary of the merger, unless sooner terminated by Parent, Coinmach or Mr. Chapman, subject to automatic renewal for successive 12-month periods unless either party gives thirty days written notice of its intention not to renew the agreement. Parent, Coinmach or Mr. Chapman may also terminate the consulting agreement upon ninety days prior written notice, but if either Parent or Coinmach terminates the consulting agreement in this manner they will continue to pay Mr. Chapman for the balance of the initial term or the renewal period, as applicable. Mr. Chapman may also terminate the consulting agreement within ninety days of a change in control (as such term is defined in the consulting agreement).

Compensation, Benefits and Expenses.  For his services, Mr. Chapman will receive consulting fees in an amount of $240,000 annually. Mr. Chapman will also be entitled to additional compensation for any services he renders outside the ordinary course of business. Mr. Chapman may from time to time also receive bonus payments, as determined within the reasonable discretion of Coinmach and consistent with industry practice. Mr. Chapman will also be eligible to receive grants of equity securities of Parent pursuant to the terms of Parent’s equity incentive plans. Mr. Chapman is also entitled to reimbursement for reasonable travel and other fees and expenses reasonably incurred by him in rendering the consulting services. Mr. Chapman will not be entitled to any benefits of any kind granted to our employees, unless we otherwise agree.

 

Participation in Voting and Exchange Agreements

 

On June 14, 2007, Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman entered into the voting agreement with Parent, Coinmach Holdings, and GTCR-CLC, as described below under “The Voting Agreement” beginning on page 86. On June 14, 2007, Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman also entered into the exchange agreement with Parent, Coinmach Laundry Corporation (our wholly-owned subsidiary) and the Secretary of Coinmach Laundry Corporation, as described below under “The Exchange Agreement” beginning on page 89. Pursuant to the exchange agreement, immediately prior to completion of the merger, Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman will exchange shares of our Class B Common Stock with a value of $3,600,000, $770,000, $450,000, $200,000 and $500,000, respectively, representing, in the aggregate 407,380 shares of our Class B Common Stock and approximately 0.77% of the outstanding shares of our Common Stock, for Parent’s common stock which represents approximately 1.74% of the outstanding shares of Parent’s common stock. As contemplated by the voting agreement and the exchange agreement, the remainder of the shares of our Class A Common Stock and Class B Common Stock held by Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman, which have not been so exchanged, would be purchased, immediately prior to completion of the merger, by a person or persons designated by Babcock & Brown Spinco LLC, an affiliate of Parent, for the same amount as will be paid to our stockholders for their shares of Class A Common Stock or Class B Common Stock in the merger. Simultaneously with the exchange of such shares, each of Messrs. Kerrigan, Doyle, Stanky, Norniella and Chapman will pay in full in cash the outstanding principal amount and accrued interest of all loans he has with Coinmach Laundry Corporation.

 

Transaction Bonuses

 

In connection with the merger, our board of directors, with Mr. Kerrigan and Mr. Chapman abstaining, approved on June 14, 2007 the payment of the following transaction bonuses in an aggregate amount of approximately $8.6 million to the following members of our senior management and Mr. Chapman in consideration for their assistance with the proposed transaction and their agreement to contribute a portion of their Common Stock to Babcock & Brown pursuant to the terms of the exchange agreement (see “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 47):

 

Section 280G of the Internal Revenue Code generally denies a tax deduction for certain compensatory payments made to corporate officers, certain shareholders and certain highly-compensated employees if the payments are “excess parachute payments,” as defined in Section 280G of the Internal Revenue Code. We anticipate that a portion of the transaction bonuses paid by us to Mr. Kerrigan, together with certain other compensatory payments to Mr. Kerrigan described in this section of the proxy statement, that are classified as “excess parachute payments,” will be non-deductible to us under Section 280G of the Internal Revenue Code. In addition, Mr. Kerrigan will be subject to a federal excise tax (in addition to federal income taxes) equal to 20% of the amount of the excess parachute payments that he receives.

 

In connection with the merger, the board of managers of our controlling stockholder, Coinmach Holdings, also approved on June 14, 2007 the following transaction bonuses in an aggregate amount of approximately $3.5 million to the following members of our senior management and Mr. Chapman in consideration for their assistance with the proposed transaction and their agreement to contribute a portion of their Common Stock to Babcock & Brown pursuant to the terms of the exchange agreement (see “The Merger — Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 47):

 

 

Indemnification and Insurance

 

On November 24, 2004, the Company entered into an indemnification agreement with each of Stephen R. Kerrigan, John R. Scheessele, Bruce V. Rauner, David A. Donnini, James N. Chapman and Woody M. McGee, as members of our board of directors, and Robert M. Doyle, as our executive officer. On August 1, 2005, the Company entered into an indemnification agreement with William M. Kelly, as a member of our board of directors. We refer to all these indemnification agreements as “Indemnification Agreements.” In general, the Indemnification Agreements provide the directors and executive officer listed above with contractual rights to indemnification and advancement or reimbursement of expenses to the fullest extent permitted by Delaware law in connection with any losses and liabilities actually

and reasonably incurred by any of them in connection with the investigation, defense, settlement or appeal of, or otherwise related to such proceeding, as long as such indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of Coinmach. Coinmach’s Certificate of Incorporation also provides that Coinmach is required to indemnify its officers and directors.

 

Following completion of the merger, Parent and the surviving corporation will maintain in effect, for a period of six years following the consummation of the merger, the exculpation, indemnification and advancement of expenses provisions of Coinmach’s and its subsidiaries’ organizational documents and indemnification agreements with the Company or any of its subsidiaries, without amending, repealing or otherwise modifying them in any manner that would adversely affect the rights thereunder of the indemnitees. In addition, for a period of six years following completion of the merger, Coinmach or Parent will maintain directors and officers liability insurance for the directors and officers of Coinmach with respect to claims arising from facts or events occurring before the completion of the merger so long as the annual premium payments for such insurance is not in excess of 250% of Coinmach’s current premium for such insurance.

 

Financing of the Merger

 

Parent estimates that the total amount of funds necessary to complete the merger and the related transactions is anticipated to be approximately $[    l    ] billion, which includes $[    l    ] million to be paid to our stockholders, with the remaining funds to be used to repay certain existing indebtedness, including our 11% Senior Secured Notes due 2024 and our outstanding amounts under our credit facility, and to pay customary fees and expenses in connection with the proposed merger, the financing arrangements and the related transactions. The consummation of the merger is not conditioned on Parent receiving the proceeds contemplated by the commitment letters.

 

Pursuant to the merger agreement, Parent is obligated to use its commercially reasonable efforts to obtain the debt and equity financing described below pursuant to the terms of the respective commitment letters. Parent agreed not to amend, modify, supplement or terminate the equity commitment letters described below and not to waive any of the terms thereof, in each case, without our prior written consent. Parent further agreed not to permit, without our prior written approval (which will not be unreasonably withheld, conditioned or delayed), any (a) material amendment or modification to the debt commitment letters described below or (b) waiver of any material provision or remedy under the debt commitment letter described below, if such amendment, modification, waiver or remedy reduces the aggregate amount of the debt financing at the closing of the merger or materially and adversely amends the conditions to the drawdown of the debt financing. However, Parent may, without our prior written approval, permit the reduction of the aggregate amount of the debt financing if Parent also obtains from alternative sources commitments in the aggregate amount of at least such reduction with terms and conditions that will not, taken as a whole, in the reasonable judgment of Parent, result in a decrease in the likelihood that such commitments from alternative sources will be available on the closing date of the merger.

The following arrangements are intended to provide the necessary financing for the merger:

 

Equity Financing

 

Parent has received six equity commitment letters, dated June 14, 2007, from various affiliates and other third parties committing to provide to Parent an aggregate amount of $312.3 million in equity to fund the payment of the merger consideration, related amounts required to be paid by Parent under the merger agreement and to pay transaction costs.

 

The obligations to fund the commitments under such equity commitment letters are subject, among other things, (i) to consummation of the merger following the satisfaction or waiver of the conditions set forth in the merger agreement to Parent’s obligations to consummate the transactions contemplated thereby and (ii) receipt by Parent of all amounts set forth in the equity commitment letters and funding of the debt financing. The obligation to fund such equity commitments automatically terminates upon the earliest to occur of the termination of the merger agreement, December 31, 2007 with respect to the majority of the equity commitments and November 30, 2007 with respect to the balance of the equity commitments.

 

Each equity sponsor’s obligation to fund its portion of the commitment may be satisfied in whole or in part by an affiliate of such equity sponsor.

 

A separate equity commitment letter, dated June 14, 2007, from Babcock & Brown Investment Holdings Pty Ltd. provides a source of funds for any termination fee that may become due and payable by Parent under the merger agreement. See “The Merger — Financing of Reverse Break-Up Fee” beginning on page 56.

 

Debt Financing

 

Parent received a debt commitment letter, dated June 14, 2007, from The Royal Bank of Scotland plc, RBS Securities Corporation, Deutsche Bank Trust Company Americas, Deutsche Bank Securities Inc. and Deutsche Bank AG Cayman Islands Branch (to which we refer collectively as the “debt financing sources”), pursuant to which and subject to the conditions set forth therein, the debt financing sources have committed to provide to Parent an aggregate of $1.225 billion. Subject to the conditions set forth in the debt commitment letter, the following will be provided to Parent:

 

 

The availability of the facilities contemplated by the debt financing letter is subject, among other things, to consummation of the merger in accordance with the merger agreement (without waiver or amendment in any respect materially adverse to the lenders and lead arrangers under such facilities without the consent of the lead arrangers thereunder (not to be unreasonably withheld or delayed)), payment of required fees and expenses, the absence of certain types of debt, delivery of certain historical and pro forma financial information, the delivery of certain legal opinions and customary evidence of perfection of certain liens and the execution of definitive documentation.

 

The debt commitments expire on the earliest of (a) November 30, 2007, (b) the date of the initial funding under the facilities described above and (c) the closing of the merger without the use of the facilities described above.

 

The documentation governing the debt financings has not been finalized and, accordingly, their actual terms may differ from those described in this proxy statement.

 

While Parent’s obligation to finance the merger is not subject to a financing condition, if Parent is not able to consummate the financing arrangements described above or obtain other financing or funds sufficient for it to consummate the merger and the other transactions contemplated by the merger agreement and pay all related transaction costs and expenses, the merger will not be consummated. There can be no assurance that such financing transactions will be consummated or, if not consummated, that Parent will be able to obtain the funds or alternate financing necessary to consummate the merger. See “The Merger Agreement — Termination of the Merger Agreement” beginning on page 82, “The Merger Agreement — Effect of Termination” beginning on page 83 and “The Merger Agreement — Termination Fees and Expenses” beginning on page 83 for information relating to the rights and remedies of the Company and Parent should the merger fail to be consummated and the merger agreement terminate.

 

Financing of Reverse Break-up Fee

 

If we terminate the merger agreement due to Parent Failure to Close, Parent and Merger Sub must, jointly and severally, pay Coinmach $15 million plus out-of-pocket fees and expenses incurred by Coinmach or its affiliates of up to $2 million and reimburse any outstanding amounts required to be reimbursed to Coinmach by Parent or Merger Sub pursuant to the terms of the merger agreement. In connection with the payment by Parent and Merger Sub of such fees of $15 million and out-of-pocket fees and expenses of up to $2 million, on June 14, 2007 Parent entered into an equity commitment letter with Babcock & Brown Investment Holdings Pty Ltd., an affiliate of Babcock & Brown Limited, under which in the event that Parent or Merger Sub becomes obligated to pay such fees to Coinmach, Babcock & Brown Investment Holdings Pty Ltd. commits to contribute to Parent, no later than the date of termination of the merger agreement due to Parent Failure to Close, an aggregate amount of $15 million plus up to $2 million in costs and expenses (including legal fees and expenses).

 

The obligation of Babcock & Brown Investment Holdings Pty Ltd. to fund its commitment terminates on the earliest to occur of (a) the 5th day following termination of the merger agreement, provided that, if Coinmach initiates any legal proceedings regarding the commitment, or there are outstanding obligations of Parent or Merger Sub regarding payment under such equity commitment letter, the obligations of Babcock & Brown Investment Holdings Pty Ltd. under such equity commitment letter will remain outstanding until the resolution of such legal proceedings, or until the existence of such obligations of Parent and Merger Sub, as the case may be, or (b) the closing of the merger.

 

Coinmach is an express third party beneficiary of such equity commitment letter and is entitled to enforce the terms of such equity commitment letter. The terms of such equity commitment letter cannot be modified, amended or waived in any manner, without our prior written consent, if such modification, amendment or waiver in the aggregate would be adverse to Coinmach.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following discussion sets forth the material U.S. federal income tax consequences of the merger to certain U.S. holders and certain non-U.S holders (as defined below) of our Common Stock. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. This discussion is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the “Code”), the regulations of the U.S. Treasury Department and court and administrative rulings and decisions each as in effect and available on the date of this proxy statement, any of which may change, possibly retroactively. Such a change could affect the continuing validity of this discussion.

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of our Common Stock who for U.S. federal income tax purposes is:

 

 

If an entity treated as a partnership for U.S. federal income tax purposes holds our Common Stock, the tax treatment of such partnership and each partner thereof generally will depend on the status and the activities of the partnership and the partner. If you are such entity or a partner of such entity holding our Common Stock, you should consult your tax advisors.

 

A “non-U.S. holder” of our Common Stock is a holder that is neither a U.S. holder nor a partnership (or other entity treated as a partnership for U.S. federal income tax purposes).

 

This discussion assumes that you hold your shares of our Common Stock as capital assets within the meaning of the Code. Further, except as specifically set forth below, this discussion does not address all aspects of U.S. federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

 

 

Holders of our Common Stock are strongly urged to consult their tax advisors as to the specific tax considerations of the merger, including the applicability and effect of U.S. federal, state, local and foreign income and other tax laws in their particular circumstances.

 

U.S. Holders

 

The receipt of cash pursuant to the merger (or pursuant to the exercise of appraisal rights) by U.S. holders of our Common Stock will be a taxable transaction to such holders for U.S. federal income tax purposes. In general, a U.S. holder will recognize gain or loss equal to the difference between the total amount of cash received in exchange for our Common Stock held by such U.S. holder and the U.S. holder’s adjusted tax basis in the Common Stock. If a U.S. holder acquired different blocks of our Common Stock at different times or at different prices, such U.S. holder’s adjusted tax basis and holding period must be determined separately with respect to each block of such Common Stock and any gain or loss will be determined separately with respect to each block of such Common Stock.

 

Gain or loss that a U.S. holder recognizes in connection with the merger generally will constitute capital gain or loss and will constitute long-term capital gain or loss if such holder has held (or is treated as having held) our Common Stock for more than one year as of the date

of the merger. If you are a non-corporate U.S. holder of our Common Stock, long-term capital gain generally will be taxed at a maximum U.S. federal income tax rate of 15%.

 

U.S. holders of our Common Stock may be subject to information reporting and backup withholding on any cash payments received in connection with the merger or the exercise of appraisal rights. You will not be subject to backup withholding, however, if you:

 

 

Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service. The backup withholding tax rate is currently 28%.

 

Non-U.S. Holders

 

Special rules may apply to certain non-U.S. holders, such as former citizens or long-term residents of the United States, controlled foreign corporations, passive foreign investment companies, persons who actually or constructively own, or have owned, more than 5% of our equity at any time during the five-year period ending at the effective time, persons who actually or constructively own our Class B Common Stock, and corporations that accumulate earnings to avoid U.S. federal income tax. Such non-U.S. holders are urged to consult their own advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.

 

As a result of the merger, a non-U.S. holder generally will recognize gain to the same extent that a U.S. holder will recognize gain as described above under the headings “ — U.S. Holders.” Any gain a non-U.S. holder recognizes generally will constitute capital gain and generally will not be subject to U.S. federal income tax unless:

 

If you are described in the first bullet above, you generally will be subject to a flat 30% tax on any gain recognized, which may be offset by U.S. source capital losses. If you are described in the second bullet above, you generally will be subject to tax on your gain at applicable U.S. federal income tax rates and, in addition, may be subject to a branch profits tax (if you are a corporation) equal to 30% (or lesser rate under an applicable income tax treaty) on your effectively connected earnings and profits for the taxable year, which would include such gain.

 

U.S. backup withholding tax and information reporting requirements generally apply to any cash payments received in connection with the merger or the exercise of appraisal rights made within the United States, or by a U.S. payor or U.S. middleman, to a holder of our Common Stock, unless such holder is an exempt recipient (including a corporation, a payee that is not a U.S. person that provides an appropriate certification and certain other persons) or otherwise establishes an applicable exemption from such backup withholding tax and information reporting requirements. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service. The backup withholding tax rate is currently 28%.

 

This discussion does not address tax consequences that may vary with, or are contingent upon, the individual circumstances of holders of our Common Stock. Moreover, it does not address any non-income tax or any foreign, state or local tax consequences of the merger. Tax matters are very complicated, and the tax consequences of the merger to holders of our Common Stock will depend upon the facts of their particular situation. Accordingly, we strongly urge holders of our Common Stock to consult with their tax advisors to determine the particular federal, state, local or foreign income or other tax consequences to them as a result of the merger.

 

Paying Agent

 

Prior to the effective time of the merger, Parent will designate a U.S. bank or trust company reasonably acceptable to Coinmach to act as paying agent in the merger.

 

Fees and Expenses

 

We estimate that we will incur, in connection with the sale of Coinmach, transaction-related fees and expenses totaling approximately $[    l    ] million. This amount consists of the following estimated fees and expenses:

 

None of these costs and expenses will reduce the $13.55 per share merger consideration payable to holders of our Class A Common Stock and to holders of our Class B Common Stock or the amount payable to our holders of restricted shares of Class A Common Stock.

 

In addition, if the merger agreement is terminated, under certain circumstances, Coinmach will be obligated to pay a termination fee of $15 million to Parent in addition to all of Parent’s, Merger Sub’s and their respective affiliates’ documented out-of-pocket fees and expenses (including legal fees and expenses), which amount shall not exceed $2 million. See “The Merger Agreement — Termination Fees and Expenses” beginning on page 83.

 

Regulatory Matters

 

Antitrust Authorities

 

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, we cannot consummate the merger until the ultimate parent entities of both parties have notified the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission of the merger, furnished them with certain information and materials and the applicable waiting periods have terminated or expired. The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, provides for an initial 30-calendar-day waiting period following submission of the necessary filings. Our ultimate parent entity and the ultimate parent entity of Parent filed notification and report forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, on June 28, 2007. After reviewing the filings made by our ultimate parent entity and the ultimate parent entity of Parent, the Antitrust Division of the United States Department of Justice and the Federal Trade Commission granted “early termination” of the 30-day statutory waiting period on July 10, 2007.

 

The Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission or other similar regulatory authority could take action under the antitrust laws with respect to the merger, including seeking to enjoin the consummation of the merger or seeking the divestiture by Parent of all or part of our shares or assets, or of other business conducted by Parent, or its affiliates, or seeking to subject us, Parent or our respective affiliates to operating conditions, before or after we consummate the merger. We cannot assure you that such a challenge to the merger will not be made and, if such a challenge is made, we cannot predict the result.

 

Commitment to Obtain Approvals

 

We and Parent have agreed to use commercially reasonable efforts to take all actions, and do or cause to be done all things, reasonably necessary, proper or advisable under the merger agreement and applicable laws to consummate the merger and the other transactions contemplated by the merger agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any governmental entity in order to consummate the merger or any of the other transactions contemplated by the merger agreement.

 

Delisting and Deregistration of Class A Common Stock and Income Deposit Securities

 

If you are a holder of our income deposit securities, following consummation of the merger and the transactions contemplated by the merger agreement (i) the shares of Class A Common Stock underlying your income deposit securities will be cancelled and, subject to your exercise and perfection of appraisal rights under Delaware law, converted into the right to receive the merger consideration, (ii) the notes underlying your income deposit securities will no longer form a part of an income deposit security and will continue to be owned by you as a separate security and (iii) all our outstanding shares of Class A Common Stock and units of income deposit securities will be cancelled. If the merger is completed, our shares of Class A Common Stock and our units of income deposit securities will be delisted from the American Stock Exchange and deregistered under the Exchange Act, and we will no longer file periodic reports with the Securities and Exchange Commission on account of our shares of Class A Common Stock or our units of income deposit securities.

 

THE MERGER AGREEMENT

 

This section of the proxy statement describes the material provisions of the merger agreement, but does not purport to describe all the provisions of the merger. We urge you to read the merger agreement carefully and in its entirety because it is the legal document that governs the merger.

 

The merger agreement attached as Annex A and incorporated by reference into this document has been included to provide you with information regarding its terms. Capitalized terms used but not defined herein shall have the meaning given them in the merger agreement. It is not intended to provide any other factual information about us. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the Securities and Exchange Commission, which are available without charge at www.sec.gov.

 

The merger agreement contains representations and warranties we, on the one hand, and Parent and Merger Sub, on the other hand, have made to each other as of specific dates. These representations and warranties have been made for the benefit of the other parties to the merger agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in our representations and warranties are qualified by information in a confidential disclosure letter that we have provided to Parent in connection with signing the merger agreement. While we do not believe that the disclosure letter contains information required to be publicly disclosed by us under the applicable securities laws other than information that has already been so disclosed, the disclosure letter does contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached merger agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about us, since they were made as of specific dates, may be intended merely as a risk allocation mechanism between us and Parent, and are modified in important part by the underlying disclosure letter.

 

Structure of the Merger

 

Under the merger agreement, Merger Sub, a wholly-owned subsidiary of Parent, will merge with and into the Company. The Company will continue as the surviving corporation and the separate legal existence of Merger Sub will cease. The Company will become a wholly-owned subsidiary of Parent. Upon the consummation of the merger, our shares of Class A Common Stock and our units of income deposit securities will be delisted from the American Stock Exchange and deregistered under the Exchange Act, and the Company will no longer file periodic reports with the Securities and Exchange Commission.

 

Effective Time of the Merger

 

We expect the closing date for the merger to be no later than the third business day after the satisfaction or waiver of the conditions set forth in the merger agreement (which are described below under “Conditions to the Merger” beginning on page 80). However, such closing date will not be earlier than September 28, 2007, unless Parent has notified us in writing that Parent and Merger Sub have and would have as of an earlier date all necessary funds to

consummate the transactions contemplated by the merger agreement. We will seek to complete the merger prior to November 30, 2007, the date set forth in the merger agreement by which if the merger is not consummated Parent and the Company may exercise termination rights under the merger agreement (see “The Merger Agreement — Termination of the Merger Agreement” beginning on page 82). However, we cannot assure you when, or if, all of the conditions to completion of the merger will be satisfied or waived. Completion of the merger could be delayed if there is a delay satisfying any of the conditions to the merger.

 

The effective time of the merger will occur at the time when we file a certificate of merger with the Secretary of State of the State of Delaware, or at such later time as we and Parent specify in the certificate of merger. We refer to the time at which the merger is completed as the effective time. We expect to make the filing of such certificate of merger on or following the closing date of the merger.

 

Merger Consideration

 

At the effective time of the merger, each share of (a) our Class A Common Stock issued and outstanding immediately before the effective time of the merger, including the shares of our Class A Common Stock underlying our units of income deposit securities and (b) our Class B Common Stock issued and outstanding immediately before the effective time of the merger, will automatically be cancelled and converted into the right to receive $13.55 in cash, other than shares of our Class A Common Stock and/or Class B Common Stock:

 

 

Treatment of Restricted Stock

 

The merger agreement provides that, at the effective time of the merger, each share of our Class A Common Stock granted under our Long-Term Incentive Plan and/or our 2004 Unit Incentive Sub-Plan will no longer be subject to vesting, performance, forfeiture or other restrictions imposed on such restricted shares by their terms immediately prior to the effective time of the merger, and will be automatically converted by virtue of the merger into a right to receive $13.55 in cash consideration, except as otherwise agreed between Parent and the holder of such restricted stock.

 

Payment Procedures

 

At or prior to the effective time of the merger, Parent will appoint, subject to our approval, a paying agent that will pay the merger consideration to our stockholders in exchange for stock certificates representing shares of our Class A Common Stock and/or Class B Common Stock or for non-certificated shares represented by book-entry (to which we refer as “Book-Entry Shares”). At or before the effective time of the merger, Parent will deposit with the paying agent an amount of cash equal to the aggregate merger consideration, including, the aggregate merger consideration to be paid for restricted shares of our Class A Common Stock and within ten business days after the effective time, the paying agent will mail each stockholder instructions for surrendering stock certificates and Book-Entry Shares. The paying agent will pay the merger consideration, less any applicable withholding taxes, to our stockholders promptly following the paying agent’s receipt of the stock certificates (or Book-Entry Shares). No interest will be paid or accrued on the cash payable upon the surrender of any stock certificate (or Book-Entry Shares). Any funds that have not been distributed within one year after the effective time of the merger will be distributed to the surviving corporation, and stockholders who have not complied with the instructions to exchange their stock certificates (or Book-Entry Shares) will be entitled to look only to the surviving corporation for payment of the applicable per share merger consideration, without interest.

 

Parent and the surviving corporation generally will each be entitled to deduct and withhold from the merger consideration (including, the merger consideration payable to holder of restricted shares of our Class A Common Stock) otherwise payable to any holder of our Class A Common Stock and/or Class B Common Stock any applicable withholding taxes that it is required to deduct and withhold under the Code, the rules and regulations promulgated thereunder, or any other applicable state, local or foreign tax law. Our stockholders are entitled to assert appraisal rights instead of receiving the merger consideration. For a description of these appraisal rights, see “Statutory Appraisal Rights” below beginning on page 93.

 

Certificate of Incorporation and By-Laws of the Surviving Corporation

 

At the effective time of the merger, the certificate of incorporation of the surviving corporation will be amended to read in its entirety to be identical to the certificate of incorporation of Merger Sub, as in effect immediately prior to the effective time of the merger, until thereafter properly amended, provided, that (a) the name of the surviving corporation shall be “Coinmach Service Corp.” until thereafter properly changed, (b) the certificate of incorporation of the surviving corporation will include provisions substantially identical to the indemnification provisions of our certificate of incorporation immediately prior to the date of the merger agreement and (c) for a period of six years following the effective time of the merger, the terms of the indemnification provisions of the certificate of incorporation of the surviving corporation will not be amended in a manner adverse to the rights of the beneficiaries of such provisions.

 

At the effective time of the merger, the by-laws of the surviving corporation will be amended to read in its entirety to be identical to the by-laws of Merger Sub, as in effect immediately prior to the effective time of the merger, until thereafter properly amended,

provided, that the name of the surviving corporation shall be “Coinmach Service Corp.” until thereafter properly changed.

 

Directors and Officers of the Surviving Corporation

 

The directors of Merger Sub immediately before the effective time of the merger will be the initial directors of the surviving corporation until their successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal.

 

Our chief executive officer, Stephen R. Kerrigan, and our chief financial officer, Robert M. Doyle, will be officers of the surviving corporation until their successors are duly elected or appointed and qualified or until the earlier of their death, resignation or removal.

 

Representations and Warranties

 

We have made a number of representations and warranties to Parent and Merger Sub in the merger agreement regarding aspects of our business, financial condition and other matters pertinent to the merger. The topics covered by these representations and warranties include, among other things, the following:

 

 

In addition, each of Parent and Merger Sub, jointly and severally, made representations and warranties to the Company regarding, among other things, the following topics:

 

 

Some of our representations and warranties are qualified by a material adverse effect standard. Subject to certain exclusions, a Company material adverse effect means a material adverse effect on the financial condition, properties, business or results of operations of the Company and its subsidiaries, taken as a whole; provided, however, that none of the following shall constitute a Company material adverse effect or be taken into account in determining whether or not there has been or is reasonably likely to be a Company material adverse effect:

 

with respect to any of the businesses of the Company or any of its subsidiaries, other than effects, changes, events, conditions or circumstances solely relating to any third party consents or approvals required to be obtained in connection with the transactions contemplated by the merger agreement and not disclosed or otherwise listed in the merger agreement or the company schedules delivered in connection therewith;

 

 

Some of Parent’s and Merger Sub’s representations and warranties are qualified by a material adverse effect standard. Such material adverse effect means any event that reasonably expected to prevent, materially delay or impair the ability of Parent and/or Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement.

 

The representations and warranties of each of the parties to the merger agreement will expire upon consummation of the merger.

 

Covenants Relating to the Conduct of the Company’s Business

 

From the date of the merger agreement through the earlier of the effective time of the merger and termination of the merger agreement, we have agreed to operate our business and the business of our subsidiaries in the ordinary course of business consistent with past practice

and use our commercially reasonable efforts to preserve our business organizations intact, to maintain existing relations and goodwill with governmental entities, customers, suppliers, distributors, creditors, lessors, employees and business associates and to keep available the services of our present employees and agents.

 

During the same period, we have also agreed that, subject to certain exceptions, we will not and will not permit our subsidiaries to take certain actions without the prior written approval of Parent, which approval will not be unreasonably delayed (and Parent agreed to consider in good faith any actions to be taken by us for which such approval is being sought from Parent by us). Such prohibited actions are subject to certain restrictions and exceptions, and include, among others:

 

subsidiaries guarantees of indebtedness of our other wholly-owned subsidiaries;

 

subsidiaries made in the ordinary course of business consistent with past practice and in accordance with our sales commission plans as in effect on the date of the merger agreement is permitted under the merger agreement, (iii) making any new equity awards to any of our or our subsidiaries’ directors, officers or employees or (iv) increases in quarterly bonuses to regional vice presidents made in the ordinary course of business consistent with past practice; provided that any quarterly bonus payments to regional vice presidents made in the ordinary course of business consistent with past practice not exceeding $100,000 in the aggregate is permitted under the merger agreement;

 

 

Preparation of Proxy Statement; Stockholders’ Meeting and Board Recommendation

 

We agreed that, promptly as reasonably practicable after the execution of the merger agreement, we would prepare and file with the Securities and Exchange Commission a preliminary proxy statement, together with a form of proxy. We further agreed that promptly after the proxy statement and form of proxy were cleared with the Securities and Exchange Commission we would mail the definitive proxy statement and form of proxy to our stockholders.

Parent and Merger Sub agreed to cooperate with us in connection with the preparation of the proxy statement including, furnishing to us any and all information regarding Parent, Merger Sub and their respective affiliates as may be required to be disclosed in the proxy statement.

 

We will take all action necessary in accordance with the General Corporation Law of the State of Delaware and our certificate of incorporation and by-laws to call, give notice of, convene and hold a meeting of our stockholders to consider the adoption of the merger agreement, including the merger, as promptly as reasonably practicable after the mailing of the proxy. We will use commercially reasonable efforts to solicit proxies in favor of the merger until such time, if any, as our board of directors (or any committee thereof) shall withdraw or change its recommendation with respect to the merger. The merger agreement requires the proxy statement to include the recommendation of our board of directors that our stockholders adopt the merger agreement, subject to the exceptions described below under “Acquisition Proposals.” If our board of directors has approved or recommended a superior proposal, or has withdrawn or modified its recommendation in a manner adverse to Parent, or resolves to do any of the foregoing, we are not obligated to hold a stockholders meeting or prepare and file a proxy statement.

 

Acquisition Proposals

 

No Solicitation or Negotiation.  We have agreed that we will not, and we will cause any of our subsidiaries not to, and we will use our commercially reasonable efforts to cause our and our subsidiaries’ officers, directors, employees, agents, investment bankers, attorneys, accountants or representatives not to, directly or indirectly:

 

 

Notwithstanding these restrictions, at any time after the date of the merger agreement and before our stockholders adopt the merger agreement, we may:

 

board of directors determines in good faith after consultation with outside legal counsel that failure to take such action is likely to be inconsistent with its fiduciary duties under applicable law; or

 

 

For purposes of the merger agreement and the voting agreement, an acquisition proposal means, other than transactions contemplated by the merger agreement:

 

 

For purposes of the merger agreement, a superior proposal means an unsolicited bona fide acquisition proposal providing for the acquisition of more than 75% of our assets (on a consolidated basis) or more than 75% of the total voting power of our equity securities that our board of directors has determined in its good faith judgment is reasonably likely to be consummated, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal, and if consummated, would result in a transaction more favorable to our stockholders than the transaction contemplated by the merger agreement (after taking into account any revisions to the terms of the transaction contemplated by the merger agreement pursuant to any revised offer made by Parent in accordance with the terms of the merger agreement).

 

No Change in Recommendation; Alternative Acquisition Agreement.  We have agreed that our board of directors and each committee of our board of directors will not:

 

or other agreement (other than the confidentiality agreement described above in the section “Acquisition Proposals — No Solicitation or Negotiation” entered into in the circumstances set forth therein) relating to any acquisition proposal (we refer to such an agreement as an “alternative acquisition agreement”); or

 

 

Notwithstanding these restrictions, at any time after the date of the merger agreement and before our stockholders adopt the merger agreement, we may:

 

not make, within five business days of receipt of such notice, an offer that our board of directors determines, in good faith after consultation with its financial advisors, is at least as favorable to our stockholders as such acquisition proposal.

 

We have also agreed that our board of directors will not take any of the actions described above in the preceding paragraph until at least the sixth business day after the provision of notice to Parent as described in such paragraph and will notify Parent promptly if its intention to take such action referred to in its notification will change at any time after giving such notification. We further agreed that our board of directors will take into account any changes to the terms of the merger agreement proposed by Parent or any other information provided by Parent in response to such notice.

 

Nothing in the merger agreement prohibits us from disclosing to our stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, or from issuing a “stop, look and listen” statement pending disclosure of our position thereunder or otherwise prohibits us from complying with our disclosure obligations under U.S. federal or state law with regard to an acquisition proposal if, in the good faith judgment of our board of directors, after consultation with outside counsel, failure so to disclose is likely to be inconsistent with its obligations under applicable law.

 

We agreed that, on the date of the merger agreement, we will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any person conducted prior to the date of the merger agreement with respect to any acquisition proposal. We agreed to inform such person of such obligation to cease and terminate any existing activities, discussions or negotiations and our obligations under the confidentiality agreement with Babcock & Brown LP.

 

Access to Information; Confidentiality

 

During the period from the date of the merger agreement until November 30, 2007, we will afford Parent’s officers, directors, employees, agents, and representatives, including investment bankers, attorneys and accountants retained by Parent or its subsidiaries, reasonable access during normal business hours to our officers, employees, properties, tax returns, books, contracts and records and, during such period, we will also furnish promptly to Parent all information concerning our business, properties and personnel as may reasonably be requested.

 

During the period from the date of the merger agreement to the earlier of (x) the second anniversary of the termination of the merger agreement and (y) the completion of the merger, we and our subsidiaries will, and will cause our officers, directors, employees, agents, investment bankers, attorneys, accountants retained by us or our subsidiaries and representatives, to, subject to certain exceptions, treat and hold as confidential all confidential and/or proprietary information of, or furnished by, Parent. Clause (x) above will not apply to any disclosure of any debt or equity commitment letters.

 

Public Announcements

 

We and Parent have agreed to consult with each other and obtain each other’s consent (which will not be unreasonably withheld, delayed or conditioned) before:

 

 

Regulatory Filings; Commercially Reasonable Efforts

 

We and Parent have agreed to use commercially reasonable efforts to take all actions, and do or cause to be done all things, reasonably necessary, proper or advisable under the merger agreement and applicable laws to consummate the merger and the other transactions contemplated by the merger agreement as soon as practicable, including preparing and filing as promptly as practicable all documentation to effect all necessary notices, reports and other filings and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any governmental entity in order to consummate the merger or any of the other transactions contemplated by the merger agreement.

 

Notification of Certain Matters

 

We and Parent have agreed, subject to applicable laws and the instructions of any governmental entity, to keep the other apprised of the status of matters relating to completion of the transactions contemplated by the merger agreement. We and Parent have further agreed to give prompt notice to the other of any change, fact or condition of which it has knowledge (i) that is reasonably likely to have a Company material adverse effect, (ii) that is reasonably expected to prevent, materially delay or impair the ability of Parent and/or Merger Sub to consummate the merger and the other transactions contemplated by the merger agreement or (iii) of any failure of any condition to Parent’s obligations to effect the merger.

 

Indemnification; Directors’ and Officers’ Insurance

 

The merger agreement provides that all rights to exculpation, indemnification and advancement of expenses now existing in favor of our or our subsidiaries’ current or former directors, officers or employees as provided in their respective certificate of incorporation or by-laws or other organization documents or in any agreement will survive the merger and continue in full force and effect.

 

Following completion of the merger, Parent and the surviving corporation will maintain in effect, for a period of six years following the consummation of the merger, the exculpation, indemnification and advancement of expenses provisions of our

and our subsidiaries’ organizational documents and indemnification agreements with us or any of our subsidiaries, without amending, repealing or otherwise modifying them in any manner that would adversely affect the rights thereunder of the indemnitees.

 

From and after the effective time of the merger, Parent and the surviving corporation shall, jointly and severally, indemnify and hold harmless, to the fullest extent permitted under applicable law each of our and our subsidiaries’ present and former directors, officers, employees or agents, against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages or liabilities, including amounts paid in settlement incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to matters existing or occurring at or prior to the effective time of the merger, whether asserted or claimed prior to, at or after the effective time of the merger, that are, in whole or in part, based on or arising out of the fact that such person is or was our or our subsidiaries’ director, officer or employee, including, but not limited to, with respect to the transactions contemplated by the merger agreement, the voting agreement and the equity commitment letters or serve or served as a fiduciary under, or with respect to, any employee benefit plan at any time maintained by or contributed by Coinmach or its Subsidiaries.

 

In addition, for a period of six years following completion of the merger, the surviving corporation will either maintain our existing directors’ and officers’ liability insurance or Parent will provide for equivalent directors’ and officers’ liability insurance covering the individuals who are covered by our existing directors’ and officers’ liability insurance on the date of the merger agreement and providing benefits and levels of coverage that are no less favorable than those provided under our existing directors’ and officers’ liability insurance with respect to acts or omissions occurring before the completion of the merger so long as the annual premium payments for such insurance is not in excess of 250% of the last annual premium paid by us prior to the date of the merger agreement.

 

Continuation of Employee Benefits

 

From and after the closing date, Parent has agreed to cause the surviving corporation to, and the surviving corporation will, honor, pay, perform and satisfy any and all liabilities, obligations and responsibilities to, or in respect of, each of our and our subsidiaries’ current and former employees (to which we refer as “Coinmach employees”) arising under the terms of any benefit plan (which include, among other things, any compensation and/or benefit plans, programs, policies or agreements, including any employee welfare plan, any bonus, incentive, deferred compensation, vacation, stock purchase, stock bonus, restricted stock, stock option or other equity-based arrangement, severance, employment, termination, retention, change of control or fringe benefit plan, program or agreement) (we refer to each such benefit plan as a “Coinmach benefit plan”) to which it is a party in accordance with the terms as in effect immediately before the closing date. Following the completion of the merger, Parent shall ensure that no waiting periods, exclusions or limitations with respect to any pre-existing conditions, evidence of insurability or good health or actively-at-work exclusions are applicable to any Coinmach employees or their dependents or beneficiaries under any Parent welfare benefit plans in which such employees may be eligible to participate to the extent such exclusions or limitations were applicable under the analogous Coinmch benefit plan.

In addition, following completion of the merger, any costs or expenses incurred by Coinmach employees (and its dependents or beneficiaries) up to (and including) the closing date will be taken into account for purposes of satisfying applicable deducible, co-payment, coinsurance, maximum out-of-pocket provisions and like adjustments or limitations on coverage under any such welfare benefit plans to the extent credit for such loss and expense was taken under the analogous benefit plan. Each Coinmach employee eligible to participate in any such benefit plan after completion of the merger will receive service credit for all service with us or our subsidiaries prior to the effective time of the merger to the extent such service was taken into account for a similar Coinmach benefit plan in which such employee participates, except the employees will not receive benefit accruals under any defined benefit pension plan or eligibility for post-retirement health or welfare benefits.

 

The merger agreement provides that nothing in the merger agreement (a) will prohibit the amendment or termination of any Coinmach benefit plan, employment, consulting, retention, severance, change-of-control or similar agreement in accordance with their terms and applicable law, (b) will be deemed to be a guarantee of employment for any Coinmach employee, (c) will be deemed to restrict the right of Parent or Coinmach following the merger to terminate any such employee, (d) will be treated as an amendment or other modification of any Coinmach benefit plan, or (e) will limit the right or Parent or Coinmach following the merger or any of its subsidiaries to amend, terminate or otherwise modify any Coinmach benefit plan following the completion of the merger. The merger agreement further provides that nothing in the merger agreement creates any third party beneficiary or other rights in any other person or any right to continued employment with Parent, Coinmach or any of their respective affiliates or continued participation in any Coinmach benefit plan.

 

Takeover Statutes

 

If any takeover statute will become applicable to the merger, the voting agreement or any of the other transactions contemplated by the merger agreement or the voting agreement our board of directors will grant such approvals and take such actions as are necessary so that the merger, the voting agreement and the other transactions contemplated by the merger agreement or the voting agreement may be consummated as promptly as practicable on the terms contemplated by the merger agreement and the voting agreement and otherwise act to eliminate or minimize the effects of such statute or regulation on the merger, the voting agreement and the other transactions contemplated by the merger agreement and the voting agreement.

 

Debt Financing Covenant

 

We have agreed to provide, and to use good faith efforts to cause our independent auditors, counsel, and other representatives to provide, at Parent’s or Merger Sub’s expense, all reasonable and timely cooperation reasonably requested by Parent in connection with the arrangement of debt financing contemplated by the debt commitment letter; provided, that, we will not be required to pay any commitment or similar fee or incur any cost, expense, liability or other obligations in connection with such cooperation prior to the effective time of the merger and such cooperation would not violate or conflict with any contract or governing document of us or our subsidiaries or any applicable laws, and would not materially interfere with the normal conduct of our and our subsidiaries’ business or operations.

 

Debt Tender Offer; Redemption of Notes; Credit Facility

 

We have agreed that we will, at Parent’s request, commence an offer to purchase all of our 11% Senior Secured Notes due 2024, together with a consent solicitation, if such consent is requested by Parent; provided that, we will not be required to pay any commitment or similar fee or incur any cost, expense, liability or other obligations in connection with such cooperation prior to the effective time of the merger and such cooperation would not violate or conflict with any contract or governing document of us or our subsidiaries or any applicable laws, and would not materially interfere with the normal conduct of our and our subsidiaries’ business or operations. Parent will provide all funds for payment of our 11% Senior Secured Notes due 2024 tendered and not withdrawn and any consent solicitation fees. We and Parent have agreed to use commercially reasonable efforts to cause the debt tender offer to close concurrently with the completion of the merger, but such closing is not a condition to the completion of the merger. We have further agreed to use commercially reasonable efforts to cause a supplemental indenture to become effective concurrently with the completion of the merger, but this also is not a condition to completion of the merger.

 

If the debt tender offer is not consummated prior to the completion of the merger as contemplated by the merger agreement, immediately prior to the completion of the merger, we intend to redeem all our 11% Senior Secured Notes due 2024 and facilitate the satisfaction and discharge of such notes pursuant to the terms of their indenture.

 

Contemporaneously with the effective time of the merger, Parent will, and will cause the surviving corporation to (and the surviving corporation will cause its applicable subsidiaries to), pay and satisfy all our and our subsidiaries’ obligations under our subsidiaries’ credit facility.

 

Conditions to the Merger

 

Coinmach’s, Parent’s and Merger Sub’s respective obligations to effect the merger are subject to the satisfaction, or waiver by the Parent and the Company, as the case may be, of the following conditions:

 

 

In addition, the obligations of Parent and Merger Sub to effect the merger are subject to the satisfaction, or waiver by Parent, of the following conditions:

 

 

In addition, the Company’s obligation to effect the merger is subject to the satisfaction, or waiver by the Company, of the following conditions:

 

 

Termination of the Merger Agreement

 

The merger agreement may be terminated and the merger may be abandoned at any time before the effective time, whether before or after the stockholders have adopted the merger agreement, as follows:

 

 

 

 

Coinmach has not complied in all material respects with its obligation to cooperate with Parent and Merger Sub in obtaining debt financing and completion of the debt tender offer (we refer to this termination right as “Parent Failure to Close”).

 

 

 

The merger agreement may also be terminated and the merger may be abandoned at any time before our stockholders have adopted the merger agreement, by Coinmach if our board of directors authorizes us to enter into an alternative acquisition agreement other than the merger based on a superior proposal and pays the termination fee prior to or simultaneously with such termination.

 

Effect of Termination

 

In the event of termination of the merger agreement and abandonment of the merger, the merger agreement will become void (except for certain specified provisions), without any liability on the part of any party or its directors, officers or other representatives or affiliates. However, termination will not relieve any party of liability for damages resulting from any breach of the merger agreement. Termination of the merger agreement will also not affect the obligations of the parties under the separate confidentiality agreement.

 

Termination Fees and Expenses

 

Coinmach is obligated to pay Parent a termination fee of $15 million plus out-of-pocket fees and expenses incurred by Parent, Merger Sub and their affiliates of up to $2 million, if the merger agreement is terminated:

 

our stockholders adopt the merger agreement or our board of directors’ approval, recommendation or otherwise declaration that other acquisition proposal is advisable and (c) concurrently with such termination by Parent or within twelve (12) months after such termination by Parent, we enter into a definitive agreement with respect to an acquisition proposal (which is subsequently consummated) or an acquisition proposal is consummated;

 

 

Parent and Merger Sub must, jointly and severally, pay Coinmach $15 million plus out-of-pocket fees and expenses incurred by the Company or its affiliates of up to $2 million and reimburse any outstanding amounts required to be reimbursed to Coinmach by Parent or Merger Sub pursuant to the terms of the merger agreement, if the merger agreement is terminated due to Parent Failure to Close. In connection with the payment by Parent and Merger Sub of such fees, on June 14, 2007 Parent entered into an equity commitment letter with Babcock & Brown Investment Holdings Pty Ltd., an affiliate of Babcock & Brown Limited, under which in the event that Parent or Merger Sub becomes obligated to pay such fees to Coinmach, Babcock & Brown Investment Holdings Pty Ltd. commits to contribute to Parent, no later than the date of termination of the merger agreement due to Parent Failure to Close, an aggregate amount of $15 million plus up to $2 million in costs and expenses (including legal fees and expenses). Coinmach is an express third party beneficiary of such equity commitment letter and is entitled to enforce the terms of such equity commitment letter. The terms of such equity commitment letter cannot be modified, amended, supplemented or waived without Coinmach’s prior written consent. See “The Merger — Financing of Reverse Break-up Fee” beginning on page 56.

 

Amendment / Waiver

 

The parties to the merger agreement may modify or amend the merger agreement at any time prior to the effective time by written agreement executed and delivered by their respective duly authorized officers, to the extent allowed by law.

Each party to the merger agreement may, to the extent permitted by law, waive all or in part such party’s conditions to its obligations to consummate the merger.

 

Assignment

 

The merger agreement is not assignable, except that Parent may designate, by written notice to the Company, another wholly-owned direct or indirect subsidiary of Parent to be constituent corporation in lieu of Parent. Parent may do this only if such designation does not materially impede or delay the consummation of transactions contemplated by the merger agreement or otherwise materially impede the rights of our stockholders under the merger agreement or, affect in any manner our rights under the equity commitment letters, and further the assignee must agree in writing to be bound by all terms of the merger agreement.

 

THE VOTING AGREEMENT

 

This section of the proxy statement describes the material provisions of the voting agreement entered into by Parent, Coinmach Holdings, GTCR-CLC, LLC, the controlling unit holder in Coinmach Holdings, certain members of our senior management and one of our non-management directors, but it does not purport to describe all the provisions of the voting agreement. We urge you to read the full text of the voting agreement, which is attached as Annex B and incorporated by reference into this proxy statement.

 

General

 

Concurrently with the execution and delivery of the merger agreement, Coinmach Holdings, GTCR-CLC, Stephen R. Kerrigan, Robert M. Doyle, Michael E. Stanky, Ramon Norniella and James N. Chapman (we refer to such individuals, collectively, as the “management stockholders”), entered into a voting agreement with Parent. On June 14, 2007, Coinmach Holdings, GTCR-CLC and management stockholders collectively owned approximately 61.7% of our shares of Class A Common Stock and/or Class B Common Stock entitled to vote on the adoption of the merger agreement. These shares represent more than the number of votes necessary to adopt the merger agreement at the special meeting even if you and every other stockholder of the Company vote against the adoption of the merger agreement.

 

Voting Covenants

 

Each of Coinmach Holdings, GTCR-CLC and management stockholders has agreed, among other things, to vote their shares of our Class A Common Stock and/or Class B Common Stock (with respect to management stockholders, such obligation is limited to our shares of Class A Common Stock granted to them under our incentive plans and our shares of Class B Common Stock held by them) in favor of the adoption and approval of the merger agreement and the terms thereof, the merger and each of the other transactions contemplated by the merger agreement and any other action reasonably requested by Parent in furtherance thereof, at any meeting or written consent of our stockholders at which such matter is considered, and at every adjournment or postponement thereof. Such parties have also agreed not to enter into any agreement, arrangement or understanding with any person, or to give instructions to any person, inconsistent with such obligation to vote.

 

Non-solicitation or Negotiation

 

Each of Coinmach Holdings, GTCR-CLC and each management stockholder has agreed not to, and not to authorize or permit any of their employees, agents and representatives to, directly or indirectly, (a) initiate, solicit, knowingly encourage or otherwise knowingly facilitate any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal, or (b) engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any person for the purpose of encouraging or facilitating, any acquisition proposal or otherwise knowingly facilitate any effort or attempt to make or implement any acquisition proposal. Such parties have also agreed to notify Parent as soon as possible if any such inquiries or proposals are received by, any information or documents is requested from, or

any negotiations or discussions are sought to be initiated or continued with, such party or any of its Affiliates. Nevertheless, such parties may each authorize, permit or engage in such restricted activities if at any time Coinmach is permitted to engage in such activities pursuant to the terms of the merger agreement.

 

Restrictions on Transfer and Other Voting Arrangements

 

Each of Coinmach Holdings, GTCR-CLC and management stockholders has agreed not to, sell, transfer, exchange, pledge, hypothecate, encumber, tender or otherwise dispose of, or enforce or permit the execution of the provisions of any redemption, share purchase or sale, recapitalization or other agreement with Coinmach or any other person, with respect to shares of our Class A Common Stock and/or Class B Common Stock subject to the voting agreement. They also agreed not to enter into any contract, option or other arrangement with respect to the direct or indirect transfer of any of our shares of Class A Common Stock and/or Class B Common Stock held by them which are subject to the voting agreement, or any interest in such shares, with any person, or join in any registration statement with respect to such shares. They further agreed not to enter into any swap or other transaction that directly or indirectly transfers, partially or fully, the economic consequence of ownership of our shares of Class A Common Stock and/or Class B Common Stock held by them which are subject to the voting agreement and agreed not to permit creation of any liens on such shares.

 

Share Distribution and Exchange

 

Following the date on which our stockholders adopt the merger agreement, but immediately prior to the exchange described in the following sentence, Coinmach Holdings will make an in-kind distribution of all of our shares of Class B Common Stock held by Coinmach Holdings to its members in accordance with the distribution and liquidation provisions of Coinmach Holdings’ limited liability company agreement. Following such distribution of shares, but before the effective time of the merger, the management stockholders will exchange, in the aggregate, 407,380 shares of our Class B Common Stock owned by them, representing approximately 0.77% of the outstanding shares of our Common Stock, for shares of Parent’s common stock, which represents approximately 1.74% of the outstanding shares of Parent’s common stock. See “The Exchange Agreement” beginning on page 89. Simultaneously with such exchange of shares to shares of common stock of Parent but prior to the effective time of the merger, each such management stockholder will sell the remainder of our shares of Class A Common Stock and/or Class B Common Stock held by such management stockholder to a person or persons designated by Babcock & Brown Spinco LLC, an affiliate of Parent, for cash in an amount equal to the product of the number of such shares sold by management stockholder and $13.55 (subject to any applicable withholding taxes).

 

Termination

 

The voting agreement will terminate on the earliest to occur of (a) the effective time of the merger, (b) the date on which our board of directors effect a change of recommendation in accordance with the terms of the merger agreement, (c) the date of termination of the merger agreement or (d) December 30, 2007.

 

Representations and Warranties

 

Coinmach Holdings has made representations and warranties to Parent regarding, among other matters:

 

 

Each management stockholder made representations and warranties similar, with the necessary changes to reflect the different party, to those representations and warranties set forth in the first three bullet points described in the preceding paragraph to Parent with respect to our shares of Class A Common Stock and Class B Common Stock held by them subject to the voting agreement, and GTCR-CLC made representations and warranties similar, with the necessary changes to reflect the different party, to those representations and warranties set forth in the second bullet point described in the preceding paragraph to Parent and that it does not own any shares of our capital stock.

 

Parent has made representations and warranties to Coinmach Holdings, GTCR-CLC and management stockholders regarding its legal capacity and organizational authority to execute and deliver the voting agreement, the due execution and delivery of the voting agreement and enforceability of the voting agreement against Parent.

 

THE EXCHANGE AGREEMENT

 

This section of the proxy statement describes the material provisions of the exchange agreement entered into by Parent, each management stockholder, Coinmach Laundry Corporation (our wholly-owned subsidiary) and the Secretary of Coinmach Laundry Corporation, but it does not purport to describe all the provisions of the exchange agreement. We urge you to read the full text of the exchange agreement, which is attached as Annex C and incorporated by reference into this proxy statement.

 

General

 

Concurrently with the execution and delivery of the merger agreement, management stockholders, Coinmach Laundry Corporation and the Secretary of Coinmach Laundry Corporation entered into an exchange agreement with Parent.

 

Share Exchange

 

Following the in-kind distribution of our shares of Class B Common Stock held by Coinmach Holdings to its members as more fully described in the description of the voting agreement (see “The Voting Agreement” beginning on page 86), and prior to the effective time of the merger:

 

(a) Management stockholders will tender, in the aggregate, 407,380 shares of our Class B Common Stock owned by them, representing approximately 0.77% of the outstanding shares of our Common Stock, to Parent, in exchange for the issuance to such management stockholders of shares of common stock of Parent representing approximately 1.74% of the outstanding shares of Parent’s common stock, as set forth in the exchange agreement, and having the same aggregate value as our Class B Common Stock tendered by management stockholders;

 

(b) Simultaneously with the exchange of shares, management stockholders will repay in full in cash all outstanding principal and interest amounts due under those certain amended and restated promissory notes, dated as of March 6, 2003, made by each of them, in favor of Coinmach Laundry Corporation; and

 

(c) Immediately prior to the effective time of the merger and following the payment by management stockholders of outstanding amounts under promissory notes described in clause (b) above, Coinmach Laundry Corporation and the Secretary of Coinmach Laundry Corporation will release all of their security interests in and to all units of Coinmach Holdings and all shares of our Common Stock beneficially owned by management stockholders.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information regarding the beneficial ownership of the common stock of Parent, following the completion of the merger, by (i) each of the Company’s directors, (ii) each of the Company’s Named

Executive Officers, (iii) all of the Company’s directors and the Company’s Named Executive Officers as a group and (iv) the equity investors in Parent as a group:

 

 

 

 

 

Conditions Precedent

 

The obligations of each management stockholder to consummate the transactions contemplated by the exchange agreement are subject to, among others:

 

 

 

 

Stockholders Agreement

 

The exchange agreement provides that Parent, Babcock & Brown Spinco LLC, management stockholders and certain other investors in Parent shall enter into a Stockholders Agreement prior to closing of the merger agreement.

 

Release

 

Effective as of the effective time of the merger and upon the consummation of the transactions contemplated by the exchange agreement, management stockholders will release and discharge the Company from all claims and liabilities relating to our shares of Class A Common Stock and/or Class B Common Stock owned by management stockholders.

 

Representations and Warranties

 

Each management stockholder, jointly but not severally, has made representations and warranties to the other parties to the exchange agreement regarding, among other matters:

 

 

Parent has made representations and warranties to the other parties to the exchange agreement regarding, among other matters:

 

 

Termination of Exchange Agreement

 

If after the consummation of the transactions contemplated by the exchange agreement, the merger agreement is terminated in accordance with the terms of the merger agreement, then the exchange of shares between management stockholders and Parent will become void. In such an event, management stockholders will return to Parent the shares of common stock of Parent received by management stockholders, and Parent will return to management stockholders shares of our Class B Common Stock tendered to Parent by management stockholders.

 

STATUTORY APPRAISAL RIGHTS

 

Under the Delaware General Corporation Law (which we refer to as the “DGCL”), you have the right to decline to accept the consideration offered in the merger and to receive payment in cash for the fair value of your Coinmach Service Corp. Common Stock as determined by the Delaware Court of Chancery, together with a fair rate of interest, if any, as determined by the court, in lieu of the consideration you would otherwise be entitled to pursuant to the merger agreement. These rights are known as appraisal rights. The Company’s stockholders electing to exercise appraisal rights must comply with the provisions of Section 262 of the DGCL in order to perfect their rights. The Company will require strict compliance with the statutory procedures.

 

The following is intended as a brief summary of the material provisions of the Delaware statutory procedures required to be followed by a stockholder in order to perfect appraisal rights. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Section 262 of the DGCL, the full text of which appears in Annex E to this proxy statement. Failure to precisely follow any of the statutory procedures set forth in Section 262 of the DGCL may result in a termination or waiver of your appraisal rights.

 

Section 262 requires that stockholders be notified that appraisal rights will be available not less than 20 days before the stockholders’ meeting to vote on the merger. A copy of Section 262 must be included with such notice. This proxy statement constitutes the Company’s notice to its stockholders of the availability of appraisal rights in connection with the merger in compliance with the requirements of Section 262. If you wish to consider exercising your appraisal rights, you should carefully review the text of Section 262 contained in Annex E since failure to timely and properly comply with the requirements of Section 262 will result in the loss of your appraisal rights under the DGCL.

 

Pursuant to Section 262 of the DGCL, if you elect to demand appraisal of your shares, you must satisfy each of the following conditions:

 

You must deliver to the Company a written demand for appraisal of your shares before the vote with respect to the merger is taken. This written demand for appraisal must be in addition to and separate from any proxy or vote abstaining from or voting against the adoption of the merger agreement. Voting against or failing to vote for the adoption of the merger agreement by itself does not constitute a demand for appraisal within the meaning of Section 262, but failure to vote against the adoption of the merger agreement does not, by itself, constitute a waiver of your appraisal rights.

 

You must not vote in favor of the adoption of the merger agreement. A vote in favor of the adoption of the merger agreement, by proxy or in person, will constitute a waiver of your appraisal rights in respect of the shares so voted and will nullify any previously filed written demands for appraisal.

 

If you fail to comply with either of these conditions and the merger is completed, you will be entitled to receive the cash payment for your shares of Common Stock as provided

for in the merger agreement, but you will have no appraisal rights with respect to your shares of Common Stock.

 

All demands for appraisal should be addressed to Coinmach Service Corp., 303 Sunnyside Blvd., Suite 70, Plainview, New York, 11803, Attention: Corporate Secretary, and must be delivered before the vote on the merger agreement is taken at the special meeting and should be executed by, or on behalf of, the record holder of the shares of our Common Stock. The demand must reasonably inform the Company of the identity of the stockholder and the intention of the stockholder thereby to demand appraisal of his, her or its shares.

 

To be effective, a demand for appraisal by a holder of our Common Stock must be made by, or in the name of, such registered stockholder, fully and correctly, as the stockholder’s name appears on his or her stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to the Company. The beneficial holder must, in such cases, have the registered owner, such as a broker or other nominee, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners.

 

An authorized agent, including an authorized 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 or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. 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 held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner.

 

If you hold your shares of Common Stock in a brokerage account or in other nominee form and you wish to exercise appraisal rights, you should consult with your broker or the other nominee to determine the appropriate procedures for the making of a demand for appraisal by the nominee.

 

Pursuant to Section 262 of the DGCL, within 10 days after the effective time of the merger, the surviving corporation must give written notice that the merger has become effective to each Company stockholder who has properly filed a written demand for appraisal and who did not vote in favor of the merger agreement. At any time within 60 days after the effective time, any stockholder who has demanded an appraisal has the right to withdraw the demand and to accept the cash payment specified by the merger agreement for his or her shares of Common Stock. Notwithstanding the foregoing, no appraisal proceeding in the Delaware 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. Within 120 days after the effective date of the merger, any stockholder who has complied with Section 262 shall, upon written request to the surviving corporation, be entitled to receive a written statement

setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of such shares. Such written statement will be mailed to the requesting stockholder within 10 days after such written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective time, either the surviving corporation or any stockholder who has complied with the requirements of Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all stockholders entitled to appraisal. Upon the filing of the petition by a stockholder, service of a copy of such petition shall be made upon the surviving corporation. The surviving corporation has no obligation to file such a petition in the event there are dissenting stockholders. Accordingly, the failure of a stockholder to file such a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Chancery Court with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Chancery Court is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby.

 

After determination of the stockholders entitled to appraisal of their shares of our Common Stock, the Chancery Court will appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any. When the value is determined, the Chancery Court will direct the payment of such value, with interest thereon accrued during the pendency of the proceeding, if the Chancery Court so determines, to the stockholders entitled to receive the same, upon surrender by such holders of those shares.

 

In determining fair value, the Chancery Court is required to take into account all relevant factors. You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the merger agreement. You should also be aware that opinions by financial advisors as to the fairness from a financial point of view of the consideration payable in a merger are not opinions as to fair value under Section 262.

 

Costs of the appraisal proceeding may be imposed upon the surviving corporation and/or the stockholders participating in the appraisal proceeding by the Chancery Court as the Chancery Court deems equitable in the circumstances. Upon the application of a stockholder, the Chancery Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. Any stockholder who had demanded appraisal rights will not, after the

 

effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time of the merger; however, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the cash payment for shares of his, her or its Common Stock pursuant to the merger agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the merger may only be made with the written approval of the surviving corporation and must, to be effective, be made within 120 days after the effective time.

 

In view of the complexity of Section 262, the Company’s stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

 

 

MARKET PRICE OF THE COMPANY’S INCOME DEPOSIT SECURITIES

AND CLASS A COMMON STOCK

 

Class A Common Stock

 

Shares of Class A Common Stock are listed on the American Stock Exchange under the trading symbol “DRA.” The following table sets forth for the periods indicated the high and low sales prices for the Class A Common Stock reported on the American Stock Exchange and the cash dividends per share of our Class A Common Stock:

 

 

As of June 1, 2007, Cede & Co. (nominee of DTC) holds our outstanding shares of Class A Common Stock on behalf of several participants in the DTC system, which in turn hold on behalf of beneficial owners.

 

On June 14, 2007, the last trading day before the public announcement of the execution of the merger agreement, the closing sale price for our Class A Common Stock and units of our income deposit securities as reported on the American Stock Exchange was $11.71 per share and $19.29 per unit, respectively. On [    l    ], 2007, the last practicable trading day before the mailing of this proxy statement, the closing sale price for our Class A Common Stock and units of our income deposit securities as reported on the American Stock Exchange was $[    l    ] per share and $[    l    ] per unit, respectively. Stockholders should obtain a current market quotation for our Class A Common Stock and units of our income deposit securities before making any decision with respect to the merger. As of [    l    ], 2007, there were an estimated [    l    ] holders of our Class A Common Stock and Class B Common Stock (of which, [    l    ] are holders of record).

 

Income Deposit Securities

 

Our income deposit securities, which we sometimes refer to as “IDSs”, are listed on the American Stock Exchange under the trading symbol “DRY.” The following table sets forth for the periods indicated the high and low sales prices for the IDSs reported on the American Stock Exchange and the cash distribution per unit of our IDSs.

 

As of June 1, 2007, Cede & Co. (nominee of DTC) holds our outstanding income deposit securities on behalf of several participants in the DTC system, which in turn hold on behalf of beneficial owners.

 

Dividends

 

Pursuant to a dividend policy that was adopted by our board of directors in connection with the public offering of our Class A Common Stock in February 2006, we declare and pay regular quarterly dividends on the Class A Common Stock (and distributions on our units of income deposit securities) and dividends no more frequently than annually on the Class B Common Stock. On February 1, 2007, our board of directors declared a quarterly cash dividend of $0.20615 per share of Class A Common Stock (or approximately $6.0 million in the aggregate), which cash dividend was paid on March 1, 2007 to holders of record as of the close of business on February 26, 2007. On May 9, 2007, our board of directors declared a quarterly cash dividend of $0.20615 per share on the Class A Common Stock, and a cash dividend of $0.42782 per share on the Class B Common Stock for the fiscal year ended March 31, 2007, in each case payable to holders of record on May 25, 2007, which was paid on June 1, 2007. The merger agreement does not restrict the ability of the Company to continue to declare or pay dividends on its outstanding shares of Class A Common Stock (and distributions on our units of income deposit securities) and Class B Common Stock in accordance with its stated dividend policy; provided, however that if the merger is consummated on or prior to November 30, 2007, the Company will not pay any dividends on its shares of Class A Common Stock that in accordance with its stated dividend policy would otherwise be payable on December 1, 2007.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

As of July 1, 2007, there were 29,263,595 shares of Class A Common Stock and 23,374,450 shares of Class B Common Stock issued and outstanding. The following table sets forth certain information, as of July 1, 2007, regarding the beneficial ownership of the Class A Common Stock and Class B Common Stock by: (i) each of the Company’s directors, (ii) each of the Named Executive Officers, (iii) all of the Company’s directors and the Named Executive Officers as a group and (iv) each beneficial owner of more than 5 percent of the Class A Common Stock or Class B Common Stock: