10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to

COMMISSION FILE NUMBER 1-13495

MAC-GRAY CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction incorporation or organization)	04-3361982 (I.R.S. Employer Identification No.)
404 WYMAN STREET, SUITE 400 WALTHAM, MASSACHUSETTS	02451-1212
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (781) 487-7600

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange On Which Registered
Common Stock, par value $.01 per share	New York Stock Exchange
Preferred Stock Purchase Rights	New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

         Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.305 of this chapter) during the preceding 12 months (or for such short period that the registrant was required to submit and post such files). Yes o    No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filer o Accelerated Filer ý Non-Accelerated Filer o
(Do not check if a smaller
reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

         The aggregate market value of the voting and non-voting stock of the registrant held by non-affiliates of the registrant as of June 30, 2009 was $120,090,057

         As of March 10, 2010, 13,772,326 shares of common stock of the registrant, par value $.01 per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrants' Proxy Statement for the Annual Meeting of Stockholders to be held on May 26, 2010, are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this report. Such Proxy Statement shall not be deemed to be "filed" as part of this Annual Report on Form 10-K, except for those parts therein which have been specifically incorporated by reference herein.

MAC-GRAY CORPORATION

Annual Report on Form 10-K

Table of Contents

		Page
Part I
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved SEC Staff Comments	10
Item 2.	Properties	10
Item 3.	Legal Proceedings	12
Item 4.	(Removed and Reserved)	12
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13
Item 6.	Selected Financial Data	14
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	39
Item 9A.	Controls and Procedures	39
Item 9B.	Other Information	40
Part III
Item 10.	Directors and Executive Officers of the Registrant	41
Item 11.	Executive Compensation	41
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
Item 13.	Certain Relationships and Related Transactions	42
Item 14.	Principal Accounting Fees and Services	42
Part IV
Item 15.	Exhibits, Financial Statements and Notes to Financial Statements	42

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PART I

Forward-Looking Statements

        Some of the statements made in this report under the captions "Risk Factors," "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report or in documents incorporated herein by reference are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as "anticipate," "assume," "believe," "estimate," "expect," "intend," and other similar expressions. Investors should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond the Company's control and which could materially affect actual results, performance or achievements. Factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements include, without limitation, the factors described under Item 1A, "Risk Factors." Investors should carefully review all of the factors described therein, which may not be an exhaustive list of the factors that could cause these differences.

Item 1.    Business

Overview

        On February 5, 2010, the Company sold its MicroFridge ® (Intirion Corporation) business to Danby Products. The following discussion excludes the financial results from our discontinued operations unless otherwise noted. The results from all prior periods have been reclassified to conform to this presentation.

        Unless the context requires otherwise, all references in this report to "we," "our," "Mac-Gray," the "Company," or "us" means Mac-Gray Corporation and its subsidiaries and predecessors.

        Mac-Gray Corporation was founded in 1927 and reincorporated in Delaware in 1997. Since its founding, Mac-Gray has grown to become the second largest laundry facilities management contractor in the United States. Through our portfolio of card- and coin-operated laundry equipment located in laundry facilities across the country, we provide laundry convenience to residents of multi-unit housing such as apartment buildings, condominiums, colleges and university residence halls, public housing complexes and hotels and motels. Based on our ongoing survey of colleges and universities, we believe that we are the largest provider of such services to the college and university market in the United States.

        We derive our revenue principally as a laundry facilities management contractor for the multi-unit housing industry. We manage laundry rooms under long-term leases with property owners, property management companies and colleges and universities. We refer to these leases as "laundry leases" or "management contracts" and this business as "laundry facilities management business." In 2009, 95% of our consolidated revenue from continuing operations was derived from our laundry facilities management business. As of December 31, 2009, our laundry facilities management business had revenue-generating laundry equipment operating in 43 states and the District of Columbia.

        Our laundry equipment sales business sells and services commercial laundry equipment manufactured by Whirlpool Corporation, Dexter Laundry Company, American Dryer Corporation and Primus Laundry Company. This business sells commercial laundry equipment primarily to retail laundromats, hotels and similar institutional users that operate their own on-premise laundry facilities. We refer to this business as our "commercial laundry equipment sales business."

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Laundry Facilities Management Business

        For the years ended December 31, 2008 and 2009, our laundry facilities management business accounted for approximately 94% and 95% of our total revenue from continuing operations, respectively, and 93% and 94% of our gross margin from continuing operations, respectively. Through our laundry facilities management business, we act as a laundry facilities management contractor with property owners or managers. We lease space within a property, in some instances improve the leased space with flooring, ceilings and other improvements ("betterments") and then install and service the laundry equipment and collect the payments. The property owner or manager is usually responsible for maintaining, cleaning, and securing the premises and payment of utilities. Under our long-term leases, we typically receive the exclusive right to provide and service laundry equipment within a multi-unit housing property in exchange for a negotiated percentage of the total revenue collected. We refer to this percentage as "facilities management rent." In each of the past five years, we have retained approximately 97% of our equipment base per year. Our gross additions to our equipment base for each of the years ended December 31, 2008 and 2009 through internally generated growth equaled 3% and 2%, respectively. Our additions, net of lost business, were 0% for the year ended December 31, 2008 and -1% for the year ended December 31, 2009. The machine base not retained is primarily attributable to contracts the Company has chosen not to renew due to unacceptable profit margins,(including some acquired contracts that did not meet our performance criteria,) and to a lesser degree, to property owners who chose to self-operate. We believe that our ability to retain our existing equipment base and grow it through internally generated growth in equipment installations is indicative of our service of, and attention to, property owners and managers. We also provide our customers with proprietary technologies such as LaundryView™, LaundryLinx™ and our Client Resource Center, and we continue to invest in research and development of such technologies. We generally have the ability to set and adjust the vend pricing for our equipment based upon local market conditions.

        We have centralized our administrative and marketing operations at our corporate headquarters in Waltham, Massachusetts. We also operate sales and/or service centers in Alabama, Arizona (two locations), Colorado, Connecticut, Florida (two locations), Georgia, Illinois, Louisiana, Maine, Maryland, Massachusetts (two locations), New Jersey, New Mexico, New York (two locations), North Carolina, Oregon, Tennessee (two locations), Texas (four locations), Utah, Virginia, and Washington.

        We also generate revenue by leasing equipment to laundry customers who choose neither to purchase equipment nor to become a laundry facilities management customer, but instead wish to maintain their own laundry rooms. This leasing business generated revenue of $5 million for each of the years ended December 31, 2008 and 2009, and is included in the laundry facilities management business.

        Our laundry facilities management business has certain intrinsic characteristics in both its industry and its customer base, including the following:

        Revenue.    We operate as a laundry facilities management contractor under long-term leases and other arrangements with property owners or managers. Our efforts are designed to maintain these customer relationships over the long-term. Our typical leases have an initial average term of approximately seven years, with the potential to renew if mutually agreed upon by us and the owner or manager. Renewal of a lease usually involves renegotiated terms and new equipment. In each of the past five years, we have retained contracts representing approximately 97% of our equipment base per year.

        Customers.    As of February 1, 2010, we provided laundry equipment and related services to approximately 88,000 laundry rooms located in 43 states throughout the continental United States and the District of Columbia. As of February 1, 2010, no customer contract accounted for more than 1% of our laundry facilities management revenue. We serve customers in multi-unit housing facilities,

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including apartment buildings, college and university residence halls, condominiums, public-housing complexes and hotels and motels.

        Seasonality.    We experience moderate seasonality as a result of our operations in the college and university market. Revenues derived from the college and university market represented approximately 13% of the laundry facilities management revenue for 2009. Academic facilities management revenue is derived substantially during the school year in the first, second and fourth calendar quarters. Conversely, during the third calendar quarter when most colleges and universities are not in session, the Company increases its operating and capital expenditures when it has its greatest product installation activities.

        Competition.    The laundry facilities management industry is highly competitive, capital intensive and requires the delivery of reliable and prompt services to customers. We believe that customers consider a number of factors in selecting a laundry facilities management contractor, such as customer service, reputation, facilities management rent rates (including incentives,) advance rents, range of products and services, and technology. We believe that different types of customers assign varied weight to each of these factors and that no one factor alone determines a customer's selection of a laundry facilities management contractor. Within any given geographic area, we may compete with local independent operators, regional and multi-regional operators. The industry is highly fragmented; consequently, we have grown by acquisitions, as well as through new equipment placement. We believe that we are the second largest laundry facilities management contractor in North America.

        Impact of Occupancy Rates.    Our laundry facilities management revenue is affected by apartment and condominium occupancy rates. Occupancy rates in the multi-unit housing industry are affected by several factors. These factors include local economic conditions, local employment levels, mortgage interest rates as they relate to first-time homebuyers, and the supply of apartments in specific markets. We are somewhat protected from revenue decreases caused by declining occupancy rates due to the variation of markets served, the various types of multi-unit housing facilities therein, and the percentage of revenue derived from colleges and universities. We monitor independent market research data regarding trends in occupancy rates in our markets to better understand laundry facilities revenue trends and variations.

        Suppliers.    We currently purchase a large majority of the equipment that we use in our laundry facilities management business from Whirlpool Corporation ("Whirlpool".) In addition, we derive a portion of our revenue from our position as a distributor of Whirlpool manufactured appliances. We have maintained a relationship with Whirlpool and its predecessor, Maytag Corporation, since 1927. Either party upon written notice may terminate the purchase and distribution agreements. A termination of, or substantial revision of the terms of, the contractual arrangements or business relationships with Whirlpool could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.

Commercial Laundry Equipment Sales and Services Business

        Through our commercial laundry equipment sales and services business, we are a significant distributor for several commercial laundry equipment manufacturers, primarily Whirlpool. We do not manufacture any of the commercial laundry equipment that we sell. As an equipment distributor, we sell commercial laundry equipment to public retail laundromats, as well as to the multi-unit housing industry. In addition, we sell commercial laundry equipment directly to institutional purchasers, including hospitals and hotels, for use in their own on-premise laundry facilities. We are certified by the manufacturers to service the commercial laundry equipment that we sell. Installation and repair services are provided on an occurrence basis, not on a contractual basis. Related revenue is recognized at the time the installation service, or other service, is provided to the customer. For the years ended

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December 31, 2008 and 2009, our commercial laundry equipment sales business accounted for approximately and 6% and 5%, respectively, of our total revenue.

Employee Base

        As of February 22, 2010, the Company employed 879 full-time employees. No employee is covered by a collective bargaining agreement and the Company believes that its relationship with its employees is good.

Operating Characteristics

        We maintain a corporate staff as well as centralized finance, human resources, legal services, information technology, marketing and customer service departments. Regionally, we maintain service centers and warehouses staffed by local management, service technicians, collectors and inventory handlers.

Backlog

        Due to the nature of our laundry facilities management business, backlogs do not exist. There is no significant backlog of orders in our commercial laundry equipment sales business.

Contact Information

        We file our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K with the Securities and Exchange Commission, or "SEC." Our reports filed with the SEC are available at the SEC's website at www.sec.gov and the Company's website at www.macgray.com. The information contained on our website is not included as a part of, or incorporated by reference into, this annual report on Form 10-K.

        Our corporate offices are located at 404 Wyman Street, Suite 400, Waltham, Massachusetts, 02451-1212. Our telephone number is (781) 487-7600, its fax number is (781) 487-7606, and our email address for investor relations is ir@macgray.com.

Item 1A.    Risk Factors

        This annual report on Form 10-K contains statements, some of which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain projections of our future results of operations or financial position or state other forward-looking information. In some cases you can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Some of the factors that might cause these differences are as follows:

If we are unable to establish new laundry facility management leases, renew our existing laundry facility management leases or retain relationships with our customers who are not subject to leases, our business, results of operations, cash flows and financial condition could be adversely affected.

        Our laundry facilities management business, which provided 95% of our total revenue from continuing operations for the year ended December 31, 2009, is highly dependent upon the renewal of leases with property owners and property management companies. Approximately 90% to 92% of our

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leases provide for an average initial term of seven years. Approximately 8% to 10% of our laundry room leases are up for renewal each year. We have traditionally relied upon exclusive, long-term leases with our customers, as well as frequent customer interaction and an emphasis on customer service, to assure continuity of financial and operating results. We cannot guarantee that in the future we will be able to establish long-term leases with new customers or renew existing long-term leases as they expire on favorable terms, or at all.

        Failure by us to continue to establish long-term leases with new customers, or to successfully renew existing long-term leases as they expire, could have a material adverse effect on our business, results of operations, cash flows and financial condition. Further, approximately 10% of our customers are not subject to leases, are subject to short-term leases of less than one year remaining, or have the right to terminate their lease with us at their option. Failure to retain these customers could have a material adverse effect on our business, results of operations, cash flows and financial condition.

We face strong competition in the outsourced laundry facilities management industry.

        The outsourced laundry facilities management industry is highly competitive, and we compete for long-term leases, both locally and nationally, with property owners and other operators in the industry. We compete based on customer service, reputation, facilities management rent rates, incentive payments and a range of products and services. Smaller local and regional operators typically have long-standing relationships with property owners and managers in their specific geographic market. As such, we may have difficulty penetrating such markets, as property owners and managers may be resistant to terminating such long-standing relationships. We also compete with property owners, as there is no guarantee that property owners will continue to outsource their laundry facilities management to operators. There is one competitor in the industry, Coinmach Corporation, with a larger installed equipment base than us. Competition in the industry may make it more difficult and more expensive to consummate acquisitions in the future and to maintain and expand our installed equipment base. In addition, some of our competitors may have less indebtedness than we do, and therefore more of their cash is potentially available for business purposes other than debt service. We cannot assure you that our results of operations, cash flows or financial condition will not be materially and adversely affected by competition, or that we will be able to maintain our profitability if the competitive environment changes.

If we are unable to continue our relationships with Whirlpool Corporation and other equipment suppliers, our revenues could be reduced, and our ability to meet customer requirements could be materially and adversely affected.

        We purchase a large majority of the equipment that we use in our laundry facilities management business from Whirlpool. In addition, we derive a portion of our commercial laundry equipment sales revenue from our position as a distributor of Whirlpool commercial laundry products. We cannot assure you that Whirlpool will continue its relationship with us. If Whirlpool terminates its relationship with us, our results of operations, cash flows and financial condition could be materially and adversely affected, and further, we may be unable to replace our relationship with Whirlpool with a comparable manufacturer on favorable terms, or at all.

A decrease in multi-unit housing sector occupancy rates in the markets in which we conduct business could adversely affect our laundry facilities management revenue.

        Our laundry facilities management revenue from our operation of card- and coin-operated laundry equipment, particularly in the multi-unit housing sector, depends partially upon the level of tenant occupancy. The number of apartments occupied in an apartment building with a vended laundry facility directly affects our revenue. Extended periods of reduced occupancy in our clients' buildings could

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adversely affect our operations. The level of occupancy can be adversely affected by many market and general economic conditions, all of which are beyond our control, including:

•

economic recessions and increases in the unemployment rate;

•

increases in foreclosure rates among multi-housing units;

•

mortgage interest rates as they apply to first-time homebuyers;

•

oversupply of apartments; and

•

conversion of apartment units to condominiums with in-unit laundry hookups.

Our cash flows may not be sufficient to finance the significant capital expenditures required to replace equipment, implement new technology, or make incentive payments to property managers.

        We must continue to make capital expenditures in order to maintain and replace our installed equipment base and implement new technology in our equipment. We must also make incentive payments to some property managers in order to secure new laundry leases and renew existing laundry leases. We cannot assure you that our resources or cash flows will be sufficient to finance anticipated capital expenditures and incentive payments for at least the next year. To the extent that available resources are insufficient to fund our capital needs, we may need to raise additional funds through public or private financings or curtail certain expenditures. These financings may not be available on favorable terms, or at all, and, in the case of equity financings, could result in dilution to stockholders. If we cannot maintain or replace our equipment as required or implement our new technologies, our results of operations, cash flows and financial condition could be materially and adversely affected.

If we are unable to comply with our debt service requirements under existing or future indebtedness, our indebtedness could become payable immediately.

        Our current financing agreements require us to meet certain financial covenants. If we are unable to meet those requirements, our indebtedness could become immediately due and payable. If our debt were accelerated we would need to refinance or restructure our debt agreement as our current cash flow would be inadequate to retire our debt, which we may not be able to consummate on commercially reasonable terms, or at all.

If we are unable to access capital on acceptable financial terms, our ability to consummate acquisitions will be limited.

        The success of our long-term growth strategy is partially dependent upon our ability to identify, finance and consummate acquisitions on acceptable financial terms. Access to capital is subject to the following risks:

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use of common stock as acquisition consideration may result in dilution to stockholders;

•

if our common stock does not maintain a sufficient valuation or if potential acquisition candidates are unwilling to accept shares of our common stock, then we would be required to increase our use of cash resources or other consideration to consummate acquisitions;

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if we are unable to generate sufficient cash for acquisitions from existing operations, we will not be able to consummate acquisitions unless we are able to obtain additional capital through external financings, which we may not be able to consummate on commercially reasonable terms, or at all;

•

funding future acquisitions through debt financings would result in additional leverage; and

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•

the agreements governing our indebtedness include significant limitations on our ability to borrow money for acquisitions and other purposes and, as a result, we may not be able to take advantage of acquisition opportunities.

We may have difficulties integrating future acquisitions into our business.

        We have in the past, and intend to in the future, engage in acquisitions to continue the expansion of our laundry facilities management business. The failure to successfully complete the integration of any acquisition would adversely affect our business and results of operations.

        Any future acquisitions could involve numerous risks, including:

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potential disruption of our ongoing business and distraction of management;

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difficulty integrating the operations of the acquired businesses;

•

unanticipated expenses related to equipment, maintenance and technology integration;

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exposure to unknown liabilities, including litigation against the companies that we may acquire;

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additional costs due to entering new geographic locations and duplication of key talent;

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potential loss of key employees or customers of the acquired businesses;

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the inability to achieve anticipated synergies or increase the revenue and profit of the acquired business; and

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the expenditure of a disproportionate amount of money and time integrating acquired businesses, particularly operations located in new geographic regions and operations involving new lines of business.

        We may not be successful in addressing these risks or any other problems encountered in connection with any acquisitions.

Our internal controls over financial reporting may not be adequate and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

        Section 404 of the Sarbanes-Oxley Act of 2002 requires a reporting company such as ours to, among other things, annually review its internal controls over financial reporting, and evaluate and disclose changes in its internal controls over financial reporting quarterly. If we are not able to achieve and maintain adequate compliance, or our independent auditors are not able to certify as to the effectiveness of our internal control over financial reporting, we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could adversely affect our results of operations and financial condition.

Inability to protect our trademarks and other proprietary rights could adversely impact our competitive position.

        We rely on patents, copyrights, trademarks, trade secrets, confidentiality provisions and employee and third party non-disclosure and non-solicitation agreements to establish and protect our intellectual property and proprietary rights. We cannot be certain that steps we have taken to protect our intellectual property and proprietary rights will be adequate or that third parties will not infringe or misappropriate any of our intellectual property or proprietary rights. While we have periodically made

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filings with the U.S. Patent and Trademark Office, we have traditionally relied upon the protections afforded by contract rights and common law ownership rights, and we cannot assure you that these contract rights and common law ownership rights will adequately protect our intellectual property and proprietary rights. Any infringement or misappropriation of our intellectual property and proprietary rights could damage their value and could have a material adverse effect on our business, results of operations and financial condition. We may have to engage in litigation to protect our rights to our intellectual property and proprietary rights, which could result in significant litigation expenses and require a significant amount of management's time.

        We own or license several registered and unregistered trademarks, including Mac-Gray®, Web®, Hof™, Automatic Laundry Company™, Intelligent Laundry®, LaundryView®, LaundryLinx™, PrecisionWash™, TechLinx™, VentSnake™, LaundryAudit™ and e-issues™ that we use in the marketing and sale of our products. However, the degree of protection that these trademarks afford us is unknown and these trademarks may expire or be terminated. In the event that someone infringes on or misappropriates our trademarks, the brand images and reputation that we have developed could be damaged, which could have a material adverse effect on our business, results of operations and financial condition.

We are dependent on key personnel, and the loss of any of our key personnel could have a material adverse effect on our business, results of operations and financial condition.

        Our continued success will depend largely on the efforts and abilities of our executive officers, management teams and other key employees. The loss of any of these officers or other key employees could result in inefficiencies in our operations, lost business opportunities or the loss of one or more customers.

Our financial results have been and could further be negatively impacted by impairments of goodwill or other intangible assets required by the application of existing or future accounting policies or interpretations of existing accounting policies.

        The Company assesses goodwill for impairment at least annually and whenever events or circumstances indicate that the carrying amount of the goodwill may be impaired. Important factors that could trigger an impairment review include significant under-performance relative to historical or projected future operating results; significant negative industry or economic trends; and the Company's market capitalization relative to its book value. The Company evaluated its goodwill for impairment as of December 31, 2009. The goodwill impairment review consists of a two-step process of first assessing the fair value and comparing to the carrying value. If this fair value exceeds the carrying value, no further analysis or goodwill impairment charge is required. If the fair value is below the carrying value, we would proceed to the next step, which is to measure the amount of the impairment loss. The impairment loss is measured as the difference between the carrying value and implied fair value of goodwill. Any such impairment loss would be recognized in the Company's results of operations in the period the impairment loss arose. Any charge could have a significant negative effect on our reported earnings. In addition, our financial results could be negatively impacted by the application of existing and future accounting policies or interpretations of existing accounting policies.

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We face risks associated with environmental regulation.

        Our businesses and operations are subject to federal, state and local environmental laws and regulations, including those governing the discharge of pollutants, the handling, generation, storage and disposal of hazardous materials, substances and wastes and the cleanup of contaminated sites. In connection with current or historical operations by us or at our sites, we could incur substantial costs, including clean-up costs, fines and civil or criminal sanctions, and third-party claims for property damage or personal injury, as a result of violations of, or liabilities under, environmental laws and regulations. While we are not aware of any existing or potential environmental claims against us that are likely to have a material adverse effect on our business or financial condition, we cannot guarantee you that we will not in the future incur liability or other costs under environmental laws and regulations that could have a material adverse effect on our business or financial condition.

We are controlled by a concentrated group of stockholders, whose interests could be in conflict with yours.

        As of December 31, 2009, our directors, executive officers, and certain of our stockholders related to such persons and their affiliates beneficially owned in the aggregate approximately 33.1% of the outstanding shares of our common stock (See Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters" below). This percentage ownership does not include options to purchase 1,089,881 shares of our common stock held by some of these persons, which options were exercisable at, or within 60 days subsequent to, December 31, 2009. If all of these options had been exercised as of December 31, 2009, then these stockholders and their affiliates would have beneficially owned 38.1% of the outstanding shares of our common stock. Additionally, we are party to a shareholders' agreement, dated June 26, 1997, with some of these stockholders that gives them rights of first offer to purchase shares of our common stock offered for sale by another stockholder party thereto (See Item 13, "Certain Relationships and Related Transactions below.) As a result of this concentration in ownership, should these stockholders, act together, they have the ability to influence the outcome of the election of directors and all other matters requiring approval by a majority of stockholders. Circumstances may arise in which the interests of this group of stockholders could be in conflict with interests of other stockholders.

Provisions in our charter and bylaws, Delaware law, and the shareholders agreement could have the effect of discouraging takeovers.

        Specific provisions of our charter and bylaws, as described below and in Footnote 12 to the Consolidated Financial Statements; sections of the corporate law of Delaware; the shareholder agreement, and powers of our Board of Directors may discourage takeover attempts not first approved by the Board of Directors, including takeovers which some stockholders may deem to be in their best interests. The shareholder rights agreement described below could make it more difficult for a third party to acquire, or could discourage a third party from acquiring, us or a large block of our common stock without the support of our Board of Directors. These provisions and powers of the Board of Directors could delay or prevent the removal of incumbent directors or the assumption of control by stockholders, even if the particular removal or assumption of control would be beneficial to stockholders. These provisions and powers of the Board of Directors could also discourage or make more difficult a merger, tender offer or proxy contest, even if these events would be beneficial, in the short term, to the interests of some shareholders. The anti-takeover provisions and powers of the Board of Directors include, among other things:

•

the ability of our Board of Directors to issue shares of preferred stock and to establish the voting rights, preferences and other terms of such preferred stock;

•

a classified Board of Directors serving staggered three-year terms;

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•

the elimination of stockholder voting by written consent;

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the absence of cumulative voting for directors;

•

the removal of directors only for cause;

•

the vesting of exclusive authority in our Board of Directors to determine the size of the Board of Directors and, subject to the rights of holders of any series of preferred stock, if issued, to fill vacancies thereon;

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the vesting of exclusive authority in our Board of Directors, except as otherwise required by law, to call special meetings of stockholders;

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advance notice requirements for stockholder proposals and nominations for election to the Board of Directors;

•

ownership restrictions, under the corporate law of Delaware, with limited exceptions, upon acquirers including their affiliates and associates of 15% or more of its common stock; and

•

our entry into a shareholder rights agreement providing for the issuance of rights that will cause substantial dilution to a person or group of persons that acquires 15% or more of the common shares unless the rights are redeemed.

Item 1B.    Unresolved SEC Staff Comments.

        None.

Item 2.    Properties.

        Mac-Gray rents approximately 32,000 square feet in Waltham, Massachusetts that it uses as its corporate headquarters and which houses the Company's administrative and central services. At December 31, 2009, Mac-Gray leased the following regional facilities, which are largely operated as

10

sales and service facilities, although limited administrative functions are also performed at many of them:

Location	Approximate Square Footage		Expiration Date
Albany, New York		1,500		7/2012
Albuquerque, New Mexico		6,600		4/2011
Beltsville, Maryland		22,432		8/2012
Buda, Texas		7,000		1/2011
Buffalo, New York		10,000		9/2010
Carlstadt, New Jersey		17,094		5/2015
Charlotte, North Carolina		10,640		3/2013
Chesapeake, Virginia		6,430		7/2013
College Station, Texas		1,250		12/2010
Colorado Springs, Colorado		4,800		5/2011
Commerce City, Colorado		5,000		9/2010
Deerfield Beach, Florida		10,469		5/2010
Denver, Colorado		21,688		3/2013
East Brunswick, New Jersey		14,400		7/2010
East Hartford, Connecticut		14,900		5/2013
El Paso, Texas		6,250		3/2012
Eugene, Oregon		2,500		6/2010
Euless, Texas		10,000		4/2011
Grand Junction, Colorado		3,575		5/2011
Gurnee, Illinois		22,521		4/2011
Gurnee, Illinois		12,000		7/2011
Hendersonville, Tennessee		11,000		4/2010
Hollywood, Florida		16,494		9/2015
Houston, Texas		10,687		10/2010
Jessup, Maryland		10,361		3/2012
Lake City, Florida		1,125		4/2012
Lithia Springs, Georgia		10,675		2/2011
Lynnwood, Washington		17,467		6/2013
Madison, Tennessee		17,625		4/2017
Memphis, Tennessee		11,250		10/2014
Metairie, Louisiana		4,000		4/2011
Oklahoma City, Oklahoma		2,250		11/2010
Orlando, Florida		2,100		12/2012
Pelham, Alabama		9,000		4/2010
Phoenix, Arizona		25,920		4/2011
Portland, Oregon		10,000		3/2011
Riverview, Florida		17,518		4/2017
Salt Lake City, Utah		6,675		6/2013
Syracuse, New York		8,400		10/2013
Tucson, Arizona		6,265		4/2014
Walpole, Massachusetts		3,000		5/2011
Waltham, Massachusetts		32,000		11/2015
Westbrook, Maine		5,625		4/2017
Woburn, Massachusetts		40,000		2/2016

        All properties are primarily utilized for both the laundry facilities management and commercial laundry equipment sales businesses.

11

        We believe that our properties are generally well maintained and in good condition. We believe that our properties are adequate for present needs and that suitable additional or replacement space will be available as required.

Item 3.    Legal Proceedings

        From time to time, we are a party to litigation arising in the ordinary course of business. There can be no assurance that our insurance coverage will be adequate to cover any liabilities resulting from such litigation. In the opinion of management, any liability that we might incur upon the resolution of currently pending litigation will not, individually or in the aggregate, have a material adverse effect on our business, financial condition, results of operations or cash flows.

        Our business and operations are subject to federal, state and local environmental laws and regulations, including those governing the discharge of pollutants, the handling, generation, disposal and storage of hazardous materials and wastes, and the cleanup of contaminated sites. In connection with current or historical operations by us or at our sites, we could incur substantial costs, including clean-up costs, fines and civil or criminal sanctions, and third-party claims for property damage or personal injury, as a result of violations of, or liabilities under, environmental laws and regulations. We believe that our operations are in material compliance with applicable environmental laws and regulations.

Item 4.    (Removed and Reserved).

12

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        Our common stock is traded on the New York Stock Exchange, or NYSE, under the symbol "TUC."

        The following table sets forth the high and low sales prices for our common stock on the NYSE for the periods indicated.

	Year Ended December 31, 2008				Year Ended December 31, 2009
	High		Low		High		Low
First Quarter	$	12.89	$	10.60	$	7.62	$	4.60
Second Quarter	$	11.92	$	8.58	$	14.36	$	4.95
Third Quarter	$	12.75	$	9.77	$	13.79	$	9.57
Fourth Quarter	$	11.41	$	6.13	$	11.73	$	7.84

        As of March 9, 2010 there were 129 shareholders of record of our common stock.

        The Company's Board of Directors has approved the initiation of a quarterly dividend policy to commence in 2010. The first dividend under this new policy will be in the amount of $0.05 per share and payable on April 1, 2010 to shareholders of record of the Company's common stock as of the close of business March 1, 2010. The Company's Board of Directors has not previously paid dividends on any of its shares of capital stock.

        For information related to our stock option plans and employee stock purchase plans, see Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" below.

13

Item 6.    Selected Financial Data (Dollars in thousands, except per share data)

        Set forth below are selected historical financial data as of the dates and for the periods indicated. The selected financial data set forth below should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of Mac-Gray and the notes thereto included elsewhere in this report.

			Years Ended December 31,
			2005(1)			2006			2007(2)			2008(3)			2009
Statement of Income Data:
Revenue from continuing operations			$	230,110		$	248,917		$	262,484		$	327,229		$	325,924
Cost of revenue				184,633			201,988			214,705			271,681			270,832
Operating expenses:
	General and administration			12,341			16,346			16,381			18,341			17,819
	Sales and marketing			12,722			13,361			13,097			14,970			14,249
	Incremental costs of proxy contest			—			—			—			—			971
	Depreciation and amortization			1,082			1,473			1,491			1,614			1,600
	Gain on sale of assets			(11,370	)		(32	)		(302	)		(69	)		(648	)
	Loss on early extinguishment of debt			668			73			—			207			—
	Impairment of assets			—			2,502			—			—			—
		Total operating expenses		15,443			33,723			30,667			35,063			33,991
Income from continuing operations				30,034			13,206			17,112			20,485			21,101
	Interest expense, net			10,657			13,234			13,421			20,605			19,675
	(Gain) loss related to derivative instruments			(1,876	)		96			1,737			1,804			(893	)
Income (loss) from continuing operations before provision for income taxes				21,253			(124	)		1,954			(1,924	)		2,319
Provision for income taxes				11,217			(291	)		707			(758	)		1,278
Income (loss) from continuing operations, net				10,036			167			1,247			(1,166	)		1,041
Income from discontinued operations, net				2,016			689			1,272			1,707			1,074
Net income			$	12,052		$	856		$	2,519		$	541		$	2,115
Earnings (loss) per share—basic—continuing operations			$	0.78		$	0.01		$	0.09		$	(0.09	)	$	0.08
Earnings (loss) per share—diluted—continuing operations			$	0.76		$	0.01		$	0.09		$	(0.09	)	$	0.07
Earnings per share—basic—discontinued operations			$	0.16		$	0.05		$	0.10		$	0.13		$	0.08
Earnings per share—diluted—discontinued operations			$	0.15		$	0.05		$	0.09		$	0.13		$	0.08
Earnings per share—basic			$	0.94		$	0.07		$	0.19		$	0.04		$	0.16
Earnings per share—diluted			$	0.91		$	0.06		$	0.18		$	0.04		$	0.15
Weighted average common shares outstanding—basic				12,864			13,008			13,209			13,346			13,529
Weighted average common shares outstanding—diluted				13,283			13,448			13,680			13,346			13,940

14

		Years Ended December 31,
		2005(1)			2006			2007(2)			2008(3)			2009
Other Financial Data:
	EBITDA from continuing operations(4)		63,938			49,370			54,030			67,456			71,860
	Depreciation and amortization		32,028			36,260			38,655			48,775			49,866
	Capital expenditures(5)		25,844			25,332			26,711			24,313			21,341
	Cash flows provided by operating activities from continuing operations		37,338			35,957			43,202			55,735			60,720
	Cash flows used in investing activites from continuing operations		(119,715	)		(44,396	)		(72,944	)		(130,111	)		(20,074	)
	Cash flows provided by (used in) financing activities from continuing operations		86,904			9,416			31,073			79,887			(37,883	)
Balance Sheet Data (at end of period):
	Working capital from continuing operations		(7,799	)		(1,497	)		671			(2,203	)		(7,656	)
	Long-term debt and capital lease obligations, including current portion		166,678			177,068			208,521			301,292			263,868
	Long-term debt and capital lease obligations, net of current portion		165,493			175,823			207,169			295,821			258,325
	Total assets		324,917			339,004			383,537			490,004			464,276
	Stockholders' equity		88,601			91,640			97,844			97,964			104,535

(1)

Includes the results of operations of the western region laundry facilities management assets acquired on January 10, 2005 from Web Service Company, Inc. for approximately $113,000.

(2)

Includes the results of operations of the Maryland laundry facilities management assets acquired on August 8, 2007 from Hof Service Company, Inc. for approximately $43,000.

(3)

Includes the results of operations of the western and southern region laundry facilities management assets acquired on April 1, 2008 from Automatic Laundry Company, Ltd. for approximately $116,000.

(4)

EBITDA from continuing operations is defined as income from continuing operations before provision for income taxes, depreciation and amortization expense and interest expense. Adjusted EBITDA from continuing operations is EBITDA from continuing operations further adjusted to exclude the items described in the table below. We have excluded these items because we believe they are not reflective of our ongoing operating performance. EBITDA from continuing operations and Adjusted EBIDTA from continuing operations are included in this report because they are a basis upon which our management and Board of Directors assess our operating performance. EBITDA from continuing operations and Adjusted EBITDA from continuing operations are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity. The use of EBITDA from continuing operations and Adjusted EBITDA from continuing operations instead of net income has limitations as an analytical tool, including the exclusion of interest expense and depreciation and amortization expense, which represent significant and unavoidable operating costs given the level of indebtedness and the capital expenditures needed to maintain our business. Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA from continuing operations and Adjusted EBITDA from continuing operations only supplementally. Our management believes EBITDA from continuing operations and Adjusted EBITDA from continuing operations are useful to investors because they help enable investors to evaluate our business in the same manner as our management and because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies

15

with substantial financial leverage. Our measures of EBITDA from continuing operations and Adjusted EBITDA from continuing operations are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

(5)

Excludes $1,499, $1,776, $2,003, $1,774 and $1,628 in 2005, 2006, 2007, 2008, and 2009, respectively, of capital leases associated with vehicles acquired and used in the operation of the Company.

        The following is a reconciliation of income (loss) from continuing operations to EBITDA from continuing operations and Adjusted EBITDA from continuing operations:

		Years Ended December 31,
		2005(1)			2006			2007(2)		2008(3)			2009
Income (loss) from continuing operations, net		$	10,036		$	167		$	1,247	$	(1,166	)	$	1,041
Income from discontinued operations, net			2,016			689			1,272		1,707			1,074
Net income		$	12,052		$	856		$	2,519	$	541		$	2,115
Net income (loss) from continuing operations		$	10,036		$	167		$	1,247	$	(1,166	)	$	1,041
	Add:
	Provision for income taxes		11,217			(291	)		707		(758	)		1,278
	Cost of revenue depreciation and amortization expense		30,946			34,787			37,164		47,161			48,266
	Operating expense depreciation and amortization expense		1,082			1,473			1,491		1,614			1,600
	Interest expense, net		10,657			13,234			13,421		20,605			19,675
	EBITDA from continuing operations(4)		63,938			49,370			54,030		67,456			71,860
Add (Subtract):
	Gain on sale of certain assets, net		(10,767	)(9)		—			—		—			(403	)(10)
	Stock compensation expense		—			883			1,755		2,242			2,344
	Impairment of assets(5)		—			2,502			—		—			—
	(Gain) loss related to derivative instruments(6)		(1,876	)		96			1,737		1,804			(893	)
	Loss related to 2005 hurricanes(7)		316			—			—		—			—
	Loss on early extinguishment of debt(8)		668			73			—		207			—
	Incremental costs of 2009 proxy contest		—			—			—		—			971
Adjusted EBITDA from continuing operations(4)		$	52,279		$	52,924		$	57,522	$	71,709		$	73,879

(1)

Includes the results of operations of the western region laundry facilities management assets acquired on January 10, 2005 from Web Service Company, Inc. for approximately $113,000.

(2)

Includes the results of operations of the Maryland laundry facilities management assets acquired on August 8, 2007 from Hof Service Company, Inc. for approximately $43,000.

(3)

Includes the results of operations of the western and southern region laundry facilities management assets acquired on April 1, 2008 from Automatic Laundry Company, Ltd. for approximately $116,000.

(4)

EBITDA from continuing operations is defined as income from continuing operations before provision for income taxes, depreciation and amortization expense and interest expense. Adjusted EBITDA from continuing operations is EBITDA from continuing operations further adjusted to exclude the items described in the table above. We have excluded these items because we believe they are not reflective of our ongoing operating performance. EBITDA from continuing operations and Adjusted EBIDTA from continuing operations are included in this report because they are a

16

basis upon which our management and Board of Directors assess our operating performance. EBITDA from continuing operations and Adjusted EBITDA from continuing operations are not measures of our liquidity or financial performance under GAAP and should not be considered as alternatives to net income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flows from operating activities as a measure of our liquidity. The use of EBITDA from continuing operations and Adjusted EBITDA from continuing operations instead of net income has limitations as an analytical tool, including the exclusion of interest expense and depreciation and amortization expense, which represent significant and unavoidable operating costs given the level of indebtedness and the capital expenditures needed to maintain our business. Management compensates for these limitations by relying primarily on our GAAP results and by using EBITDA from continuing operations and Adjusted EBITDA from continuing operations only supplementally. Our management believes EBITDA from continuing operations and Adjusted EBITDA from continuing operations are useful to investors because they help enable investors to evaluate our business in the same manner as our management and because they are frequently used by securities analysts, investors and other interested parties in the evaluation of companies with substantial financial leverage. Our measures of EBITDA from continuing operations and Adjusted EBITDA from continuing operations are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.

(5)

Represents a pre-tax charge associated with our former reprographics business unit.

(6)

The (gain) loss related to derivative instruments is the consequence of interest rate swaps which had previously qualified for hedge accounting no longer qualifying for such treatment as a result of a separate and distinct refinancing of our credit facility in 2005. The paying down of the term loan with the proceeds from the sale of Intirion will result in additional derivative instruments no longer qualifying for hedge accounting treatment. For interest rate swaps that do qualify as hedged instruments, changes in mark to market will continue to be recorded in Other Comprehensive Income and not in the income statement. Including the fluctuation in the fair value of the derivative instruments in the reconciliation of net income as reported to net income as adjusted allows for a more consistent comparison of the operating results of the Company. The fair value of the derivatives is ultimately zero at the time of settlement. Thus, over the life of the derivative instruments the net impact to the Company's operating results will be zero as any income or loss recorded in prior periods will be reversed in subsequent periods.

(7)

Represents a loss of fixed assets and inventory incurred during the hurricanes of 2005.

(8)

Each of the losses on early extinguishment of debt resulted from separate and distinct refinancings of our senior credit facility in 2005, 2006 and 2008 and is not related to the performance of the Company's business. Each of the losses reflects only the unamortized cost of the prior bank financing which had been allocated to banks which did not participate in the replacement financing agreement. Because the losses were triggered by refinancings of our senior credit facility and the Company does not currently expect further refinancings of the facility prior to its maturity in 2013, management believes that the impact of this item on the Company's financial results will not continue beyond 2008.

(9)

Represents a pretax gain recognized in connection with the sale of a facility in Cambridge, Massachusetts on June 30, 2005.

(10)

Represents a pretax gain recognized in connection with the sale of a facility in Tampa, Florida on January 2, 2009.

17

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Continuing Operations. (Dollars in thousands)

        The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes thereto presented elsewhere in this report.

        This report contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. These forward-looking statements reflect our current views about future events and financial performance. Investors should not rely on forward-looking statements because they are subject to a variety of factors that could cause actual results to differ materially from our expectations. Factors that could cause, or contribute to such differences include, without limitation, the factors described under Item 1A "Risk Factors."

        Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, and accordingly, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations or financial condition. In view of these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

        Mac-Gray was founded in 1927 and re-incorporated in Delaware in 1997. We derive our revenue principally as a laundry facilities management contractor for the multi-unit housing industry. We also derive revenue through the sales of commercial laundry equipment primarily to public retail laundromats, as well as to the multi-unit housing industry. In addition, we sell commercial laundry equipment directly to institutional purchasers, including hospitals and hotels, for use in their own on-premise laundry facilities. Our core business model is built on a stable demand for laundry services, combined with long-term leases, strong customer relationships, a broad customer base and predictable capital needs. For the years ended December 31, 2008 and 2009, our total revenue was $327,229 and $325,924, respectively. Approximately 94% and 95% of our total revenue for these periods, respectively, was generated by our laundry facilities management business. We generate laundry facilities management revenue primarily through long-term leases with property owners or property management companies granting us the exclusive right to install and maintain laundry equipment in common area laundry rooms within their properties, in exchange for a negotiated portion of the revenue we collect. As of December 31, 2009, approximately 90% of our installed machine base was located in laundry facilities subject to long-term leases, with a weighted average remaining term of approximately five years. Our capital costs are typically incurred in connection with new or renewed leases, and include investments in laundry equipment and card- and coin-operated systems, incentive payments to property owners or property management companies and/or expenses to refurbish laundry facilities. Our capital expenditures consist of a large number of relatively small amounts associated with our entry into or renewal of leases. Accordingly, our capital needs are predictable and largely within our control. For the years ended December 31, 2008 and 2009, we incurred approximately $24,300 and $21,300 of capital expenditures, respectively. In addition, we make incentive payments to property owners and property management companies to secure our lease arrangements. We paid $4,465 and $1,807 in incentive payments in the years ended December 31, 2008 and 2009, respectively.

        In addition, through our Commercial Laundry Equipment Sales business, we generate revenue by selling commercial laundry equipment For the years ended December 31, 2008 and 2009, our Commercial Laundry Equipment Sales business accounted for approximately 6% and 5% of our total revenue, respectively, and less than 1% of our gross margin, for both 2008 and 2009.

18

        Our financial objective is to maintain and enhance profitability by retaining existing customers, adding customers in areas in which we currently operate, selectively expanding our geographic footprint and density through acquisitions, and controlling costs. One of the key challenges we face is maintaining and expanding our customer base in a competitive industry. We experience competition from other industry participants, including national, regional and local laundry facilities management operators and from property owners and property management companies who self-operate their laundry facilities. We devote substantial resources to our marketing and sales efforts and we focus on continued innovation in order to distinguish us from competitors. Approximately 8% to 10% of our laundry room leases are up for renewal each year. Over the past five calendar years, we have been able to retain, on average, approximately 97% of our total installed equipment base each year. Our gross additions to our equipment base for each of the years ended December 31, 2008 and 2009 through internally generated growth equaled 3% and 2%, respectively. Our additions, net of lost business, were 0% for the year ended December 31, 2008 and -1% for the year ended December 31, 2009. The machine base not retained is primarily attributable to contracts the Company has chosen not to renew due to unacceptable profit margins, (including some acquired contracts that did not meet our performance criteria,) and to a lesser degree, to property owners who chose to self-operate.

        On January 4, 2010, the Company entered into an interest rate swap agreement to manage the interest rate risk associated with its debt. The swap agreement effectively converts a portion of our fixed rate senior notes to a variable rate. Under this agreement, we receive the fixed rate on our senior notes (7.625%) and pay a variable rate of LIBOR plus the applicable margin charged by the banks.

        On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The transaction is valued at approximately $11,500. Danby Products paid Mac-Gray $8,500 in cash, and assumed existing liabilities and financial obligations for MicroFridge totaling approximately $3,000. The discontinued operations are related solely to the sale of MicroFridge® (Intirion Corporation). Concurrent with this transaction, the Company paid $8,000 on its Secured Term Loan.

        On February 5, 2010, the Company's Board of Directors approved the initiation of a quarterly dividend policy for its common stock. The Company declared a dividend of $0.05 per share payable on April 1, 2010 to shareholders of record of the Company's common stock as of the close of business on March 1, 2010.

Results of Continuing Operations (Dollars in thousands, except per share data)

        On February 5, 2010, the Company sold its MicroFridge ® (Intirion Corporation) business to Danby Products. The following discussion excludes the financial results from our discontinued operations unless otherwise noted. The information presented below for the years ended December 31, 2008 and 2009 is derived from Mac-Gray's consolidated financial statements and related notes included in this report.

Revenue from continuing operations

						2009 to 2008
		2008		2009		Increase (Decrease)			% Change
Laundry facilities management revenue		$	306,089	$	309,028	$	2,939			1	%
Commercial laundry equipment sales revenue			21,140		16,896		(4,244	)		(20	)%
	Total revenue from continuing operations	$	327,229	$	325,924	$	(1,305	)		0	%

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Fiscal year ended December 31, 2009 compared to fiscal year ended December 31, 2008

        Total revenue decreased by $1,305 or less than 1%, to $325,924 for the year ended December 31, 2009 compared to $327,229 for the year ended December 31, 2008.

        Laundry facilities management revenue.    Laundry facilities management revenue increased by $2,939, or 1%, to $309,028 for the year ended December 31, 2009 compared to $306,089 for the year ended December 31, 2008. The increase in revenue is the net of an increase of $10,682 attributable to the laundry facilities management businesses acquired in 2008, offset by a decline of $7,743 resulting from reduced usage of the Company's equipment in apartment building laundry rooms as a result of increased apartment vacancy rates in some markets. To a lesser extent, the decrease in revenue is attributable to the termination of contracts we have chosen not to renew, partially offset by the Company's vend increase program. We expect vacancy rates to continue to have a negative impact on our facilities management business in 2010. We track the change in revenue month over month and quarter over quarter in our markets to better understand the revenue trend for our multi-family housing customers. This analysis is used to enable us to respond to changing trends in different geographic markets and to enable us to better allocate capital spending.

        Commercial laundry equipment sales revenue.    Revenue in the commercial laundry equipment sales business decreased $4,244, or 20%, to $16,896 for the year ended December 31, 2009 compared to $21,140 for the year ended December 31, 2008. One single transaction accounted for $1,718, or 8% of the revenue in 2008. Sales in the commercial laundry equipment sales business are sensitive to the strength of the local economy, consumer confidence, local permitting and the availability and cost of financing to small businesses, and therefore, tend to fluctuate from period to period. We anticipate that tight credit markets will continue to make obtaining financing a challenge for some potential customers.

Cost of revenue

        Cost of laundry facilities management revenue.    Cost of laundry facilities management revenue includes rent paid to customers as well as costs associated with installing and servicing machines, costs of collecting, counting, and depositing facilities management revenue and the costs of delivering and servicing rented facilities management equipment. Cost of laundry facilities management revenue increased $1,681, or 1%, to $208,914 for the year ended December 31, 2009, as compared to $207,233 for the year ended December 31, 2008. The increase is due primarily to the $803 increased rent associated with the increase in facility management revenue resulting from the facilities management business we acquired from Automatic Laundry Company, Ltd. ("ALC") on April 1, 2008 as well as increased employee health insurance costs of $1,590. These increases were offset by cost control measures implemented by the Company. As a percentage of facilities management revenue, cost of facilities management revenue was 68% for each of the years ended December 31, 2009 and 2008. Facilities management rent as a percentage of facilities management revenue was 48% and 49% for the years ended December 31, 2009 and 2008, respectively. Facilities management rent can be affected by new and renewed laundry leases, lease portfolios acquired and by other factors such as the amount of incentive payments and laundry room betterments invested in new or renewed laundry leases. As we vary the amount invested in a facility, the facilities management rent as a function of facilities management revenue can vary. Incentive payments and betterments are amortized over the life of the related lease.

        Depreciation and amortization related to operations.    Depreciation and amortization related to operations increased by $1,105, or 2%, to $48,266 for the year ended December 31, 2009 as compared to $47,161 for the year ended December 31, 2008. The increase in depreciation and amortization for the year ended December 31, 2009 as compared to the same period in 2008 is primarily attributable to having a full year of depreciation and amortization in 2009 associated with the contract rights and equipment we acquired as part of our acquisition of a facilities management business on April 1, 2008

20

compared to only nine months of such depreciation and amortization in the comparable period in 2008. Laundry facilities management equipment and contract rights are depreciated and amortized using the straight-line method. In addition, due to management's decision not to recondition and redeploy equipment that is in need of significant repairs and is not as energy efficient as newer equipment, we disposed of certain laundry equipment in 2009 and 2008 that had a remaining net book value of $662 and $642, respectively. These costs are included in depreciation expense.

        Cost of commercial laundry equipment sales.    Cost of commercial laundry equipment sales consists primarily of the cost of laundry equipment and parts and supplies sold, as well as salaries, warehousing and distribution expenses. Cost of commercial laundry equipment sales decreased by $3,635, or 21%, to $13,652 for the year ended December 31, 2009 as compared to $17,287 for the year ended December 31, 2008. As a percentage of sales, cost of product sold was 81% for the year ended December 31, 2009 compared to 82% in 2008. The gross margin in the commercial laundry equipment sales business unit increased to 19% for the year ended December 31, 2009 as compared to 18% for the same period in 2008. The change in gross margin from period to period is primarily a function of the mix of products sold.

Operating expenses

General, administration, sales, marketing and depreciation and amortization expense. General, administration, sales, marketing and depreciation and amortization expense decreased by $286, or 1%, to $34,639 for the year ended December 31, 2009 as compared to $34,925 for the year ended December 31, 2008. Such decrease for the year ended December 31, 2009 includes incremental costs of our proxy contest of $971. Excluding these costs, the decrease would have been $1,257. As a percentage of total revenue, general, administration, sales, marketing, depreciation and amortization expense decreased to 10% for the year ended December 31, 2009 compared to 11% for the year ended December 31, 2008. The decrease in expenses for the year ended December 31, 2009 as compared to December 31, 2008 is primarily attributable to reduced personnel costs and a reduction in professional fees.

        Loss on early extinguishment of debt.    Effective April 1, 2008 and in conjunction with our acquisition of ALC, we amended our bank credit facilities. As a result of this amendment, a portion of the unamortized financing costs amounting to $207, which had been incurred as part of the prior credit facility, was expensed in 2008.

        Gain on sale of assets.    The gain on sale of assets is primarily attributable to the gain on the sale of our facility in Tampa, Florida in 2009. It has been our objective to sell all operating facilities and property, thus increasing our flexibility relating to facility costs and locations. The sale of the Tampa facility completes the disposal of Company owned properties. Gain on sale of assets also includes the gain from the sale of vehicles and other non-inventory assets in the ordinary course of business.

Income from continuing operations.

        Income from continuing operations increased by $616, or 3%, to $21,101 for the year ended December 31, 2009 as compared to $20,485 for the year ended December 31, 2008. Excluding loss on early extinguishment of debt and the gain on sale of real estate, income from continuing operations, as adjusted, would have been $20,692 for the year ended December 31, 2008, compared to $20,698 for the year ended 2009. We have supplemented the consolidated financial statements presented according to generally accepted accounting principles (GAAP), using a non-GAAP financial measure of adjusted income from continuing operations. Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's

21

consolidated financial statements prepared in accordance with GAAP. Management believes presentation of this measure is useful to investors to enhance an overall understanding of our historical financial performance and future prospects. Adjusted income from continuing operations, which is adjusted to exclude certain gains and losses from the comparable GAAP income from operations, is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for income from operations or other measures prepared in accordance with GAAP.

        A reconciliation of income from continuing operations in accordance with GAAP to income from operations, as adjusted, is provided below:

	Years ended December 31,
	2008		2009
Income from continuing operations	$	20,485	$	21,101
Loss on early extinguishment of debt(1)		207		—
Gain on sale of real estate(2)		—		(403	)
Income from continuing operations, as adjusted	$	20,692	$	20,698

(1)

The loss on early extinguishment of debt resulted from a refinancing of our senior credit facility and is not related to the performance of the Company's business. The loss reflects only the unamortized cost of the prior bank financing which had been allocated to banks which did not participate in the replacement financing agreement. Because the loss was triggered by a refinancing of the Company's senior credit facility and the Company does not currently expect further refinancings of the facility prior to its maturity in 2013, management believes that the impact of this item on the Company's financial results will not continue beyond 2008.

(2)

Represents a pretax gain recognized in connection with the sale of a facility in Tamp, Florida on January 2, 2009

Interest expense, net

        Interest expense, net of interest income, decreased by $1,096, or 5%, to $19,937 for the year ended December 31, 2009 as compared to $21,033 for the year ended December 31, 2008. The decrease is due to lower outstanding debt balances resulting from our concerted effort to reduce interest-bearing debt. Included in interest expense for the year ended December 31, 2008 is nine months interest on our debt resulting from the April, 2008 ALC acquisition. Included in the year ended December 31, 2009 is twelve months interest on our debt resulting from the ALC acquisition. Our average effective interest rates are not significantly affected by fluctuations in the market as a significant amount of our debt have fixed rates through our derivative instruments. Our average borrowing rate was 5.9% for the year ended December 31, 2009 as compared to 6.7% for the year ended December 31, 2008.

Gain or loss related to derivative instruments

        We are party to interest rate swap agreements which we entered into to hedge the interest rates on our debt. Certain of these swap agreements do not qualify as cash flow hedges. In accordance with the guidelines for accounting for derivatives, a non-cash gain of $893 and a non-cash loss of $1,804 have been charged to the income statement for the years ended December 31, 2009 and 2008, respectively.

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Provision for income taxes

        The provision for income taxes increased by $2,036, to an expense of $1,278 for the year ended December 31, 2009 compared to a benefit of $758 for the year ended December 31, 2008. The increase is primarily the result of positive income before the provision for income taxes in 2009 compared to a loss before the provision for income taxes in 2008. The effective tax rate for 2009 is 55.1%. The effective tax rate is comprised of the federal statutory rate of 34%, the state rate net of federal taxes of 11.7%, permanent book/ tax differences of 6.4% and changes to deferred rates and valuation reserves of 3.0%. The effective tax rate of 39.4% in 2008 was favorably impacted by an amendment to Massachusetts tax laws which reduced the Company's provision for income taxes by $198 and the release of reserves for uncertain tax positions of $204 in conjunction with the completion of the Internal Revenue Service tax audits through 2005.

Income from continuing operations, net

        As a result of the foregoing, income from continuing operations, net, increased by $2,207 to $1,041 for the year ended December 31, 2009 as compared to a loss of $1,166 for the year ended December 31, 2008. Income from continuing operations, net, as adjusted for the items in the table below, increased by $842 to $895 for the year ended December 31, 2009 as compared to $53 for the year ended December 31, 2008.

        A reconciliation of income from continuing operations, net, as reported to income from continuing operations, net, as adjusted is provided below:

	Years Ended December 31,
	2008			2009
Income (loss) from continuing operations, net, as reported	$	(1,166	)	$	1,041
Income from discontinued operations, net		1,707			1,074
Net income, as reported	$	541		$	2,115
Income (loss) from continuing operations before provision for income taxes, as reported	$	(1,924	)	$	2,319
Loss (gain) related to derivative instruments(1)		1,804			(893	)
Loss on early extinguishment of debt(2)		207			—
Gain on sale of real estate(3)		—			(403	)
Incremental costs of 2009 proxy contest		—			971
Income from continuing operations before provision for income taxes, as adjusted		87			1,994
Provision for income taxes, as adjusted		34			1,099
Income (loss) from continuing operations, net, as adjusted	$	53		$	895
Diluted earnings per share from continuing operations, net, as adjusted	$	0.00		$	0.06

(1)

Represents the unrealized loss on interest rate protection contracts, which do not qualify for hedge accounting treatment. The (gain) loss related to derivative instruments is the consequence of interest rate swaps which had previously qualified for hedge accounting no longer qualifying for such treatment as a result of a separate and distinct refinancing of our credit facility in 2005. Management does not expect its other interest rate swaps to fail to qualify for hedge accounting treatment in future periods because the Company does not currently expect further refinancings of the facility prior to its maturity in 2013. For interest rate swaps that do qualify as hedged instruments, changes in mark to market will continue to be recorded in Other Comprehensive Income and not in the income statement. Including the fluctuation in the fair value of the

23

derivative instruments in the reconciliation of net income as reported to net income as adjusted allows for a more consistent comparison of the operating results of the Company.

(2)

The loss on early extinguishment of debt resulted from a refinancing of our senior credit facility and is not related to the performance of the Company's business. The loss reflects only the unamortized cost of the prior bank financing which had been allocated to banks which did not participate in the replacement financing agreement. Because the loss was triggered by a refinancing of the Company's senior credit facility and the Company does not currently expect further refinancings of the facility prior to its maturity in 2013, management believes that the impact of this item on the Company's financial results will not continue beyond 2008.

(3)

Represents the sale of a facility in Tampa, Florida on January 2, 2009.

        To supplement the Company's consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, management has used a non-GAAP measure of net income. Management believes presentation of this measure is appropriate to enhance an overall understanding of our historical financial performance and future prospects. Adjusted income from continuing operations, net, which is adjusted to exclude certain gains and losses from the comparable GAAP income from continuing operations, net is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the primary indicators management uses as a basis for evaluating the Company's financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful to investors, potential investors and others.

        Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Income from Discontinued Operations, net

        Income from discontinued operations decreased by $633, or 37%, to $1,074 for the year ended December 31, 2009 as compared to $1,707 for the year ended December 31, 2008. Revenue from the discontinued operation decreased by $6,066 to $30,298 for the year ended December 31, 2009 as compared to $36,364 for the year ended December 31, 2008.

Fiscal year ended December 31, 2008 compared to fiscal year ended December 31, 2007

        The information presented below for the years ended December 31, 2007 and 2008 is derived from Mac-Gray's consolidated financial statements and related notes included in this report.

Revenue from continuing operations

						2008 to 2007
		2007		2008		Increase (Decrease)		% Change
Laundry facilities management revenue		$	242,803	$	306,089	$	63,286		26	%
Commercial laundry equipment sales revenue			19,681		21,140		1,459		7	%
	Total revenue from continuing operations	$	262,484	$	327,229	$	64,745		25	%

        Total revenue increased by $64,745, or 25%, to $327,229 for the year ended December 31, 2008 compared to $262,484 for the year ended December 31, 2007.

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        Laundry facilities management revenue.    Laundry facilities management revenue increased $63,286, or 26%, to $306,089 for the year ended December 31, 2008 compared to $262,484 for the year ended December 31, 2007. This increase is attributable to the revenue associated with the laundry facilities management businesses acquired on August 8, 2007 and April 1, 2008, which accounted for $14,407 and $46,904, respectively, of the total increase. Higher apartment vacancy rates, and consequently reduced usage of our equipment in some of our markets, eclipsed some of the growth in other of our markets. Management tracks apartment vacancy rates with independent geographical market data which generally corresponds with changes in equipment usage and related revenue.

        Commercial laundry equipment sales revenue.    Revenue in the commercial laundry equipment sales business unit increased $1,459, or 7%, to $21,140 for the year ended December 31, 2008 compared to $19,681 for the year ended December 31, 2007. One single transaction accounted for $1,718, or 8% of the revenue in 2008. Sales in the commercial laundry equipment sales business unit are sensitive to the strength of the local economy, consumer confidence, local permitting and the availability and cost of financing to small businesses, and therefore, tend to fluctuate from period to period. We anticipate that tight credit markets will continue to make obtaining financing a challenge for some potential customers.

Cost of revenue

        Cost of laundry facilities management revenue.    Cost of laundry facilities management revenue includes rent paid to customers as well as costs associated with installing and servicing machines, costs of collecting, counting, and depositing facilities management revenue and the costs of delivering and servicing rented facilities management equipment. Cost of laundry facilities management revenue increased by $44,394, or 27%, to $207,233 for the year ended December 31, 2008, as compared to $162,839 for the year ended December 31, 2007. This increase is attributable primarily to the $30,704 increase in the cost of facilities management rent associated with the increase in facilities management revenue. The balance of the cost increase is primarily attributable to the cost of servicing the acquired portfolio. Cost of laundry facilities management revenue as a percentage of laundry facilities management revenue was 68% for the years ended December 31, 2008 compared to 67% and December 31, 2007. The change in facilities management rent as a percentage of facilities management revenue was caused primarily by the acquired portfolio. It can also be affected by new and renewed laundry leases and by other factors such as the amount of incentive payments and laundry room betterments invested in new or renewed laundry leases. As we vary the amount invested in a facility, the facilities management rent as a function of facilities management revenue can vary. Incentive payments and room betterments are amortized over the life of the laundry lease.

        Depreciation and amortization related to operations.    Depreciation and amortization related to operations increased by $9,997, or 27%, to $47,161 for the year ended December 31, 2008 as compared to $37,164 for the year ended December 31, 2007. Laundry facilities management equipment and contract rights are depreciated and amortized using the straight-line method. The increased depreciation and amortization expense is attributable to the amortization of contracts acquired in 2007 and 2008, new equipment placed in laundry facilities at new locations, and replacement of older equipment with new equipment as contracts were renegotiated. In addition, due to management's decision not to recondition and redeploy equipment that is in need of significant repairs and is not as energy efficient as newer equipment, we disposed of certain laundry equipment in 2008 and 2007 that had a remaining net book value of $642 and $542, respectively. These costs are included in depreciation expense.

        Cost of commercial laundry equipment sales.    Cost of commercial laundry equipment sales consists primarily of the cost of laundry equipment, and parts and supplies sold, as well as salaries and related warehousing expenses as part of the commercial laundry equipment sales segment. Cost of commercial laundry equipment sales increased by $2,585, or 18%, to $17,287 for the year ended December 31, 2008

25

as compared to $14,702 for the year ended December 31, 2007. As a percentage of sales, cost of product sold was 82% for the year ended December 31, 2008 compared to 75% in 2007. The gross margin in the commercial laundry equipment sales business unit decreased to 18% for the year ended December 31, 2008 as compared to 25% for the same period in 2007. The decrease in margin is primarily the result of competitive pricing pressures. We expect competitive pressures to continue to affect gross margins. Also contributing to changes in gross margin were costs incurred to enter into three new markets for which there was little revenue in 2008.

Operating expenses

        General, administration, sales, marketing and depreciation and amortization expense.    General, administration, sales, marketing and depreciation and amortization expense increased by $3,956, or 13%, to $34,925 for the year ended December 31, 2008 as compared to $30,969 for the year ended December 31, 2007. As a percentage of total revenue, general, administration, sales, marketing, depreciation and amortization expense decreased to 11% for the year ended December 31, 2008 compared to 12% for the year ended December 31, 2007. The increased expense for the year ended December 31, 2008 as compared to 2007 is primarily attributable to additional costs related to our acquisition of ALC. The synergies realized in the acquisition contributed to the reduction of costs as a percentage of revenue.

        Loss on early extinguishment of debt.    Effective April 1, 2008 and in conjunction with our acquisition of ALC, we amended our bank credit facilities. As a result of this amendment, a portion of the unamortized financing costs amounting to $207, which had been incurred as part of the prior credit facility, was expensed in 2008.

        Gain on sale of assets.    Gain on sale of assets represents the gain from the sale of vehicles and other non-inventory assets in the ordinary course of business.

Income from continuing operations.

        Income from continuing operations increased by $3,373, or 10%, to $20,485 for the year ended December 31, 2008 as compared to $17,112 for the year ended December 31, 2007. Excluding loss on early extinguishment of debt, income from continuing operations, as adjusted, would have been $20,692 for the year ended December 31, 2008, compared to $17,112 for the year ended 2007, or an increase of 21%. This increase is primarily due to our acquisition of ALC as well as the other reasons discussed above. We have supplemented the consolidated financial statements presented according to generally accepted accounting principles (GAAP), using a non-GAAP financial measure of adjusted income from continuing operations. Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Management believes presentation of this measure is useful to investors to enhance an overall understanding of our historical financial performance and future prospects. Adjusted income from continuing operations, which is adjusted to exclude certain gains and losses from the comparable GAAP income from continuing operations, is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. The presentation of this additional information is not meant to be considered in isolation or as a substitute for income from operations or other measures prepared in accordance with GAAP.

26

        A reconciliation of income from continuing operations in accordance with GAAP to income from continuing operations, as adjusted, is provided below:

	Years ended December 31,
	2007		2008
Income from continuing operations	$	17,112	$	20,485
Loss on early extinguishment of debt(1)		—		207
Income from continuing operations, as adjusted	$	17,112	$	20,692

(1)

The loss on early extinguishment of debt resulted from a refinancing of our senior credit facility and is not related to the performance of the Company's business. The loss reflects only the unamortized cost of the prior bank financing which had been allocated to banks which did not participate in the replacement financing agreement. Because the loss was triggered by a refinancing of the Company's senior credit facility and the Company does not currently expect further refinancings of the facility prior to its maturity in 2013, management believes that the impact of this item on the Company's financial results will not continue beyond 2008.

Interest expense, net

        Interest expense, net of interest income, increased by $7,080, or 51%, to $21,033 for the year ended December 31, 2008 as compared to $13,953 for the year ended December 31, 2007. The increase is attributable to an increase in the average borrowing in 2008 compared to 2007 resulting from our acquisition of ALC. The increase in borrowing was offset, in part, by lower average interest rates. The average borrowing rate was 6.7% for the year ended December 31, 2008 as compared to 7.1% for the year ended December 31, 2007.

Gain or loss related to derivative instruments

        We are party to interest rate swap agreements which we entered into to protect the interest rates on our debt. Certain of these swap agreements do not qualify as cash flow hedges. In accordance with the guidelines for accounting for derivatives, a non-cash expense of $1,804 and a $1,737 has been charged to the income statement for the years ended December 31, 2008 and 2007, respectively.

Provision for income taxes

        The provision for income taxes decreased by $1,465 to a benefit of $758 for the year ended December 31, 2008 compared to an expense of $707 for the year ended December 31, 2007. The change is the result of a decrease in income before taxes, a reduction in the reserve for uncertain tax positions and the impact of an amendment to Massachusetts tax laws which decreased payment on timing items that became taxable after January 1, 2009. The Company reduced its reserve for uncertain tax positions by $204 in conjunction with the completion of the Internal Revenue Service tax audits through 2005. The Company recorded a benefit for income taxes of $198 in conjunction with the amendment to Massachusetts tax laws. The decrease was partially offset by increases in state income taxes and an increase in the state net operating loss valuation allowance. The increase in the effective tax rate for the year ended December 31, 2008 compared to the same period in 2007 is due primarily to an increase in the non-deductible expenses as a percent of total taxable income

Income from continuing operations, net

        As a result of the foregoing, income from continuing operations, net, decreased by $2,413 to a loss of $1,166 for the year ended December 31, 2008 as compared to income of $1,247 for the year ended December 31, 2007. Income from continuing operations, net, as adjusted for the items in the table

27

below, decreased $2,303 to $53 for the year ended December 31, 2008 as compared to income of $2,356 for the year ended December 31, 2007.

        A reconciliation of income from continuing operations, net, as reported to income from continuing operations, net, as adjusted is provided below:

	Years Ended December 31,
	2007		2008
Income (loss) from continuing operations, net, as reported	$	1,247	$	(1,166	)
Income from discontinued operations, net		1,272		1,707
Net income	$	2,519	$	541
Income (loss) from continuing operations before provision for income taxes, as reported	$	1,954	$	(1,924	)
Loss related to derivative instruments(1)		1,737		1,804
Loss on early extinguishment of debt(2)		—		207
Income from continuing operations before provision for income taxes, as adjusted		3,691		87
Provision for income taxes, as adjusted		1,335		34
Income from continuing operations, net, as adjusted	$	2,356	$	53
Diluted earnings per share from continuing operations, net, as adjusted	$	0.15	$	0.00

(1)

Represents the unrealized loss on interest rate protection contracts, which do not qualify for hedge accounting treatment. The (gain) loss related to derivative instruments is the consequence of interest rate swaps which had previously qualified for hedge accounting no longer qualifying for such treatment as a result of a separate and distinct refinancing of our credit facility in 2005. Management does not expect its other interest rate swaps to fail to qualify for hedge accounting treatment in future periods because the Company does not currently expect further refinancings of the facility prior to its maturity in 2013. For interest rate swaps that do qualify as hedged instruments, changes in mark to market will continue to be recorded in Other Comprehensive Income and not in the income statement. Including the fluctuation in the fair value of the derivative instruments in the reconciliation of net income as reported to net income as adjusted allows for a more consistent comparison of the operating results of the Company.

(2)

The loss on early extinguishment of debt resulted from a refinancing of our senior credit facility and is not related to the performance of the Company's business. The loss reflects only the unamortized cost of the prior bank financing which had been allocated to banks which did not participate in the replacement financing agreement. Because the loss was triggered by a refinancing of the Company's senior credit facility and the Company does not currently expect further refinancings of the facility prior to its maturity in 2013, management believes that the impact of this item on the Company's financial results will not continue beyond 2008.

        To supplement the Company's consolidated financial statements presented on a generally accepted accounting principles (GAAP) basis, management has used a non-GAAP measure of net income. Management believes presentation of this measure is appropriate to enhance an overall understanding of our historical financial performance and future prospects. Adjusted net income, which is adjusted to exclude certain gains and losses from the comparable GAAP net income, is an indication of our baseline performance before gains, losses or other charges that are considered by management to be outside of our core operating results. These non-GAAP results are among the primary indicators management uses as a basis for evaluating the Company's financial performance as well as for

28

forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful to investors, potential investors and others.

        Non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles in the United States. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Income from Discontinued Operations, net

        Income from discontinued operations increased by $435, or 23%, to $1,707 for the year ended December 31, 2008 as compared to $1,272 for the year ended December 31, 2007. Revenue from the discontinued operation increased by $2,946 to $36,364 for the year ended December 31, 2008 as compared to $33,418 for the year ended December 31, 2007.

Liquidity and Capital Resources (Dollars in thousands)

        We believe that we can satisfy our working capital requirements and funding of capital needs with internally generated cash flow and, as necessary, borrowings under our revolving loan facility described below. Included in the capital requirements that we expect to be able to fund during 2010 are laundry equipment, laundry room betterments, and contract incentives incurred in connection with new customer leases and the renewal of existing leases.

        We historically have not needed sources of financing other than our internally generated cash flow and our revolving credit facilities to fund our working capital, capital expenditures and smaller acquisitions. As a result, we anticipate that our cash flow from operations and revolving credit facilities will be sufficient to meet our anticipated cash requirements for at least the next twelve months.

        From time to time, we consider potential acquisitions. We believe that any future acquisitions of significant size would likely require us to obtain additional debt or equity financing. In the past, we have been able to obtain such financing for other material transactions on terms that we believed to be reasonable. However, the availability of such funds depends in large measure on credit and capital markets and other factors outside our control. It is possible that we may not be able to obtain acquisition financing on reasonable terms, or at all, in the future.

        Our current long-term liquidity needs are principally the repayment of the outstanding principal amounts of our long-term indebtedness, including borrowings under our senior credit facility and our senior notes. We are unable to project with certainty whether our long-term cash flow from operations will be sufficient to repay our long-term debt when it comes due. If this cash flow were insufficient, then we would need to refinance such indebtedness or otherwise amend its terms to extend the maturity dates. We cannot make any assurances that such financing would be available on reasonable terms, if at all.

Operating Activities

        For the years ended December 31, 2007, 2008 and 2009, cash flows provided by operating activities from continuing operations were $43,202, $55,735, and $60,720, respectively. Cash flows from operations consist primarily of facilities management revenue and equipment sales, offset by the cost of facilities management revenues, cost of product sold, and selling, general and administration expenses. The increase for the year ended December 31, 2009 as compared to the year ended December 31, 2008 is primarily attributable to ordinary changes in working capital. In 2009, the most significant increases in cash flows provided by operating activities were depreciation and amortization expense, an increase in deferred taxes, accounts payable, accrued facilities management rent, accrued expenses and other

29

liabilities, and a decrease in accounts receivable. The increase in depreciation and amortization expense and related deferred income taxes is primarily attributable to the contract rights and equipment acquired in 2008. The most significant decreases in cash flows provided by operating activities was caused by an increase in prepaid facilities management rent and other assets attributable to our ALC acquisition.

Investing Activities

        For the years ended December 31, 2007, 2008 and 2009, cash flows used in investing activities from continuing operations were $72,944, $130,111, and $20,074, respectively. Included in the cash flows used in investing activities are payments for acquisitions of $46,626 and $106,213 in 2007 and 2008, respectively. Other capital expenditures for the years ended December 31, 2007, 2008, and 2009 totaled $26,711, $24,313, and $21,341, respectively.

Financing Activities

        For the years ended December 31, 2007, 2008 and 2009, cash flows provided by (used in) financing activities from continuing operations were $31,073, $79,887 and ($37,883), respectively. Cash flows provided by financing activities consist primarily of borrowings to fund acquisitions. Cash flows used in financing activities consist primarily of repayments of bank borrowings.

        The Company has a senior secured credit agreement (the "Secured Credit Agreement") pursuant to which the Company may borrow up to $163,000 in the aggregate, including $33,000 pursuant to a Term Loan and up to $130,000 pursuant to a Revolver. The Term Loan requires quarterly principal payments of $1,000 at the end of each calendar quarter through December 31, 2012, with the remaining principal balance of $21,000 due on April 1, 2013. Concurrent with the sale of MicroFridge® (Intirion Corporation) the Company paid $8,000 towards its Secured Term Loan. The Secured Credit Agreement also provides for Bank of America, N. A. to make swingline loans to us of up to $10,000 (the "Swingline Loans") and any Swingline Loans will reduce the borrowings available under the Revolver. Subject to certain terms and conditions, the Secured Credit Agreement gives the company the option to establish additional term and/or revolving credit facilities there under, provided that the aggregate commitments under the Secured Credit Agreement cannot exceed $220,000.

        Borrowings outstanding under the Secured Credit Agreement bear interest at a fluctuating rate equal to (i) in the case of Eurodollar rate loans, the LIBOR rate (adjusted for statutory reserves) plus an applicable percentage, ranging from 2.00% to 2.50% per annum (currently 2.25%), determined by reference to our senior secured leverage ratio, and (ii) in the case of base rate loans and Swingline Loans, the higher of (a) the federal funds rate plus 0.5% or (b) the annual rate of interest announced by Bank of America, N.A. as its "prime rate," in each case, plus an applicable percentage, ranging from 1.00% to 1.50% per annum (currently 1.25%), determined by reference to the Company's senior secured leverage ratio.

30

        The obligations under the Secured Credit Agreement are guaranteed by the Company's subsidiaries and secured by (i) a pledge of 100% of the ownership interests in the subsidiaries, and (ii) a first-priority security interest in substantially all our tangible and intangible assets.

        Under the Secured Credit Agreement, the Company is subject to customary lending covenants, including restrictions pertaining to, among other things: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) the making of certain investments and loans, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) the maintenance of a maximum total leverage ratio of not greater than 4.25 to 1.00, a maximum senior secured leverage ratio of not greater than 2.50 to 1.00, and a minimum consolidated cash flow coverage ratio of not less than 1.20 to 1.00, (viii) transactions with affiliates, and (ix) changes to governing documents and subordinate debt documents, in each case subject to baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at December 31, 2009.

        The Secured Credit Agreement provides for customary events of default with, in some cases, corresponding grace periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any representation or warranty made by us proving to be incorrect in any material respect, (iv) payment defaults relating to, or acceleration of, other material indebtedness, (v) certain bankruptcy, insolvency or receivership events affecting us, (vi) a change in our control, (vii) the Company or its subsidiaries becoming subject to certain material judgments, claims or liabilities, or (viii) a material defect in the lenders' lien against the collateral securing the obligations under the Secured Credit Agreement.

        In the event of an event of default, the Administrative Agent may, and at the request of the requisite number of lenders under the Secured Credit Agreement must, terminate the lenders' commitments to make loans under the Secured Credit Agreement and declare all obligations under the Secured Credit Agreement immediately due and payable. For certain events of default related to bankruptcy, insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding obligations of the Company under the Secured Credit Agreement will become immediately due and payable.

        The Company pays a commitment fee equal to a percentage of the actual daily-unused portion of the Secured Revolver under the Secured Credit Agreement. This percentage, currently 0.375% per annum, is determined quarterly by reference to the senior secured leverage ratio and will range between 0.300% per annum and 0.500% per annum.

        As of December 31, 2009, there was $77,592 outstanding under the Revolver, $33,000 outstanding under the Term Loan and $1,380 in outstanding letters of credit. The available balance under the Revolver was $51,028 at December 31, 2009. The average interest rates on the borrowings outstanding under the Secured Credit Agreement at December 31, 2008 and 2009 were 5.28% and 4.37%, respectively, including the applicable spread paid to the banks.

        On April 1, 2008, the Company issued a $10,000 unsecured note to the seller in the ALC acquisition. This note bore interest at 9% and was to mature on April 1, 2010 with interest payments due quarterly on the first day of July, October, January and April each year until maturity. The Company paid this note in full on June 16, 2009.

        On August 16, 2005, the Company issued senior unsecured notes in the amount of $150,000. These notes bear interest at 7.625% payable semi-annually each February and August. The maturity date of the notes is August 15, 2015. The proceeds from the senior notes, less financing costs, were used to pay down senior bank debt.

        On and after August 15, 2010, the Company has the option to redeem all or a portion of the senior notes at the redemption prices (expressed in percentages of principal amount on the redemption

31

date), plus accrued interest to the redemption date, if redeemed, during the 12-month period commencing on August 15 of the years set forth below:

Period	Redemption Price
2010		103.813	%
2011		102.542	%
2012		101.271	%
2013 and thereafter		100.000	%

        The terms of the senior notes include customary covenants, including, but not limited to, restrictions pertaining to: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) payment of dividends on or making of distributions in respect of capital stock or making certain other restricted payments or investments, (iii) entering into agreements that restrict distributions from restricted subsidiaries, (iv) sale or other disposition of assets, including capital stock of restricted subsidiaries, (v) transactions with affiliates, (vi) incurrence of liens, (vii) sale/leaseback transactions, and (viii) merger, consolidation or sale of substantially all of our assets, in each case subject to numerous baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at December 31, 2009.

        The terms of the senior notes provide for customary events of default, including, but not limited to: (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants and limitations, (iii) certain insolvency or receivership events affecting us or any of our subsidiaries and (iv) unsatisfied material judgments, claims or liabilities against us. There were no events of default under the senior notes at December 31, 2009.

        Capital lease obligations on the Company's fleet of vehicles totaled $3,352 and $3,276 at December 31, 2008 and 2009, respectively.

        Required payments under the Company's long-term debt and capital lease obligations are as follows:

	Amount
2010	$	5,543
2011		4,936
2012		4,535
2013		98,854
2014		—
Thereafter		150,000
	$	263,868

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Contractual Obligations

        A summary of our contractual obligations and commitments related to its outstanding long-term debt and future minimum lease payments related to our vehicle fleet, corporate headquarters and warehouse rent and minimum facilities management rent as of December 31, 2009 is as follows:

Fiscal Year	Long-term debt		Interest on senior notes		Interest on variable rate debt		Facilities rent commitments		Capital lease commitments		Operating lease commitments		Total
2010	$	4,000	$	11,438	$	4,833	$	16,939	$	1,543	$	3,238	$	41,991
2011		4,000		11,438		4,658		12,855		936		2,978	$	36,865
2012		4,000		11,438		4,483		10,759		535		2,567	$	33,782
2013		98,592		11,438		4,308		8,577		262		2,124	$	125,301
2014		—		11,438		—		6,850		—		1,868	$	20,156
Thereafter		150,000		11,438		—		12,203		—		2,039	$	175,680
Total	$	260,592	$	68,628	$	18,282	$	68,183	$	3,276	$	14,814	$	433,775

Off Balance Sheet Arrangements

        At the years ended December 31, 2007, 2008 and 2009, we had no relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off balance sheet arrangements, or other contractually narrow or limited purposes.

Seasonality

        We experience moderate seasonality as a result of our operations in the college and university market. Revenues derived from the college and university market represented approximately 13%, or $40,500, of our total laundry facilities management revenue in 2009. Academic facilities management and rental revenues are derived substantially during the school year in the first, second and fourth calendar quarters. Conversely, our operating and capital expenditures have historically been higher during the third calendar quarter when we install a large amount of equipment while colleges and universities are generally on summer break.

Inflation

        We do not believe that our financial performance has been materially affected by inflation.

Critical Accounting Policies and Estimates

        The preparation of our consolidated financial statements in accordance with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported. A critical accounting estimate is an assumption about highly uncertain matters and could have a material effect on the consolidated financial statements if another, also reasonable, amount was used or a change in the estimate is reasonably likely from period to period. We base our assumptions on historical experience and on other estimates that we believe are reasonable under the circumstances. Actual results could differ significantly from these estimates.

        Our critical accounting policies, as described in Note 2 to the Mac-Gray audited consolidated financial statements included elsewhere in this report, "Significant Accounting Policies," state our policies as they relate to significant matters: cash and cash equivalents, revenue recognition, provision for doubtful accounts, inventories, provision for inventory reserves, goodwill and intangible assets, impairment of long-lived assets, financial instruments and fair value of financial instruments.

33

        Cash and cash equivalents.    We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents is an estimate of cash not yet collected at period-end that remains at laundry facilities management locations. At December 31, 2009 and 2008, this totaled $10,524 and $11,295, respectively. We record the estimated cash not yet collected as cash and cash equivalents and facilities management revenue. We also record the estimated related facilities management rent expense. We calculate the estimated cash not yet collected at the end of a period by first identifying only those accounts that have had activity in the last ninety days of the period, since each account is collected at least once every ninety days. We calculate the average collection per day by account for the corresponding period one year prior. The prior year per day collection amount is multiplied by the number of days between the account's most recent collection prior to the end of the current period and the end of the current period. The corresponding period one year prior is used to allow for any seasonality at each account. The average collection per day since inception of the account is used for accounts acquired subsequent to the corresponding period in the prior year.

        We have cash deposited with financial institutions in excess of the $250 insured limit of the Federal Deposit Insurance Corporation.

        Revenue recognition.    We recognize laundry facilities management revenue on the accrual basis. Rental revenue on commercial laundry equipment is recognized ratably over the related contractual period. We recognize revenue from commercial laundry equipment sales upon shipment of the products unless otherwise specified. Shipping and handling fees charged to customers are recognized upon shipment of the products and are included in revenue with related cost included in cost of sales.

        We believe our accounting for laundry facilities management revenue and commercial laundry equipment sales are appropriate for us, properly matching the earnings process with the proper reporting period.

        Allowance for doubtful accounts.    On a regular basis, we review the adequacy of our provision for doubtful accounts for trade accounts receivable based on historical collection results and current economic conditions, using factors based on the aging of our trade accounts receivable. In addition, we estimate specific additional allowances based on indications that a specific customer may be experiencing financial difficulties.

        Inventories.    Inventories are stated at the lower of cost (as determined using the average cost method) or market and primarily consist of finished goods. In accordance with Generally Accepted Accounting Principles, we account for our inventory based upon the lower of cost or market principle.

        Provision for inventory reserves.    On a regular basis, we review the adequacy of our reserve for inventory obsolescence based on historical experience, product knowledge and frequency of shipments.

        Goodwill and intangible assets.    Intangible assets primarily consist of various non-compete agreements, goodwill and contract rights recorded in connection with acquisitions. The non-compete agreements are amortized using the straight-line method over the life of the agreements, which range from five to fifteen years. Contract rights are amortized using the straight-line method over fifteen or twenty years. The life assigned to acquired contracts is based on several factors, including: (i) the seller's renewal rate of the contract portfolio for the most recent years prior to the acquisition, (ii) the number of years the average contract has been in the seller's contract portfolio, (iii) the overall level of customer satisfaction within the contract portfolio and (iv) our ability to maintain or exceed the level of customer satisfaction maintained by the seller prior to the acquisition by us. We are accounting for acquired contract rights on a pool-basis based on the fact that, in general, no single contract accounts for more than 2% of the revenue of any acquired portfolio and the fact that few of the contracts are predicted to be terminated, either prior to or at the end of the contract term. Based on our experience,

34

we believe that these costs associated with various acquisitions are properly recognized and amortized over a reasonable length of time.

        We test goodwill at least annually for impairment by reporting unit. The goodwill impairment review consists of a two-step process of first assessing the fair value and comparing to the carrying value. If this fair value exceeds the carrying value, no further analysis or goodwill impairment charge is required. If the fair value is below the carrying value, we would proceed to the next step, which is to measure the amount of the impairment loss. The impairment loss is measured as the difference between the carrying value and implied fair value of goodwill. Any such impairment loss would be recognized in the Company's results of operations in the period the impairment loss arose.

        We also evaluate our trade names annually for impairment using the relief from royalty method. We estimate what it would cost to license the trade names based upon estimated future revenue, an estimated royalty rate, a capitalization rate and a discount rate which is subject to change from year to year. If the discounted present value of future tax effected royalty payments is less than the carrying value, the trade name would be written down to its implied fair value. Our evaluation in 2009 did not result in an impairment. However, a 1% increase in either the discount rate or the capitalization rate used would have resulted in an impairment of $200 for one of our trade names.

        Impairment of Long-Lived Assets.    We review long-lived assets, including fixed assets (primarily washing machines and dryers) and intangible assets with definite lives (primarily laundry facilities management contract rights ("contract rights")) for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

        Assets acquired in business combinations, which include contract rights, an amortizing intangible asset, and equipment are defined to be the asset group for which the portfolio of contracts was acquired. The contract rights were fair valued and recorded in purchase accounting on an aggregate basis for each market and are being amortized over 15 – 20 years. Triggering events that could indicate the carrying value of the contract rights intangible is not fully recoverable may include the loss of significant customers, adverse changes to volumes and/or profitability in specific markets and changes in the Company's business strategy that result in a significant reduction in cash flows generated in a specific market. Management also performs an annual assessment of the useful lives of the contract rights and accelerates amortization, if necessary. The results of this analysis may also indicate potential impairment triggering events. For contract rights the useful life assessment consists primarily of comparing the percent of revenue declines for acquired contracts in the market where the contract right was acquired to the percent of amortization recorded on the contract rights. A triggering event is deemed to have occurred if the revenues are declining at a rate in excess of the amortization rate. If a triggering event has occurred the recoverability of the carrying amount of the contract rights and fixed assets for that acquired asset group is calculated by comparing the carrying amount of the asset group to the projected future undiscounted cash flows from the operation and disposition of the assets, taking into consideration the remaining useful life of the assets, the length of the contract for that acquisition, as well as any expected renewals. If it is determined that the carrying value of the assets is not recoverable, the Company would write down the long-lived assets by the amount by which the carrying value exceeds fair value.

        For the purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For our long-lived assets acquired in business combinations, the Company has determined the lowest level for which identifiable cash flows are largely independent is at the market level consistent with the approach used in purchase accounting. In particular, the contract rights intangible assets, which comprise thousands of individual contracts, are valued and recorded on an aggregate market basis at the time of acquisition, depreciated

35

in the aggregate, and the recovery of these intangible assets is achieved through the collective cash flows of the market. The Company believes this approach will ensure any significant impairment that occurs is recognized in the appropriate period and that it is not practical to allocate individual contract intangible assets to each of the thousands of locations.

        For assets associated with organic contracts, the Company performs its impairment assessment of the long-lived assets (principally laundry equipment) at the individual location level. An impairment test is performed when a triggering event has occurred with respect to individual locations. Triggering events are those events that could indicate the carrying value of the asset group is not fully recoverable and include changes in the current use of the equipment, environmental regulations and technological advancements. If a triggering event has occurred, the recoverability of the carrying amount of the fixed assets for that location is calculated by comparing to the projected future undiscounted cash flows of the assets, taking into consideration the remaining useful life of the assets, the length of the contract for that location, any expected renewals as well as giving consideration to whether or not those assets could be redeployed to another location. If it is determined that the carrying value of the assets is not recoverable, the Company would write down the assets by the amount by which the carrying value exceeds fair value.

        Financial instruments.    We account for derivative instruments on our balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings, depending on the intended use of the derivative. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. We have designated some of our interest rate swap agreements as cash flow hedges. Accordingly, the change in fair value of the agreements is recognized in other comprehensive income and the ineffective portion of the change is recognized in earnings immediately.

        Fair value of financial instruments.    For purposes of financial reporting, we have determined that the fair value of financial instruments approximates book value at December 31, 2009 and 2008, based upon terms currently available to us in financial markets. The fair value of the interest rate swaps is the estimated amount that we would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the counter party.

New Accounting Pronouncements

        On January 1, 2008, we adopted new accounting guidance on fair value measurements. This new guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. Refer to Note 6 for additional information regarding our fair value measurements for financial assets and liabilities.

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        On January 1, 2009, we adopted new accounting guidance effective for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis.

        On January 1, 2009, we adopted new accounting guidance on disclosures about derivative instruments and hedging activities. The new guidance impacts disclosures only and requires additional qualitative and quantitative information on the use of derivatives and their impact on an entity's financial position, results of operations and cash flows. Refer to Note 6 for additional information regarding our risk management activities, including derivative instruments and hedging activities.

        On January 1, 2009, we adopted new accounting guidance on business combinations. This new guidance requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance applies to all transactions or other events in which the Company obtains control of one or more businesses, including those sometimes referred to as "true mergers" or "mergers of equals" and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights.

        In June 2009, we adopted new accounting guidance on interim disclosures about fair value of financial instruments. This guidance requires disclosure about fair value of financial instruments in interim financial statements as well as in annual financial statements.

        In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification). The Codification is the single source for all authoritative GAAP recognized by the FASB and applies to financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and will not have an affect on our financial position, results of operations or liquidity.

        No other new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to a variety of risks, including changes in interest rates on borrowings. In the normal course of business, we manage our exposure to these risks as described below. We do not engage in trading market-risk sensitive instruments for speculative purposes.

Interest Rates—

        The table below provides information about our debt obligations that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. The fair market value of long-term variable rate debt approximates book value at December 31, 2009.

	December 31, 2009
	Expected Maturity Date (In Thousands)
	2010			2011			2012			2013			2014			Thereafter		Total
Long-Term Debt:
Variable rate	$	4,000		$	4,000		$	4,000		$	98,592		$	—		$	—	$	110,592
Average interest rate		4.37	%		4.37	%		4.37	%		4.37	%		4.37	%				4.37	%

        Effective January 1, 2008, the Company adopted new accounting guidance regarding fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands

37

disclosures about fair value measurements. The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

        Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

        Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

        Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

        We have entered into standard International Swaps and Derivatives Association ("ISDA") interest rate swap agreements (the "Swap Agreements") to manage the interest rate risk associated with its debt. The Swap Agreements effectively convert a portion of our variable rate debt to a long-term fixed rate. Under these agreements, we receive a variable rate of LIBOR plus the applicable margin charged by the banks and pay a fixed rate. The fair value of these interest rate derivatives are based on quoted prices for similar instruments from a commercial bank and, therefore, the interest rate derivatives are considered a Level 2 item.

        Certain of our Swap Agreements qualify as cash flow hedges while others do not. The change in the fair value of the Swap Agreements that do not qualify for hedge accounting treatment is recognized in the income statement in the period in which the change occurs. The change in the fair value of these contracts resulted in a gain of $893 for the year ended December 31, 2009 and a loss of $1,804 for the year ended December 31, 2008.

        The table below outlines the details of each remaining Swap Agreement:

Date of Origin	Original Notional Amount		Fixed/ Amortizing	Notional Amount December 31, 2009		Expiration Date		Fixed Rate
May 8, 2008	$	45,000	Amortizing	$	40,000		Apr 1, 2013		3.78	%
May 8, 2008	$	40,000	Amortizing	$	33,000		Apr 1, 2013		3.78	%
May 2, 2005	$	17,000	Fixed	$	17,000		Dec 31, 2011		4.69	%
May 2, 2005	$	10,000	Fixed	$	10,000		Dec 31, 2011		4.77	%

        In accordance with the Swap Agreements and on a quarterly basis, interest expense is calculated based on the floating 90-day LIBOR and the fixed rate noted above. If interest expense as calculated is greater based on the 90-day LIBOR, the financial institution pays the difference to us; if interest expense as calculated is greater based on the fixed rate, we pay the difference to the financial institution. Depending on fluctuations in the LIBOR, our interest rate exposure and its related impact on interest expense and net cash flow may increase or decrease. The counter party to the swap agreement exposes us to credit loss in the event of non-performance; however, nonperformance is not anticipated.

        The fair value of the Swap Agreements is the estimated amount that the Company would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the counter party. At December 31, 2008 and 2009, the fair value of the Swap Agreements was a liability of $7,775 and $5,141 respectively. These amounts have been included in other liabilities on the consolidated balance sheets.

        On January 4, 2010, the Company entered into an interest rate swap agreement to manage the interest rate risk associated with its debt. The swap agreement effectively converts a portion of our

38

fixed rate senior notes to a variable rate. Under this agreement, we receive the fixed rate on our senior notes (7.625%) and pay a variable rate of LIBOR plus the applicable margin charged by the banks.

        As of December 31, 2009, there was $77,592 outstanding under the 2008 Secured Revolver, $33,000 outstanding under the 2008 Secured Term Loan and $1,380 in outstanding letters of credit. The available balance under the 2008 Secured Revolver was $51,028 at December 31, 2009. The average interest rate on the borrowings outstanding under the 2008 Secured Credit Facility at December 31, 2008 and December 31, 2009 were 5.28% and 4.37%, respectively, including the applicable spread paid to the banks.

        On April 1, 2008, the Company issued a $10,000 unsecured note to the seller in the ALC acquisition. This note bore interest at 9% and was to mature on April 1, 2010. The Company paid this note in full on June 16, 2009.

Item 8.    Financial Statements and Supplementary Data.

        Financial statements and supplementary data are contained in pages F-1 through F-35 hereto.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        None.

Item 9A.    Controls and Procedures.

(a)   Disclosure Controls and Procedures

        As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon that evaluation, our chief executive officer and chief financial officer concluded that these disclosure controls and procedures were effective as of December 31, 2009 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures. On an on-going basis, we review and document our disclosure controls and procedures and our internal control over financial reporting and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business. There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15(d)-15(f) under the Exchange Act) that occurred during the fourth quarter of our fiscal year ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

(b)   Management's Annual Report on Internal Control over Financial Reporting

        The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even

39

when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        As of the end of the Company's 2009 fiscal year, management conducted assessments of the effectiveness of the Company's internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on these assessments, management has determined that the Company's internal control over financial reporting as of December 31, 2009 was effective. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements.

        The Company's internal control over financial reporting as of December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page F-2, which expresses an unqualified opinion on the effectiveness of the firm's internal control over financial reporting as of December 31, 2009.

        NYSE Annual CEO Certification.    On June 8, 2009, Stewart Gray MacDonald, Jr., Chief Executive Officer of the Company, submitted to the New York Stock Exchange (the "NYSE") the Annual CEO Certification required by Section 303A of the Corporate Governance Rules of the NYSE certifying that he was not aware of any violation by the Company of NYSE corporate governance listing standards.

(c)   Changes in Internal Control over Financial Reporting

        There were no material changes to management's internal control over financial reporting during the year ended December 31, 2009.

Item 9B.    Other Information.

        None.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

        We will furnish to the SEC a definitive Proxy Statement no later than 120 days after the close of the fiscal year ended December 31, 2009. Certain information required by this Item 10 is incorporated herein by reference to the Proxy Statement.

Item 11.    Executive Compensation.

        The information required by this Item 11 is incorporated herein by reference to the Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        The information required by this Item 12 is incorporated herein by reference to the Proxy Statement.

Stock Option Plan Information and Employee Stock Purchase Plan Information

        The following tables provide information as of December 31, 2009 regarding shares of our common stock that may be issued under our equity compensation plans consisting of the 1997 Stock Option and Incentive Plan (the "1997 Plan"), the 2001 Employee Stock Purchase Plan (the "ESPP"), the 2005 Stock Option and Incentive Plan (the "2005 Plan") and the 2009 Stock Option and Incentive Plan (the "2009 Plan"). There are no equity compensation plans that have not been approved by the shareholders.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights(2)		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities referenced in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders(1)		2,318,329	$	8.63		816,585	(3)
Equity compensation plans not approved by security holders		—		—		—
Total		2,318,329	$	8.63		816,585	(3)

(1)

Represents outstanding options and restricted shares granted but not yet issued under the 1997 Plan and the 2005 Plan. There are no options, warrants or rights outstanding under the ESPP (does not include the purchase rights accruing under the ESPP because the purchase price, and therefore the number of shares to be purchased, is not determinable until the end of the purchase period).

(2)

Includes an aggregate of 104,908 shares underlying restricted stock units granted under the 2005 Plan and the 2009 Plan for which the performance criteria have not yet been established. Accordingly, for accounting purposes, such awards are not considered to be granted under FAS 123R.

(3)

Includes 594,377 shares available for future issuance under the 2009 Plan, and 222,208 shares available for future issuance under the ESPP. No new awards may be granted under the 1997 Plan or the 2005 Plan.

41

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        The information required by this Item 13 is incorporated herein by reference to the Proxy Statement.

Item 14.    Principal Accounting Fees and Services

        The information required by this Item 14 is incorporated herein by reference to the Proxy Statement.

PART IV

Item 15.    Exhibits, Financial Statement Schedules

        (a)   1. and 2. An Index to Consolidated Financial Statements and Financial Statement Schedules is on Page F-1 of this Report.

        (b)   3. Exhibits:

        Exhibits required by Item 601 of Regulation S-K and Additional Exhibits. Unless otherwise indicated, all exhibits are part of Commission File Number 1-13495. Certain exhibits indicated below are incorporated by reference to documents of Mac-Gray on file with the Commission.

        Each exhibit marked by a cross (+) was previously filed as an exhibit to Mac-Gray's Registration Statement on Form S-1 filed on August 14, 1997 (No. 333-33669) and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form S-1.

        Each exhibit marked by a number sign (#) was previously filed as an exhibit to Amendment No. 1 to Mac-Gray's Registration Statement on Form S-1, filed on September 25, 1997 (No. 333-33669) and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form S-1.

        Each exhibit marked by a (z) was previously filed as an exhibit to Amendment No. 1 of Mac-Gray's Registration Statement on Form S-1, filed on April 17, 1998 (No. 333-49795) and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form S-1.

        Each exhibit marked by a (v) was previously filed as an exhibit to Mac-Gray's Form 10-K filed on March 29, 2002 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 10-K.

        Each exhibit marked by an (s) was previously filed as an exhibit to Mac-Gray's Form 10-K/A filed on April 11, 2002 and the number in parenthesis following the description of the exhibit refers to the exhibit number in the Form 10-K/A.

        Each exhibit marked by an (r) was previously filed as an exhibit to Mac-Gray's Form 10-K filed on March 31, 2005, and the number in parenthesis following the description of the exhibit refers to the exhibit number in the Form 10-K.

        Each exhibit marked by a (p) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on May 31, 2005 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (o) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on July 28, 2005 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (n) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on August 18, 2005 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

42

        Each exhibit marked by a (i) was previously filed as an exhibit to Mac-Gray's Form 10-Q filed on May 15, 2006 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 10-Q.

        Each exhibit marked by a (h) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on March 13, 2007 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (g) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on August 13, 2007 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (e) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on January 24, 2008 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (c) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on March 7, 2008 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by an (b) was previously filed as an exhibit to Mac-Gray's Form 10-K filed on March 14, 2008, and the number in parenthesis following the description of the exhibit refers to the exhibit number in the Form 10-K.

        Each exhibit marked by a (a) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on April 7, 2008 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (yy) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on June 12, 2008 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (xx) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on November 7, 2008 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (vv) was previously filed as an exhibit to Mac-Gray's Form 10-K filed on March 16, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 10-K.

        Each exhibit marked by a (uu) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on May 5, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (tt) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on May 21, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (ss) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on June 10, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (rr) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on June 18, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (qq) was previously filed as an exhibit to Mac-Gray's Form 10-Q filed on August 10, 2009 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 10-Q.

43

        Each exhibit marked by a (pp) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on January 11, 2010 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        Each exhibit marked by a (oo) was previously filed as an exhibit to Mac-Gray's Form 8-K filed on February 11, 2010 and the number in parentheses following the description of the exhibit refers to the exhibit number in the Form 8-K.

        The following is a complete list of exhibits filed or incorporated by reference as part of this Annual Report on Form 10-K.

3.01	Amended and Restated Certificate of Incorporation (3.1)+
3.02	Amended and Restated By-laws (3.1)xx
3.03	Amended and Restated Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Mac-Gray Corporation classifying and designating the Series A Junior Participating Cumulative Preferred Stock (3.1)rr
4.01	Specimen certificate for shares of Common Stock, $.01 par value, of the Registrant (4.1)#
4.02	Indenture, dated August 16, 2005, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation and Wachovia Bank, National Association (4.1)n
4.03	Shareholder Rights Agreement, dated as of June 8, 2009, Mac-Gray Corporation and American Stock Transfer & Trust Company, LLC, as Rights Agent (4.1)ss
10.01	Stockholders' Agreement, dated as of June 26, 1997, by and among the Registrant and certain stockholders of the Registrant (10.2)+
10.02	Form of Maytag Distributorship Agreements (10.13)+
10.03	The Registrant's 1997 Stock Option and Incentive Plan (with form of option agreements attached as exhibits) (10.16)+***
10.04	Form of Noncompetition Agreement between the Registrant and its executive officers (10.15)v***
10.05	Form of Director Indemnification Agreement between the Registrant and each of its Directors (10.16)v***
10.06	April 2001 Amendment to the Mac-Gray Corporation 1997 Stock Option and Incentive Plan (10.17)v***
10.07	Form of executive severance agreement between the Registrant and each of its chief financial officer and chief operating officer (10.18)s***
10.08	Form of executive severance agreement between the Registrant and its chief executive officer (10.19)s***
10.09	Trademark License Agreement dated January 10, 2005 by and between Web Service Company, Inc. ("Licensor") and Mac-Gray Services, Inc. ("Licensee") (10.19)r
10.10	Mac-Gray Corporation 2005 Stock Option and Incentive Plan (10.1)p***
10.11	Form of Incentive Stock Option Agreement under the Mac-Gray Corporation 2005 Stock Option and Incentive Plan (10.2)p***
10.12	Form of Non-Qualified Stock Option Agreement for Company Employees under the Mac-Gray Corporation 2005 Stock Option and Incentive Plan (10.3)p***

44

10.13	Form of Restricted Stock Award Agreement for awards under the Mac-Gray Corporation 2005 Stock Option and Incentive Plan (10.5)p***
10.14	Lease Agreement, dated July 22, 2005, between Mac-Gray Services, Inc. and 404 Wyman LLC (99.1)o
10.15	Form of Mac-Gray Corporation 75/8% Senior Notes due 2015 (4.2)n
10.16	Form of Employment Agreement between the Company and certain executive officers (10.1)h***
10.17	Mac-Gray Senior Executive Incentive Plan (10.4)e***
10.18	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Mac-Gray Corporation 2005 Stock Option and Incentive Plan (10.5)e***
10.19	Form of executive severance agreement, dated March 3, 2008, between the Registrant and each of Linda Serafini, Robert Tuttle and Phil Emma (10.1)c***
10.20	Form of first amendment to executive severance agreement, dated March 3, 2008, between the Registrant and each of Stewart MacDonald, Michael Shea and Neil MacLellan III (10.42)b***
10.21	Form of first amendment to employment agreement, dated March 3, 2008, between the Registrant and each of Stewart MacDonald, Michael Shea and Neil MacLellan III (10.43)b***
10.22	Partnership Interest Purchase Agreement, dated as of April 1, 2008, among Automatic Laundry Company, Ltd., the partners listed on the signature pages thereto, Mac-Gray Newco, LLC, and Mac-Gray Services,  Inc. (10.1)a
10.23	Senior Secured Credit Agreement, dated as of April 1, 2008, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation, the lenders party thereto, Bank of America, N.A., as Administrative Agent and Collateral Agent, and Banc of America Securities LLC, as Sale Lead Arranger and Sole Book Manager (10.3)a
10.24	Form of Revolving Note pursuant to the Senior Secured Credit Agreement in favor of the Secured Revolving Lenders, in an aggregate total amount of up to $130,000,000 (10.4)a
10.25	Form of Swingline Note pursuant to the Senior Secured Credit Agreement in favor of the Swingline Lenders, in an aggregate total amount of up to $10,000,000 (10.5)a
10.26	Form of Term Loan Note pursuant to the Senior Secured Credit Agreement in favor of the Secured Term Lenders, in an aggregate total amount of $40,000,000 (10.6)a
10.27	Guarantee and Collateral Agreement, dated as of April 1, 2008, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation, the Subsidiaries of the Borrowers identified therein, and Bank of America, N.A., as Administrative Agent (10.7)a
10.28	Mac-Gray Corporation Director Stock Ownership Guidelines, effective as of July 1, 2008 (10.1)yy***
10.29	Form of Indemnification Agreement between the Registrant and each of its non-employee directors (10.1)xx***
10.30	Form of second amendment to executive severance agreement, dated December 22, 2008, between the Registrant and each of Stewart MacDonald, Michael Shea and Neil MacLellan III (10.59)vv***
10.31	Form of second amendment to employment agreement, dated December 22, 2008, between the Registrant and each of Stewart MacDonald, Michael Shea and Neil MacLellan III (10.60)vv***

45

10.32	Form of first amendment to executive severance agreement, dated December 22, 2008, between the Registrant and each of Linda Serafini, Robert Tuttle and Phil Emma (10.61)vv***
10.33	Amendment No. 1 to Senior Secured Credit Agreement, dated as of May 1, 2009, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation, the lenders party thereto, and Bank of America, N.A., as Administrative Agent and Collateral Agent (10.1)uu
10.34	Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.1)tt***
10.35	Form of Non-Qualified Stock Option Agreement for Company Employees under the Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.5)qq***
10.36	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under the Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.6)qq***
10.37	Form of Restricted Stock Unit Agreement for cash settled awards under the Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.7)qq***
10.38	Form of Restricted Stock Unit Agreement for stock settled awards under the Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.8)qq***
10.39	Form of Restricted Stock Unit Agreement for awards under the Mac-Gray Corporation 2009 Stock Option and Incentive Plan (10.9)qq***
10.40	Mac-Gray Corporation Non-Employee Director Compensation Policy (10.10)qq***
10.41	Amendment No. 2 to Senior Secured Credit Agreement, dated as of January 8, 2010, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation, the lenders party thereto, and Bank of America, N.A., as Administrative Agent and Collateral Agent (10.1)pp
10.42	Amendment No. 3 to Senior Secured Credit Agreement, dated as of February 5, 2010, among Mac-Gray Corporation, Mac-Gray Services, Inc., Intirion Corporation, the lenders party thereto, and Bank of America, N.A., as Administrative Agent and Collateral Agent (10.1)oo
10.43	Stock Purchase Agreement, dated as of February 5, 2010, between Mac-Gray Corporation and MF Acquisition Corp. (10.2)oo
10.44	Mac-Gray Corporation Long Term Incentive Plan (filed herewith)***
10.45	Mac-Gray Corporation 2001 Employee Stock Purchase Plan (filed herewith)***
21.1	Subsidiaries of the Registrant (21.1)z
23.1	Consent of PricewaterhouseCoopers LLP (filed herewith)
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 (filed herewith)
32.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

***

Management compensatory plan or arrangement

46

SIGNATURES

        PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS 15^th DAY OF MARCH, 2010.

	MAC-GRAY CORPORATION
	By:	/s/ STEWART GRAY MACDONALD, JR. Stewart Gray MacDonald, Jr. Chief Executive Officer (Principal Executive Officer)
Date: March 15, 2010

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ DAVID W. BRYAN David W. Bryan	Director	March 15, 2010
/s/ THOMAS E. BULLOCK Thomas E. Bullock	Director	March 15, 2010
/s/ BRUCE C. GINSBERG Bruce C. Ginsberg	Director	March 15, 2010
/s/ CHRISTOPHER T. JENNY Christopher T. Jenny	Director	March 15, 2010
/s/ EDWARD F. MCCAULEY Edward F. McCauley	Director	March 15, 2010
/s/ WILLIAM F. MEAGHER William F. Meagher	Director	March 15, 2010
/s/ ALASTAIR G. ROBERTSON Alastair G. Robertson	Director	March 15, 2010
/s/ MARY ANN TOCIO Mary Ann Tocio	Director	March 15, 2010
/s/ MICHAEL J. SHEA Michael J. Shea	Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)	March 15, 2010

47

Items 15(a)(1) and (2)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Item 15(a)(1)

        The following consolidated financial statements of the registrant and its subsidiaries required to be included in Item 8 are listed below.

MAC-GRAY CORPORATION
	Report of Independent Registered Public Accounting Firm		F-2
	Consolidated Balance Sheets at December 31, 2008 and 2009		F-3
	Consolidated Income Statements for the Years Ended December 31, 2007, 2008 and 2009		F-4
	Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2007, 2008 and 2009		F-5
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2007, 2008 and 2009		F-6
	Notes to Consolidated Financial Statements		F-7
Item 15(a)(2)
		The following consolidated financial statement schedule of Mac-Gray Corporation should be
read in conjunction with the financial statements included herein.
	Schedule II Valuation and Qualifying Accounts		F-35

        All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not material, and therefore have been omitted.

F-1

Report of Independent Registered Public Accounting Firm

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

        In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Mac-Gray Corporation (the "Company") and its subsidiaries at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index under 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in "Management's Annual Report on Internal Control Over Financial Reporting" appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        As discussed in Note 2 to the consolidated financial statements, effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLC

Boston, Massachusetts
March 16, 2010

F-2

MAC-GRAY CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

			December 31, 2008			December 31, 2009
Assets
Current assets:
	Cash and cash equivalents		$	18,836		$	21,599
	Trade receivables, net of allowance for doubtful accounts			6,688			5,081
	Inventory of finished goods, net			2,265			2,172
	Deferred income taxes			610			559
	Prepaid facilities management rent and other current assets			14,643			14,286
	Current assets from discontinued operations			6,421			6,864
		Total current assets		49,463			50,561
Property, plant and equipment, net				141,651			130,541
Goodwill				59,478			59,043
Intangible assets, net				221,759			208,499
Prepaid facilities management rent and other assets				12,868			11,199
Non-current assets from discontinued operations				4,785			4,433
		Total assets	$	490,004		$	464,276
Liabilities and Stockholders' Equity
Current liabilities:
	Current portion of long-term debt and capital lease obligations		$	5,471		$	5,543
	Trade accounts payable			2,541			6,957
	Accrued facilities management rent			22,211			21,075
	Accrued expenses			15,011			17,749
	Deferred revenue and deposits			11			29
	Current liabilites from discontinued operations			4,208			3,087
		Total current liabilities		49,453			54,440
Long-term debt and capital lease obligations				295,821			258,325
Deferred income taxes				34,597			39,159
Other liabilities				10,794			6,393
Non-current liabilities from discontinued operations				1,375			1,424
Commitments and contingencies (Note 14)
Stockholders' equity:
	Preferred stock ($.01 par value, 5 million shares authorized no shares issued or outstanding)			—			—
	Common stock ($.01 par value, 30 million shares authorized, 13,443,754 issued and 13,381,387 outstanding at December 31, 2008, and 13,631,706 issued and 13,631,530 outstanding at December 31, 2009)			134			136
	Additional paid in capital			74,669			78,032
	Accumulated other comprehensive loss			(3,117	)		(2,048	)
	Retained earnings			26,925			28,417
				98,611			104,537
	Less common stock in treasury, at cost (62,367 shares at December 31, 2008 and 176 shares at December 31, 2009)			(647	)		(2	)
		Total stockholders' equity		97,964			104,535
Total liabilities and stockholders' equity			$	490,004		$	464,276

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

F-3

MAC-GRAY CORPORATION

CONSOLIDATED INCOME STATEMENTS

(In thousands, except share data)

			Years Ended December 31,
			2007			2008			2009
Revenue from continuing operations:
	Facilities management revenue		$	242,803		$	306,089		$	309,028
	Laundry equipment sales			19,681			21,140			16,896
		Total revenue		262,484			327,229			325,924
Cost of revenue:
	Cost of facilities management revenue			162,839			207,233			208,914
	Depreciation and amortization			37,164			47,161			48,266
	Cost of laundry equipment sales			14,702			17,287			13,652
		Total cost of revenue		214,705			271,681			270,832
Gross margin				47,779			55,548			55,092
Operating expenses:
	General and administration			16,381			18,341			17,819
	Sales and marketing			13,097			14,970			14,249
	Depreciation and amortization			1,491			1,614			1,600
	Gain on sale of assets, net			(302	)		(69	)		(648	)
	Incremental costs of proxy contest			—			—			971
	Loss on early extinguishment of debt			—			207			—
		Total operating expenses		30,667			35,063			33,991
Income from continuing operations				17,112			20,485			21,101
	Interest expense, net			13,421			20,605			19,675
	(Gain) loss related to derivative instruments			1,737			1,804			(893	)
Income (loss) before provision for income taxes from continuing operations				1,954			(1,924	)		2,319
Provision (benefit) for income taxes				707			(758	)		1,278
Income (loss) from continuing operations, net				1,247			(1,166	)		1,041
Income from discontinued operations, net				1,272			1,707			1,074
Net income			$	2,519		$	541		$	2,115
Earnings (loss) per share—basic—continuing operations			$	0.09		$	(0.09	)	$	0.08
Earnings (loss) per share—diluted—continuing operations			$	0.09		$	(0.09	)	$	0.07
Earnings per share—basic—discontinued operations			$	0.10		$	0.13		$	0.08
Earnings per share—diluted—discontinued operations			$	0.09		$	0.13		$	0.08
Earnings per share—basic			$	0.19		$	0.04		$	0.16
Earnings per share—diluted			$	0.18		$	0.04		$	0.15
Weighted average common shares outstanding—basic				13,209			13,346			13,529
Weighted average common shares outstanding—diluted				13,680			13,346			13,940

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

F-4

MAC-GRAY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands, except share data)

			Common stock																Treasury Stock
										Accumulated Other Comprehensive (Loss) Gain
			Number of shares		Value		Additional Paid in Capital						Comprehensive Income			Retained Earnings			Number of shares			Cost			Total
Balance, December 31, 2006				13,443,754	$	134	$	70,553		$	183					$	24,571			366,060		$	(3,801	)	$	91,640
	Cumulative change related to the adoption of FIN 48			—		—		—			—						500			—			—			500
				13,443,754		134		70,553			183						25,071			366,060			(3,801	)		92,140
	Net income			—		—		—			—		$	2,519			2,519			—			—			2,519
	Other comprehensive income:
		Unrealized loss on derivative instruments, net of tax benefit of $124 (Note 6)									(138	)		(138	)											(138	)
	Comprehensive income			—		—		—			—		$	2,381			—			—			—			—
	Options exercised			—		—		—			—						(527	)		(128,955	)		1,340			813
	Stock compensation expense			—		—		1,679			—						—			—			—			1,679
	Net tax benefit (shortfall) from share based payment arrangements			—		—		338			—						—			—			—			338
	Stock issuance—Employee Stock Purchase Plan			—		—		—			—						(22	)		(49,446	)		514			492
	Stock granted			—		—		16			—						(229	)		(20,769	)		214			1
Balance, December 31, 2007				13,443,754		134		72,586			45						26,812			166,890			(1,733	)		97,844
	Net income			—		—		—			—			541			541			—			—			541
	Other comprehensive income:
		Unrealized loss on derivative instruments, net of tax benefit of $1,989 (Note 6)		—		—		—			(3,162	)		(3,162	)		—			—			—			(3,162	)
	Comprehensive income			—		—		—			—		$	(2,621	)		—			—			—			—
	Options exercised			—		—		—			—						(69	)		(26,333	)		273			204
	Stock compensation expense			—		—		2,120			—						—			—			—			2,120
	Net tax benefit (shortfall) from share based payment arrangements			—		—		(44	)		—						—			—			—			(44	)
	Stock issuance—Employee Stock Purchase Plan			—		—		—			—						(34	)		(36,545	)		380			346
	Stock granted			—		—		7			—						(325	)		(41,645	)		433			115
Balance, December 31, 2008				13,443,754		134		74,669			(3,117	)					26,925			62,367			(647	)		97,964
	Net income			—		—		—			—			2,115			2,115			—			—			2,115
	Other comprehensive income:
		Unrealized loss on derivative instruments, net of tax benefit of $672 (Note 6)									1,069			1,069												1,069
	Comprehensive income			—		—		—			—		$	3,184			—			—			—			—
	Options exercised			102,746		1		683			—						(14	)		(9,597	)		113			783
	Stock compensation expense			—		—		2,213			—						—			—			—			2,213
	Purchase of common stock			—		—		—			—						—			9,597			(113	)		(113	)
	Net tax benefit (shortfall) from share based payment arrangements			—		—		(47	)		—						—			—			—			(47	)
	Stock issuance—Employee Stock Purchase Plan			67,372		1		363			—						—			0			0			364
	Stock granted			17,658		—		151			—						(609	)		(62,191	)		645			187
Balance, December 31, 2009				13,631,530	$	136	$	78,032		$	(2,048	)				$	28,417			176		$	(2	)	$	104,535

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

F-5

MAC-GRAY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

			Years ended December 31,
			2007			2008			2009
Cash flows from operating activities:
	Net income		$	2,519		$	541		$	2,115
		Adjustments to reconcile net income to net cash flows provided by operating activities, net of effects of acquisitions:
	Depreciation and amortization			38,655			48,775			49,866
	Loss on early extinguishment of debt			—			207			—
	(Decrease) increase in allowance for doubtful accounts and lease reserves			(4	)		60			(159	)
	Gain on disposition of assets			(302	)		(69	)		(648	)
	Stock grants			1			115			187
	Non-cash derivative interest expense (income)			1,737			1,804			(893	)
	Deferred income taxes			1,147			(1,842	)		4,781
	Excess tax benefits from share based payment arrangements			(338	)		(20	)		(136	)
	Non cash-stock compensation			1,679			2,120			2,213
	Decrease (increase) in accounts receivable			(1,345	)		222			1,766
	Decrease in inventory			10			1,911			93
	Increase in prepaid facilities management rent and other assets			(3,819	)		(1,235	)		(1,329	)
	Increase in accounts payable, accrued facilities management rent, accrued expenses and other liabilities			4,534			4,842			3,920
	Increase in deferred revenues and customer deposits			—			11			18
	Net cash flows used in operating activities from discontinued operations			(829	)		(717	)		(738	)
		Net cash flows provided by operating activities		43,645			56,725			61,056
Cash flows from investing activities:
	Capital expenditures			(26,711	)		(24,313	)		(21,341	)
	Payments for acquisitions			(46,626	)		(106,213	)		—
	Proceeds from sale of assets			393			415			1,267
	Net cash flows used in investing activities from discontinued operations			(443	)		(990	)		(336	)
		Net cash flows used in investing activities		(73,387	)		(131,101	)		(20,410	)
Cash flows from financing activities:
	Payments on capital lease obligations			(1,550	)		(1,943	)		(1,705	)
	Borrowings on 2005 secured revolving credit facility			63,000			8,000			—
	Payments on 2005 secured revolving credit facility			(32,000	)		(63,000	)		—
	Payments on 2008 secured revolving credit facility			—			(33,500	)		(118,154	)
	Borrowings on 2008 secured revolving credit facility			—			134,440			94,806
	Borrowings on 2008 secured term credit facility			—			40,000			—
	Payments on 2008 secured term credit facility			—			(3,000	)		(4,000	)
	Borrowings on 2008 unsecured revolving credit facility			—			1,781			—
	Payments on 2008 unsecured revolving credit facility			—			(1,781	)		—
	Payments on acquisition note			—			—			(10,000	)
	Financing costs			(20	)		(1,680	)		—
	Excess tax benefits from share based payment arrangements			338			20			136
	Purchase of common stock			—			—			(113	)
	Proceeds from exercise of stock options			813			204			783
	Proceeds from issuance of common stock			492			346			364
		Net cash flows provided by financing activities		31,073			79,887			(37,883	)
Increase in cash and cash equivalents				1,331			5,511			2,763
Cash and cash equivalents, beginning of period				11,994			13,325			18,836
Cash and cash equivalents, end of period			$	13,325		$	18,836		$	21,599
Supplemental cash flow information:
	Interest paid		$	13,637		$	20,919		$	19,967
	Income taxes paid		$	78		$	211		$	227

Supplemental disclosure of non-cash investing activities:

        During the years ended December 31, 2007, 2008 and 2009, the Company acquired various vehicles under capital lease agreements totaling $2,003, $1,774 and $1,628 respectively.

        During the years ended December 31, 2007 and 2008, the Company incurred liabilities in the amount of $1,670 and $10,000 in the form of future cash payments related to acquisitions.

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

F-6

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

1. Description of the Business and Basis of Presentation

        Description of the Business.    Mac-Gray Corporation ("Mac-Gray" or the "Company") generates the majority of its revenue from card- and coin-operated laundry rooms located in 43 states and the District of Columbia. The Company's principal customer base is the multi-unit housing market, which includes apartments, condominium units, colleges and universities, and military bases. The Company also sells and services commercial laundry equipment to commercial laundromats, multi-unit housing properties and institutions. The majority of the Company's purchases of laundry equipment is from one supplier.

        Basis of Presentation.    The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. Since this business was held for sale as of December 31, 2009 and the operations and cash flows of this business will be eliminated from the ongoing operations of the Company as a result of this disposal transaction and the Company will not have any significant continuing involvement in the operations of this business after this disposal transaction, the Company accounted for this business as a discontinued operation. All current and prior period financial information has been classified to reflect this as a discontinued operation.

2. Significant Accounting Policies

        Cash and Cash Equivalents.    The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents is an estimate of cash not yet collected at period-end that remains at laundry facilities management customer locations. At December 31, 2008 and 2009, this totaled $11,295 and $10,524, respectively. The Company records the estimated cash not yet collected as cash and cash equivalents and facilities management revenue. The Company also records the estimated related facilities management rent expense. The Company calculates the estimated cash not yet collected at the end of a period by first identifying only those accounts that have had activity in the last ninety days of the period, since each account is collected at least once every ninety days. The Company calculates the average collection per day by account for the corresponding period one year prior. The prior year per day collection amount is multiplied by the number of days between the account's most recent collection prior to the end of the current period and the end of the current period. The corresponding period one year prior is used to allow for any seasonality at each account. The average collection per day since inception of the account is used for accounts acquired subsequent to the corresponding period in the prior year.

        The Company has cash deposited with financial institutions in excess of the $250 insured limit of the Federal Deposit Insurance Corporation.

        Revenue Recognition.    The Company recognizes facilities management revenue on the accrual basis. Rental revenue is recognized ratably over the related contractual period. The Company recognizes revenue from sales upon shipment of the products, unless otherwise specified. Shipping and handling fees charged to customers are recognized upon shipment of the products and are included in revenue with the related cost included in cost of sales. Installation and repair services are provided on an occurrence basis, not on a contractual basis. Related revenue is recognized at the time the installation service, or other service, is provided to the customer.

F-7

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

2. Significant Accounting Policies (Continued)

        Allowance for Doubtful Accounts.    On a regular basis, the Company reviews the adequacy of its provision for doubtful accounts for trade accounts receivable based on historical collection results and current economic conditions using factors based on the aging of its trade accounts. In addition, the Company estimates specific additional allowances based on indications that a specific customer may be experiencing financial difficulties. The Company maintains an allowance for doubtful trade accounts of $357 and $198 at December 31, 2008 and 2009, respectively.

        Concentration of Credit Risk.    Financial instruments which potentially expose the Company to concentration of credit risk include trade receivables generated by the Company as a result of the selling and leasing of laundry equipment. To minimize this risk, ongoing credit evaluations of customers' financial condition are performed and reserves are maintained. The Company typically does not require collateral. No individual Laundry Equipment Sales customer accounted for more than 10% of revenues or accounts receivable for any period presented.

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

        Provision for Inventory Reserves.    On a regular basis, the Company reviews the adequacy of its reserve for inventory obsolescence based on historical experience, product knowledge and frequency of shipments.

        Prepaid Facilities Management Rent.    Prepaid facilities management rent consists of cash advances paid to property owners and managers under laundry service contracts.

        Property, Plant and Equipment.    Property, Plant and Equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets. Expenditures for maintenance and repairs are charged to operations as incurred; acquisitions, major renewals, and betterments are capitalized. Upon retirement or sale, the cost of assets disposed of and their related accumulated depreciation or amortization are removed from the accounts, with the resulting gain or loss reflected in income.

        Facilities Management Equipment—Not Yet Placed in Service.    These assets represent laundry machines that management estimates will be installed in facilities management laundry rooms over the next twelve months and have not been purchased for commercial sale. These assets are grouped in Property, Plant and Equipment and are not depreciated until placed in service under a facilities management lease agreement.

        Advertising Costs.    Advertising costs are expensed as incurred. These costs were $797, $696 and $553 for the years ended December 31, 2007, 2008 and 2009, respectively.

        Goodwill and Intangible Assets.    Intangible assets primarily consist of various non-compete agreements, goodwill, trade name and contract rights recorded in connection with acquisitions. The non-compete agreements are amortized using the straight-line method over the life of the agreements, which range from five to fifteen years. The majority of contract rights are amortized using the straight-line method over twenty years, with the balance amortized on a straight-line method over fifteen years. The life assigned to acquired contracts is based on several factors, including: the seller's renewal rate of the contract portfolio for the most recent years prior to the acquisition, the number of

F-8

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

2. Significant Accounting Policies (Continued)

years the average contract has been in the seller's contract portfolio, the overall level of customer satisfaction within the contract portfolio and the ability of the Company to maintain or exceed the level of customer satisfaction maintained by the seller prior to the acquisition by the Company. The Company is accounting for acquired contract rights on a pool-basis based on the fact that, in general, no single contract accounts for more than 2% of the revenue of any acquired portfolio and the fact that few of the contracts are predicted to be terminated, either prior to or at the end of the contract term.

        We test goodwill at least annually for impairment by reporting unit. The goodwill impairment review consists of a two-step process of first assessing the fair value and comparing to the carrying value. If this fair value exceeds the carrying value, no further analysis or goodwill impairment charge is required. If the fair value is below the carrying value, we would proceed to the next step, which is to measure the amount of the impairment loss. The impairment loss is measured as the difference between the carrying value and implied fair value of goodwill. Any such impairment loss would be recognized in the Company's results of operations in the period the impairment loss arose.

        We also evaluate our trade names annually for impairment using the relief from royalty method. We estimate what it would cost to license the trade names based upon estimated future revenue, an estimated royalty rate, a capitalization rate and a discount rate which is subject to change from year to year. If the discounted present value of future tax effected royalty payments is less than the carrying value, the trade name would be written down to its implied fair value. Our evaluation in 2009 did not result in an impairment. However, a 1% increase in either the discount rate or the capitalization rate used would have resulted in an impairment of $200 for one of our trade names.

        Impairment of Long-Lived Assets.    The Company reviews long-lived assets, including fixed assets (primarily washing machines and dryers) and intangible assets with definite lives (primarily laundry facilities management contract rights ("contract rights")) for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.

        Assets acquired in business combinations, which include contract rights, an amortizing intangible asset, and equipment are defined to be the asset group for which the portfolio of contracts was acquired. The contract rights were fair valued and recorded in purchase accounting on an aggregate basis for each market and are being amortized over 15–20 years. Triggering events that could indicate the carrying value of the contract rights intangible is not fully recoverable may include the loss of significant customers, adverse changes to volumes and/or profitability in specific markets and changes in the Company's business strategy that result in a significant reduction in cash flows generated in a specific market. Management also performs an annual assessment of the useful lives of the contract rights and accelerates amortization, if necessary. The results of this analysis may also indicate potential impairment triggering events. For contract rights the useful life assessment consists primarily of comparing the percent of revenue declines for acquired contracts in the market where the contract right was acquired to the percent of amortization recorded on the contract rights. A triggering event is deemed to have occurred if the revenues are declining at a rate in excess of the amortization rate. If a triggering event has occurred the recoverability of the carrying amount of the contract rights and fixed assets for that acquired asset group is calculated by comparing the carrying amount of the asset group to the projected future undiscounted cash flows from the operation and disposition of the assets, taking

F-9

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

2. Significant Accounting Policies (Continued)

into consideration the remaining useful life of the assets, the length of the contract for that acquisition, as well as any expected renewals. If it is determined that the carrying value of the assets is not recoverable, the Company would write down the long-lived assets by the amount by which the carrying value exceeds fair value.

        For the purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. For our long-lived assets acquired in business combinations, the Company has determined the lowest level for which identifiable cash flows are largely independent is at the market level consistent with the approach used in purchase accounting. In particular, the contract rights intangible assets, which comprise thousands of individual contracts, are valued and recorded on an aggregate market basis at the time of acquisition, depreciated in the aggregate, and the recovery of these intangible assets is achieved through the collective cash flows of the market. The Company believes this approach will ensure any significant impairment that occurs is recognized in the appropriate period and that it is not practical to allocate individual contract intangible assets to each of the thousands of locations.

        For assets associated with organic contracts, the Company performs its impairment assessment of the long-lived assets (principally laundry equipment) at the individual location level. An impairment test is performed when a triggering event has occurred with respect to individual locations. Triggering events are those events that could indicate the carrying value of the asset group is not fully recoverable and include changes in the current use of the equipment, environmental regulations and technological advancements. If a triggering event has occurred, the recoverability of the carrying amount of the fixed assets for that location is calculated by comparing to the projected future undiscounted cash flows of the assets, taking into consideration the remaining useful life of the assets, the length of the contract for that location, any expected renewals as well as giving consideration to whether or not those assets could be redeployed to another location. If it is determined that the carrying value of the assets is not recoverable, the Company would write down the assets by the amount by which the carrying value exceeds fair value.

        Income Taxes.    The Company utilizes the asset and liability method of accounting for income taxes, as set forth in accounting guidance. This guidance requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts of the existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

        Stock Compensation.    Accounting guidance requires the Company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized on a straight-line basis over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period).

        The grant-date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model. The expected life of options and the expected forfeiture rates are estimated based on historical experience. The historical volatility The weighted average volatility of the Company's stock price over the prior number of years equal to the expected life and the two most

F-10

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

2. Significant Accounting Policies (Continued)

recent years is used to estimate the expected volatility at the measurement date. Awards for which the recipient has the choice of receiving equity instruments or cash are valued at the market price of the underlying equity instrument as of the reporting date.

        Use of Estimates.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

        Earnings Per Share.    Accounting guidance requires the presentation of basic earnings per share ("EPS") and diluted earnings per share. Basic EPS includes no dilution and is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity. Diluted EPS has been calculated using the treasury stock method.

        Comprehensive Income.    Comprehensive income includes all changes in stockholders' equity during a period except those resulting from investments by stockholders and distributions to stockholders.

        Financial Instruments.    The Company accounts for derivative instruments on its balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. If the derivative is a hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings, depending on the intended use of the derivative. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings.

        Effective January 1, 2008, the Company adopted accounting guidance, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

        Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

        Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

        Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

        The fair value of the Company's interest rate derivatives are based on quoted prices for similar instruments from a commercial bank and, therefore, the interest rate derivatives are considered a Level 2 item.

        Fair Value of Financial Instruments.    For purposes of financial reporting, the Company has determined that the fair value of financial instruments approximates book value at December 31, 2008 and 2009, based upon terms currently available to the Company in financial markets. The fair value of

F-11

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

2. Significant Accounting Policies (Continued)

the Company's interest rate swaps is the estimated amount that the Company would receive or pay to terminate the agreement at the reporting date, taking into account current interest rates and the credit worthiness of the counter party.

        New Accounting Pronouncements.    On January 1, 2008, we adopted new accounting guidance on fair value measurements. This new guidance defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. Refer to Note 6 for additional information regarding our fair value measurements for financial assets and liabilities.

        On January 1, 2009, we adopted new accounting guidance effective for non-financial assets and liabilities recognized or disclosed at fair value on a non-recurring basis.

        On January 1, 2009, we adopted new accounting guidance on disclosures about derivative instruments and hedging activities. The new guidance impacts disclosures only and requires additional qualitative and quantitative information on the use of derivatives and their impact on an entity's financial position, results of operations and cash flows. Refer to Note 6 for additional information regarding our risk management activities, including derivative instruments and hedging activities.

        On January 1, 2009, we adopted new accounting guidance on business combinations. This new guidance requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance applies to all transactions or other events in which the Company obtains control of one or more businesses, including those sometimes referred to as "true mergers" or "mergers of equals" and combinations achieved without the transfer of consideration, for example, by contract alone or through the lapse of minority veto rights.

        In June 2009, the FASB issued the FASB Accounting Standards Codification (Codification). The Codification is the single source for all authoritative GAAP recognized by the FASB and applies to financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and will not have an affect on our financial position, results of operations or liquidity.

        In June 2009, we adopted new accounting guidance on interim disclosures about fair value of financial instruments. This guidance requires disclosure about fair value of financial instruments in interim financial statements as well as in annual financial statements.

        No other new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements.

3. Discontinued Operations

        On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The transaction is valued at approximately $11,500. Danby Products paid Mac-Gray $8,500 in cash, and assumed existing liabilities and financial obligations for MicroFridge totaling approximately $3,000. Since this business was held for sale as of December 31, 2009 and the operations and cash flows

F-12

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

3. Discontinued Operations (Continued)

of this business will be eliminated from the ongoing operations of the Company as a result of this disposal transaction and the Company will not have any significant continuing involvement in the operations of this business after this disposal transaction, the Company accounted for this business as a Discontinued Operation. All current and prior period financial information has been classified to reflect this as a discontinued operation. The Company will record a pre-tax gain as a result of this transaction in the amount of approximately $750 subject to post-closing adjustments. Concurrent with this transaction, the Company paid $8,000 on its Secured Term Loan.

        Included in the table below are the key financial items related to the discontinued operation:

	2007		2008		2009
Revenue	$	33,418	$	36,364	$	30,298
Interest expense(1)	$	532	$	428	$	262
Income before provision for income taxes	$	2,074	$	2,742	$	1,742
Income taxes	$	802	$	1,035	$	668

(1)

Represents the amount of interest allocated to the discontinued operation as a result of a requirement to pay $8,000 on the Company's Term Loan. The average interest rate used to calculate this allocation was 6.6%, 5.3% and 3.3% for the years ended December 31, 2007, 2008 and 2009, respectively.

4. Acquisitions

        On April 1, 2008, the Company acquired Automatic Laundry Company, Ltd., ("ALC"), a laundry facilities management business, which operates in several western and southern states. This acquisition has been reflected in the accompanying consolidated financial statements from the date of the acquisition, and has been accounted for as a purchase business combination in accordance with accounting guidance. The total purchase price of this acquisition has been allocated to the acquired assets and liabilities, based on estimates of their relative fair value. A twenty-year amortization period has been assigned to the acquired contract rights and the acquired used laundry equipment has been assigned an average life of four years based upon physical inspection of the equipment. The Company's operations were fully integrated at December 31, 2008. The acquisition of this business addresses the Company's growth objectives by creating density within several markets the Company already serves.

        The total purchase price for this acquisition was allocated as follows:

	Amount
Contract rights	$	79,800
Equipment		24,313
Goodwill		17,799
Inventory		1,356
Incentive payments		173
Accrued expenses		(699	)
		122,742
Deferred tax liability		(6,529	)
Total Purchase Price	$	116,213

F-13

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

4. Acquisitions (Continued)

        Goodwill includes $6,529 of tax goodwill due to the difference between the book value and the tax value assigned to the acquired equipment. The depreciation of the book and tax values over time will create a deferred tax asset equal to the deferred tax liability recorded as part of the acquisition.

        The purchase price includes a non-recourse note payable to the seller in the amount of $10,000 due on April 1, 2010. The Company paid this note in full on June 16, 2009. As part of this acquisition, the Company also leased from a third party a fleet of vehicles previously owned by ALC.

        The following unaudited pro forma operating results of the Company assume the acquisition took place on January 1, 2007. Such information includes adjustments to reflect additional depreciation, amortization and interest expense, and is not necessarily indicative of what the results of operations would have been or the results of operations in future periods.

		Year Ended December 31, 2007			Year Ended December 31, 2008
Net revenue from continuing operations		$	328,357		$	344,084
Loss from continuing operations		$	(2,583	)	$	(1,434	)
Loss per share from continuing operations:
	Basic	$	(0.19	)	$	(0.11	)
	Diluted	$	(0.19	)	$	(0.11	)

5. Long-Term Debt

        The Company has a senior secured credit agreement (the "Secured Credit Agreement") pursuant to which the Company may borrow up to $163,000 in the aggregate, including $33,000 pursuant to a Term Loan and up to $130,000 pursuant to a Revolver. The Term Loan requires quarterly principal payments of $1,000 at the end of each calendar quarter through December 31, 2012, with the remaining principal balance of $21,000 due on April 1, 2013. The Secured Credit Agreement also provides for Bank of America, N. A. to make swingline loans to us of up to $10,000 (the "Swingline Loans") and any Swingline Loans will reduce the borrowings available under the Revolver. Subject to certain terms and conditions, the Secured Credit Agreement gives the company the option to establish additional term and/or revolving credit facilities there under, provided that the aggregate commitments under the Secured Credit Agreement cannot exceed $220,000.

        Borrowings outstanding under the Secured Credit Agreement bear interest at a fluctuating rate equal to (i) in the case of Eurodollar rate loans, the LIBOR rate (adjusted for statutory reserves) plus an applicable percentage, ranging from 2.00% to 2.50% per annum (currently 2.25%), determined by reference to our senior secured leverage ratio, and (ii) in the case of base rate loans and Swingline Loans, the higher of (a) the federal funds rate plus 0.5% or (b) the annual rate of interest announced by Bank of America, N.A. as its "prime rate," in each case, plus an applicable percentage, ranging from 1.00% to 1.50% per annum (currently 1.25%), determined by reference to the Company's senior secured leverage ratio.

        The obligations under the Secured Credit Agreement are guaranteed by the Company's subsidiaries and secured by (i) a pledge of 100% of the ownership interests in the subsidiaries, and (ii) a first-priority security interest in substantially all our tangible and intangible assets.

F-14

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

5. Long-Term Debt (Continued)

        Under the Secured Credit Agreement, the Company is subject to customary lending covenants, including restrictions pertaining to, among other things: (i) the incurrence of additional indebtedness, (ii) limitations on liens, (iii) making distributions, dividends and other payments, (iv) the making of certain investments and loans, (v) mergers, consolidations and acquisitions, (vi) dispositions of assets, (vii) the maintenance of a maximum total leverage ratio of not greater than 4.25 to 1.00, a maximum senior secured leverage ratio of not greater than 2.50 to 1.00, and a minimum consolidated cash flow coverage ratio of not less than 1.20 to 1.00, (viii) transactions with affiliates, and (ix) changes to governing documents and subordinate debt documents, in each case subject to baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at December 31, 2009.

        The Secured Credit Agreement provides for customary events of default with, in some cases, corresponding grace periods, including (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants, (iii) any representation or warranty made by us proving to be incorrect in any material respect, (iv) payment defaults relating to, or acceleration of, other material indebtedness, (v) certain bankruptcy, insolvency or receivership events affecting us, (vi) a change in our control, (vii) the Company or its subsidiaries becoming subject to certain material judgments, claims or liabilities, or (viii) a material defect in the lenders' lien against the collateral securing the obligations under the Secured Credit Agreement.

        In the event of an event of default, the Administrative Agent may, and at the request of the requisite number of lenders under the Secured Credit Agreement must, terminate the lenders' commitments to make loans under the Secured Credit Agreement and declare all obligations under the Secured Credit Agreement immediately due and payable. For certain events of default related to bankruptcy, insolvency and receivership, the commitments of the lenders will be automatically terminated and all outstanding obligations of the Company under the Secured Credit Agreement will become immediately due and payable.

        The Company pays a commitment fee equal to a percentage of the actual daily-unused portion of the Secured Revolver under the Secured Credit Agreement. This percentage, currently 0.375% per annum, is determined quarterly by reference to the senior secured leverage ratio and will range between 0.300% per annum and 0.500% per annum.

        As of December 31, 2009, there was $77,592 outstanding under the Revolver, $33,000 outstanding under the Term Loan and $1,380 in outstanding letters of credit. The available balance under the Revolver was $51,028 at December 31, 2009. The average interest rates on the borrowings outstanding under the Secured Credit Agreement at December 31, 2008 and 2009 were 5.28% and 4.37%, respectively, including the applicable spread paid to the banks.

        On April 1, 2008, the Company issued a $10,000 unsecured note to the seller in the Automatic Laundry Company, Ltd., ("ALC"), acquisition. This note bore interest at 9% and was to mature on April 1, 2010 with interest payments due quarterly on the first day of July, October, January and April each year until maturity. The Company paid this note in full on June 16, 2009.

        On August 16, 2005, the Company issued senior unsecured notes in the amount of $150,000. These notes bear interest at 7.625% payable semi-annually each February and August. The maturity date of the notes is August 15, 2015. The proceeds from the senior notes, less financing costs, were used to pay

F-15

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

5. Long-Term Debt (Continued)

down senior bank debt. Since the senior notes are not widely traded, the market value of these notes approximates book value at December 31, 2009.

        On and after August 15, 2010, the Company has the option to redeem all or a portion of the senior notes at the redemption prices (expressed in percentages of principal amount on the redemption date), plus accrued interest to the redemption date, if redeemed, during the 12-month period commencing on August 15 of the years set forth below:

Period	Redemption Price
2010		103.813	%
2011		102.542	%
2012		101.271	%
2013 and thereafter		100.000	%

        The terms of the senior notes include customary covenants, including, but not limited to, restrictions pertaining to: (i) incurrence of additional indebtedness and issuance of preferred stock, (ii) payment of dividends on or making of distributions in respect of capital stock or making certain other restricted payments or investments, (iii) entering into agreements that restrict distributions from restricted subsidiaries, (iv) sale or other disposition of assets, including capital stock of restricted subsidiaries, (v) transactions with affiliates, (vi) incurrence of liens, (vii) sale/leaseback transactions, and (viii) merger, consolidation or sale of substantially all of our assets, in each case subject to numerous baskets, exceptions and thresholds. The Company was in compliance with these and all other financial covenants at December 31, 2009.

        The terms of the senior notes provide for customary events of default, including, but not limited to: (i) failure to pay any principal or interest when due, (ii) failure to comply with covenants and limitations, (iii) certain insolvency or receivership events affecting us or any of our subsidiaries and (iv) unsatisfied material judgments, claims or liabilities against us. There were no events of default under the senior notes at December 31, 2009

        Capital lease obligations on the Company's fleet of vehicles totaled $3,352 and $3,276 at December 31, 2008 and 2009, respectively.

        Required payments under the Company's long-term debt and capital lease obligations are as follows:

	Amount
2010	$	5,543
2011		4,936
2012		4,535
2013		98,854
2014		—
Thereafter		150,000
	$	263,868

        The Company historically has not needed sources of financing other than its internally generated cash flow and revolving credit facilities to fund its working capital, capital expenditures and smaller

F-16

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

5. Long-Term Debt (Continued)

acquisitions. As a result, the Company anticipates that its cash flow from operations and revolving credit facilities will be sufficient to meet its anticipated cash requirements for at least the next twelve months.

6. Fair Value Measurements

        Effective January 1, 2008, the Company adopted new accounting guidance regarding fair value measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

        Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

        Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

        Level 3: Unobservable inputs that reflect the reporting entity's own assumptions.

        The following table summarizes the basis used to measure certain financial assets and financial liabilities at fair value on a recurring basis in the balance sheet:

			Basis of Fair Value Measurements
	Balance at December 31, 2009		Quoted Prices In Active Markets for Identical Items (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest rate swap derivative financial instruments (included in other liabilities)	$	5,141		—	$	5,141		—

        The Company has entered into standard International Swaps and Derivatives Association ("ISDA") interest rate swap agreements (the "Swap Agreements") to manage the interest rate risk associated with its debt. The Swap Agreements effectively convert a portion of the Company's variable rate debt to a long-term fixed rate. Under these agreements, the Company receives a variable rate of LIBOR plus the applicable margin charged by the banks and pays a fixed rate. The fair value of these interest rate derivatives are based on quoted prices for similar instruments from a commercial bank and, therefore, the interest rate derivatives are considered a Level 2 item.

        Certain of the Company's Swap Agreements qualify as cash flow hedges while others do not. The change in the fair value of the Swap Agreements that do not qualify for hedge accounting treatment is recognized in the income statement in the period in which the change occurs. The effective portion of the Swap Agreements that qualify for hedge accounting are included in Other Comprehensive Income in the period in which the change occurs while the ineffective portion, if any, is recognized in income in the period in which the change occurs.

F-17

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

6. Fair Value Measurements (Continued)

        The table below outlines the details of each remaining Swap Agreement:

Date of Origin	Original Notional Amount		Fixed/ Amortizing	Notional Amount December 31, 2009		Expiration Date		Fixed Rate
May 8, 2008	$	45,000	Amortizing	$	40,000		Apr 1, 2013		3.78	%
May 8, 2008	$	40,000	Amortizing	$	33,000		Apr 1, 2013		3.78	%
May 2, 2005	$	17,000	Fixed	$	17,000		Dec 31, 2011		4.69	%
May 2, 2005	$	10,000	Fixed	$	10,000		Dec 31, 2011		4.77	%

        In accordance with the Swap Agreements and on a quarterly basis, interest expense is calculated based on the floating 90-day LIBOR and the fixed rate. If interest expense as calculated is greater based on the 90-day LIBOR, the financial institution pays the difference to the Company. If interest expense as calculated is greater based on the fixed rate, the Company pays the difference to the financial institution.

        Depending on fluctuations in the LIBOR, the Company's interest rate exposure and its related impact on interest expense and net cash flow may increase or decrease. The counterparty to the Swap Agreements exposes the Company to credit loss in the event of non-performance; however, nonperformance is not anticipated.

        The Company has also adopted new accounting guidance on disclosures about derivative instruments and hedging activities. The tables below display the impact the Company's derivative instruments had on the Consolidated Balance Sheets as of December 31, 2008 and 2009 and the Consolidated Income Statements for the years ended December 31, 2008 and 2009.

Fair Values of Derivative Instruments

		Liability Derivatives
		December 31, 2008			December 31, 2009
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments under Statement 133:
	Interest rate contracts	Other liabilities	$	5,078	Other liabilities	$	3,337
Derivatives not designated as hedging instruments under Statement 133:
	Interest rate contracts	Other liabilities		2,697	Other liabilities		1,804
Total derivatives			$	7,775		$	5,141

F-18

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

6. Fair Value Measurements (Continued)

The Effect of Derivative Instruments on the Consolidated Income Statements
For the years ended December 31, 2007, 2008 and 2009

										Amount of Gain Reclassified from Accumulated OCI into Income (Effective Portion) December 31,								Amount of (Loss) Gain Recognized in Income on Derivative December 31,
	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) December 31,																Location of Gain or (Loss) Recognized in Income on Derivative
																Derivatives Not Designated as Hedging Instruments
Derivatives in Net Investment Hedging Relationships									Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	2007			2008			2009			2007		2008		2009				2007			2008			2009
Interest rate contracts	$	(138	)	$	(3,162	)	$	1,069	Gain (loss) related to derivative instruments	$	—	$	—	$	—	Interest rate contracts	Gain (loss) related to derivative instruments	$	(1,737	)	$	(1,804	)	$	893

7. Prepaid Facilities Management Rent and Other Current Assets

        Prepaid facilities management rent and other current assets consist of the following:

	December 31,
	2008		2009
Prepaid facilities managment rent	$	4,526	$	4,272
Supplies		4,521		4,094
Notes receivable		275		209
Due from vendor		313		63
Prepaid Marketing		158		132
Income tax receivable		3,558		4,453
Prepaid insurance		527		502
Other		765		561
	$	14,643	$	14,286

8. Prepaid Facilities Management Rent and Other Assets

        Prepaid facilities management rent and other assets consist of the following:

	December 31,
	2008		2009
Prepaid facilities managment rent	$	11,768	$	10,412
Notes receivable		617		385
Deposits		192		122
Other		291		280
	$	12,868	$	11,199

F-19

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

9. Property, Plant and Equipment

        Property, plant and equipment consist of the following:

		December 31
	Estimated Useful Life
		2008		2009
Facilities management equipment	2–10 years	$	278,059	$	293,688
Facilities management improvements	7–10 years		13,760		14,204
Buildings and improvements	15–39 years		1,684		1,377
Furniture, fixtures and computer equipment	2–7 years		14,005		14,752
Trucks and autos	3–5 years		9,409		9,972
Land and improvements	—		77		—
			316,994		333,993
Less: accumulated depreciation			177,694		205,845
			139,300		128,148
Facilities management equipment, not yet placed in service			2,351		2,393
Property, plant and equipment, net		$	141,651	$	130,541

        Depreciation of property, plant and equipment totaled $27,711, $33,373, and $33,461 for the years ended December 31, 2007, 2008 and 2009, respectively.

        At December 31, 2008 and 2009, trucks and autos included $8,970 and $9,537, respectively, of equipment under capital lease with an accumulated amortization balance of $5,618 and $6,261, respectively.

10. Goodwill and Intangible Assets

        Goodwill and intangible assets consist of the following:

		As of December 31, 2008
		Cost		Accumulated Amortization		Net Book Value
Goodwill		$	59,478			$	59,478
		$	59,478			$	59,478
Intangible assets:
	Trade Name	$	14,050	$	—	$	14,050
	Non-compete agreements		4,041		3,936		105
	Contract rights		238,128		36,729		201,399
	Distribution rights		1,623		297		1,326
	Deferred financing costs		6,798		1,919		4,879
		$	264,640	$	42,881	$	221,759

F-20

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

10. Goodwill and Intangible Assets (Continued)

		As of December 31, 2009
		Cost		Accumulated Amortization		Net Book Value
Goodwill		$	59,043			$	59,043
		$	59,043			$	59,043
Intangible assets:
	Trade Name	$	14,050	$	—	$	14,050
	Non-compete agreements		4,041		3,965		76
	Contract rights		238,008		48,800		189,208
	Distribution rights		1,623		459		1,164
	Deferred financing costs		6,798		2,797		4,001
		$	264,520	$	56,021	$	208,499

        Estimated future amortization expense of intangible assets consists of the following:

2010	$	13,118
2011		12,714
2012		12,441
2013		12,119
2014		12,015
Thereafter		130,879
	$	193,286

        Amortization expense of intangible assets for the years ended December 31, 2007, 2008 and 2009 was $8,159, $12,213, and $13,139, respectively.

F-21

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

11. Accrued Expenses

        Accrued expenses consist of the following:

	December 31,
	2008		2009
Accrued interest	$	4,484	$	4,406
Accrued salaries/benefits		1,334		1,245
Accrued commission/bonuses		3,246		3,487
Accrued stock compensation		145		416
Reserve for refunds		452		517
Accrued rent		526		512
Current portion of deferred retirement obligation		104		104
Accrued professional fees		553		433
Accrued personal property taxes		1,019		1,138
Accrued sales tax		1,269		1,964
Accrued benefit insurance		1,456		1,208
Acquisition payment		—		1,936
Other accrued expenses		423		383
	$	15,011	$	17,749

12. Income Taxes

        The provision for state and federal income taxes consists of the following:

		Years Ended December 31,
		2007			2008			2009
Current state		$	(199	)	$	(150	)	$	(129	)
Deferred state			183			120			598
Current federal			(385	)		(1,149	)		(4,135	)
Deferred federal			1,108			421			4,944
	Total income taxes	$	707		$	(758	)	$	1,278

F-22

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

12. Income Taxes (Continued)

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

		2008			2009
Current deferred tax assets (liabilities):
	Accounts receivable	$	138		$	154
	Inventory		103			89
	Accrued bonus and vacation		303			247
	Accrued rent		203			198
	Prepaid expenses		(203	)		(194	)
	Other		66			65
			610			559
Non-current deferred tax (liabilities) assets:
	Depreciation		(27,647	)		(30,193	)
	Amortization		(12,314	)		(15,547	)
	Other comprehensive income		1,961			1,289
	Stock compensation		1,347			1,897
	Derivative instrument interest		1,041			697
	Net operating loss carryforwards		1,224			2,740
	Other		141			403
			(34,247	)		(38,714	)
	Valuation allowance against non-current deferred tax assets		(350	)		(445	)
			(34,597	)		(39,159	)
Net deferred tax liabilities		$	(33,987	)	$	(38,600	)

        For the years ended December 31, 2007, 2008 and 2009, the statutory income tax rate differed from the effective rate primarily as a result of the following differences:

		2007			2008			2009
Taxes computed at federal statutory rate			34.0	%		34.0	%		34.0	%
State income taxes, net of federal benefit			8.2			(1.3	)		11.7
Change in state deferred rate			(25.3	)		10.3			(1.1	)
Change in valuation allowance			11.8			(6.2	)		4.1
Tax settlement adjustments			(8.6	)		10.6			—
Meals & entertainment			4.9			(5.0	)		3.3
Non-deductible stock options			5.5			(2.4	)		2.1
Other			5.7			(0.6	)		1.0
	Income tax provision		36.2	%		39.4	%		55.1	%

        At December 31, 2009, the Company had a federal net operating loss carryforward of $1,592, of which $520 expires in the year 2028 and $1,072 expires in the year 2029, and state net operating loss

F-23

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

12. Income Taxes (Continued)

carryforwards of $1,149 which expire at various times through the year 2029. The Company has evaluated the positive and negative evidence bearing upon the realization of the Net Operating Losses and has increased the valuation allowance to $445 for the corresponding deferred tax asset, which is comprised principally of state net operating loss carryovers incurred in various jurisdictions.

        The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48"), as of January 1, 2007. FIN 48 establishes a single model to address accounting for uncertain tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 requires a company to evaluate whether the tax position taken by a company will more likely than not be sustained upon examination by the appropriate taxing authority. Upon adoption, the liability for income taxes associated with uncertain tax positions was $893. As a result of the implementation of FIN 48, the change to the Company's reserve for uncertain tax positions was accounted for as a $500 adjustment to increase the Company's beginning retained earnings. The Company had estimated potential exposure related to all tax years open for review by the relevant taxing authorities.

        A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2008			2009
Beginning Balance	$	333		$	21
Additions based on tax positions related to the current year		11			10
Reductions for tax positions of prior years		(323	)		—
Lapse of statute of limitations		—			—
Ending Balance	$	21		$	31

        The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During the year ended December 31, 2009, the Company recognized $2 in interest expense and no interest income. The Company had $3 accrued for the payment of interest and no accrual for penalties at the end of fiscal year December 31, 2009. Accrued interest included in the reserve at January 1, 2009 was $1.

        The Company and its subsidiaries are subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2005. All material state and local income tax matters have been concluded for years through 2004.

13. Preferred Stock Purchase Rights

        The Company has adopted a Shareholder Rights Agreement, the purpose of which is, among other things, to enhance the Board's ability to protect shareholder interests and to ensure that shareholders receive fair treatment in the event any coercive takeover attempt of the Company is made in the future. The Shareholder Rights Agreement could make it more difficult for a third party to acquire, or

F-24

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

13. Preferred Stock Purchase Rights (Continued)

could discourage a third party from acquiring, the Company or a large block of the Company's Common Stock. The following summary description of the Shareholder Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the Company's Shareholder Rights Agreement, which has been previously filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 8-A.

        Pursuant to the terms of a Shareholder Rights Agreement (the "Rights Agreement"), the Board of Directors declared a dividend distribution on June 15, 2009 of one Preferred Stock Purchase Right (a "Right") for each outstanding share of Common Stock of the Company (the "Common Stock") to stockholders of record as of the close of business on June 15, 2009 (the "Record Date"). In addition, one Right will automatically attach to each share of Common Stock issued between the Record Date and the Distribution Date (as hereinafter defined). Under certain circumstances, each Right entitles the holder thereof to purchase from the Company a unit consisting of one ten thousandth of a share (a "Unit") of Series A Junior Participating Cumulative Preferred Stock, par value $.01 per share, of the Company (the "Preferred Stock"), at a cash exercise price of $45.00 per Unit, subject to adjustment. The Rights are not exercisable and are attached to and trade with all shares of Common Stock outstanding as of, and issued subsequent to, the Record Date until the earlier to occur of (i) the close of business on the tenth calendar day following the first public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock, other than as a result of repurchases of stock by the Company or certain inadvertent actions by a stockholder (the date of said announcement being referred to as the "Stock Acquisition Date") or (ii) the close of business on the tenth business day (or such later day as the Board of Directors may determine) following the commencement of a tender offer or exchange offer that could result upon its consummation in a person or group becoming the beneficial owner of 15% or more of the outstanding shares of Common Stock (the earlier of such dates being herein referred to as the "Distribution Date"). The Rights will expire at the close of business on June 15, 2019 (the "Expiration Date"), unless previously redeemed or exchanged by the Company as described below. Until a Right is exercised, the holder will have no rights as a stockholder of the Company (beyond those as an existing stockholder), including the right to vote or to receive dividends.

        In the event that a Stock Acquisition Date occurs, each holder of a Right (other than an Acquiring Person) will be entitled to receive upon exercise, in lieu of a number of Units of Preferred Stock, that number of shares of Common Stock having a market value of two times the exercise price of the Right. In the event that, at any time following the Stock Acquisition Date, (i) the Company merges with and into any other person, and the Company is not the continuing or surviving corporation, (ii) any person merges with and into the Company and the Company is the continuing or surviving corporation of such merger and, in connection with such merger, all or part of the shares of Common Stock are changed into or exchanged for securities of any other person or cash or any other property, or (iii) 50% or more of the Company's assets or earning power is sold, each holder of a Right (other than an Acquiring Person) will be entitled to receive, upon exercise, common stock of the acquiring company having a market value equal to two times the exercise price of the Right. Rights that are or were beneficially owned by an Acquiring Person may (under certain circumstances specified in the Rights Agreement) become null and void.

F-25

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

13. Preferred Stock Purchase Rights (Continued)

        The Rights may be redeemed in whole, but not in part, at a price of $0.001 per Right by the Board of Directors only until the earlier of (i) the time at which any person becomes an Acquiring Person or (ii) the Expiration Date.

14. Commitments and Contingencies

        The Company is involved in various litigation proceedings arising in the normal course of business. In the opinion of management, the Company's ultimate liability, if any, under pending litigation would not materially affect its financial condition, results of its operations, or its cash flow.

        Leases.    The Company leases certain equipment and facilities under non-cancelable operating leases. The Company also leases certain vehicles under capital leases.

        Future minimum lease payments under non-cancelable operating and capital leases consist of the following:

		Capital Leases		Operating Leases
Year ended December 31,
	2010	$	1,543	$	3,238
	2011		936		2,978
	2012		535		2,567
	2013		262		2,124
	2014		—		1,868
	Thereafter		—		2,039
			3,276	$	14,814
Less: future minimum lease payments due within one year			1,543
Amounts due after one year		$	1,733

        Rent expense incurred by the Company under non-cancelable operating leases totaled $3,221, $3,942, and $3,966 for the years ended December 31, 2007, 2008 and 2009, respectively.

        Guaranteed Facilities Management Rent Payments.    The Company operates card- and coin-operated facilities management laundry rooms under various lease agreements in which the Company is required to make minimum guaranteed rent payments to the respective lessors. The following is a schedule by

F-26

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

14. Commitments and Contingencies (Continued)

years of future minimum guaranteed rent payments required under these lease agreements that have initial or remaining non-cancelable contract terms in excess of one year as of December 31, 2009:

2010	$	16,939
2011		12,855
2012		10,759
2013		8,577
2014		6,850
Thereafter		12,203
	$	68,183

15. Employee Benefit and Stock Plans

        Retirement Plans.    The Company maintains a qualified profit-sharing/401(k) plan (the "Plan") covering substantially all employees. The Company's contributions to the Plan are at the discretion of the Board of Directors. Costs under the Plan amounted to $1,098, $1,410, and $1,396 for the years ended December 31, 2007, 2008 and 2009, respectively.

        Stock Option and Incentive Plans.    On April 7, 1997, the Company's stockholders approved the 1997 Stock Option and Incentive Plan for the Company (the "1997 Stock Plan"). On May 26, 2005, the Company's stockholders approved the 2005 Stock Option and Incentive Plan for the Company (the "2005 Stock Plan"). On May 8, 2009, the Company's stockholders approved the 2009 Stock Option and Incentive Plan for the Company (the "2009 Stock Plan" and together with the 1997 and 2005 Stock Plans the "Stock Plans"). The Stock Plans are designed and intended as a performance incentive for officers, employees, and independent directors to promote the financial success and progress of the Company. All officers, employees and independent directors are eligible to participate in the Stock Plans. Awards, when made, may be in the form of stock options, restricted stock, restricted stock units, unrestricted stock options, and dividend equivalent rights. The Stock Plans require the maximum term of options to be ten years. Costs under the Plans amounted to $1,814, $2,271 and $2,593 for the years ended December 31, 2007, 2008 and 2009, respectively. The related income tax benefit recognized was $622, $853 and $1,350 for the years ended December 31, 2007, 2008 and 2009, respectively.

        Employee options generally vest such that one-third of the options will become exercisable on each of the first through third anniversaries of the date of grant of the options; however, the administrator of the Stock Plans may determine, at its discretion, the vesting schedule for any option award. In the event of termination of the optionee's relationship with the Company, vested options not yet exercised terminate within 90 days. The non-qualified options granted to independent directors as part of their annual compensation are exercisable on May 1st of the succeeding year and terminate ten years from the date of the grant. Directors have one year after leaving the board to exercise their options. The exercise prices are the fair market value of the shares underlying the options on the respective dates of the grants. The Company issues shares upon exercise of options from its treasury shares, if available. The grant-date fair value of employee share options and similar instruments is estimated using the Black-Scholes option-pricing model.

F-27

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

15. Employee Benefit and Stock Plans (Continued)

        The fair values of the stock options granted in 2007, 2008 and 2009 were estimated using the following components:

	2007	2008	2009
Weighted average fair value of options at grant date	$4.37	$3.74	$3.06
Risk free interest rate	4.25% – 4.98%	2.68% – 4.11%	1.695% – 2.35%
Estimated forfeiture rate	0.00% – 4.00%	0.00% – 15.00%	0.00% – 11.00%
Estimated option term	1.0 – 8.0 years	5.0 – 9.0 years	6.0 – 8.5 years
Expected volatility	23.82% – 26.36%	29.22% – 36.17%	35.53% – 43.40%

        The expected volatility of the Company's stock price was based on the weighted average of the historical performance over the prior number of years equal to the expected term and the two most recent years.

        The following is a summary of stock option plan activity under the Plans as of December 31, 2009, and changes during the year then ended:

	Options			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Outstanding at January 1, 2009		1,695,283		$	8.99	$	3.41
Granted		639,955			7.60		3.06
Exercised		(112,343	)		6.97		2.84
Forfeited		(63,876	)		11.30		3.97
Expired		(50,000	)		8.50		3.38
Outstanding at December 31, 2009		2,109,019		$	8.62	$	3.32
Exercisable at December 31, 2009		1,202,109		$	8.39	$	3.35
Options vested during the year		237,711
Weighted average remaining life of the outstanding options		6.58
Weighted average remaining life of the exercisable options		4.97
Total intrinsic value of the outstanding options	$	5,053,674
Total intrinsic value of the exercisable options	$	3,368,710

	Year Ended December 31,
	2007		2008		2009
Weighted average fair value of options granted	$	4.36	$	3.74	$	3.06
Intrinsic value of options exercised		1,018,046		74,353		468,044
Fair value of shares vested		2,600,554		3,661,665		4,027,065

F-28

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

15. Employee Benefit and Stock Plans (Continued)

        A summary of the status of the Company's nonvested shares as of December 31, 2009 and changes during the year then ended is presented below:

	Options			Grant Date Fair Value
Nonvested at January 1, 2009		543,816		$	3.89
Granted		639,955			3.06
Vested		(237,711	)		4.08
Forfeited		(39,150	)		3.65
Nonvested at December 31, 2009		906,910		$	3.27

        In the year ended December 31, 2009, the Company granted restricted stock units covering 80,270 shares of stock with an average fair market value on date of grant of $6.70 per share. The stock vests in one year upon the achievement of certain performance objectives as determined by the Board of Directors at the beginning of the fiscal year. In addition, the Company granted a cash award equivalent to 33,872 restricted stock units and subject to the same performance criteria. The award had a fair market value of $10.30 per share at December 31, 2009. The Company also granted restricted stock units covering 19,740 shares of stock with a fair market value of $5.80 per share that vest over three years which do not have a performance requirement. Restricted stock activity for fiscal 2009 is presented below:

	Restricted Stock			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2009		63,191		$	11.53
Restricted Stock Granted		100,010			6.52
Restricted Stock Issued		(56,601	)		11.63
Restricted Stock Forfeited		(2,198	)		7.97
Outstanding at December 31, 2009		104,402		$	6.91
Cash settlement equivalent of restricted stock units paid during the year	$	109,320
Restricted stock earned during the year		88,837		$	7.61
Cash award equivalent of restricted stock units earned during the year	$	349,559
Weighted average remaining life of the outstanding restricted stock		1.17
Total intrinsic value of the outstanding restricted stock	$	72

F-29

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

15. Employee Benefit and Stock Plans (Continued)

        Compensation expense related to nonvested options and restricted shares will be recognized in the following years:

2010	$	1,156
2011		579
2012		27
	$	1,762

        At December 31, 2009, the stock plans provide for the issuance of up to 3,719,639 shares of Common Stock of which 806,933 shares have been issued pursuant to the exercise of option agreements or restricted stock awards. At December 31, 2009 2,109,019 shares are subject to outstanding options, 104,402 shares have been granted, of which 78,047 are subject to certain performance criteria and 699,285 shares remain available for issuance. Of the 699,285 shares, 104,908 shares have been committed to future restricted stock awards for which performance criteria have not yet been established. Upon the adoption of the 2009 plan, no additional options can be issued from the 1997 and 2005 plans.

        Mac-Gray Corporation 2001 Employee Stock Purchase Plan.    The Company established the Mac-Gray Corporation 2001 Employee Stock Purchase Plan (the "ESPP") in May 2001. Under the terms of the ESPP, eligible employees may have between 1% and 15% of eligible compensation deducted from their pay to purchase Company Common Stock. The per share purchase price is 85% of the fair market value of the stock on, the lower of, the first day or the last day of each six month interval. Up to 500,000 shares may be offered pursuant to the ESPP. The plan includes certain restrictions, such as the holding period of the stock by employees. At December 31, 2009 there were 100 participants in the ESPP. The number of shares of Common Stock purchased through the ESPP was 36,545 and 67,372 for the years ended December 31, 2008 and 2009, respectively. There have been 277,792 shares purchased since the inception of the ESPP. At December 31, 2008 and 2009, the Company had accumulated employee withholdings associated with this plan of $161 and $120 for acquisition of stock in 2009 and 2010, respectively.

F-30

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

16. Earnings Per Share

		Year Ended December 31,
		2007		2008			2009
Income (loss) from continuing operations, net		$	1,247	$	(1,166	)	$	1,041
Income from discontinued operations, net			1,272		1,707			1,074
Net income		$	2,519	$	541		$	2,115
Weighted average number of common shares outstanding—basic			13,209		13,346			13,529
Effect of dilutive securities:
	Stock options		471		—			411
Weighted average number of common shares outstanding—diluted			13,680		13,346			13,940
Earnings(loss) per share—basic—continuing operations		$	0.09	$	(0.09	)	$	0.08
Earnings(loss) per share—diluted—continuing operations		$	0.09	$	(0.09	)	$	0.07
Earnings per share—basic—discontinued operations		$	0.10	$	0.13		$	0.08
Earnings per share—diluted—discontinued operations		$	0.09	$	0.13		$	0.08
Earnings per share—basic		$	0.19	$	0.04		$	0.16
Earnings per share—diluted		$	0.18	$	0.04		$	0.15

        There were 552, 1,189 and 850 shares under option plans that were excluded from the computation of diluted earnings per share at December 31, 2007, 2008 and 2009, respectively, due to their anti-dilutive effects.

F-31

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

17. Summary of Quarterly Financial Information (unaudited)

	Year Ended December 31, 2008
	1st Qtr			2nd Qtr			3rd Qtr			4th Qtr			Total
Revenue	$	70,894		$	83,969		$	85,402		$	86,964		$	327,229
Cost of revenue		56,989			70,650			71,563			72,479			271,681
Gross margin		13,905			13,319			13,839			14,485			55,548
Operating expenses		8,248			9,220			8,431			9,164			35,063
Income from operations		5,657			4,099			5,408			5,321			20,485
Interest and other expense, net		(3,726	)		(5,527	)		(5,592	)		(5,760	)		(20,605	)
Gain (loss) related to derivative instruments		(1,202	)		1,165			(122	)		(1,645	)		(1,804	)
Income (loss) from continuing operations before provision for income taxes		729			(263	)		(306	)		(2,084	)		(1,924	)
Provision for income taxes		92			(25	)		(231	)		(594	)		(758	)
Income (loss) from continuing operations		637			(238	)		(75	)		(1,490	)		(1,166	)
Income from discontinued operations, net		125			448			728			406			1,707
Net income (loss)	$	762		$	210		$	653		$	(1,084	)	$	541
Earnings (loss) per share—basic—from continuing operations	$	0.05		$	(0.02	)	$	(0.01	)	$	(0.11	)	$	(0.09	)(a)
Earnings (loss) per share—diluted—from continuing operations	$	0.05		$	(0.02	)	$	(0.01	)	$	(0.11	)	$	(0.09	)(a)
Earnings per share—basic—from discontinued operations	$	0.01		$	0.03		$	0.05		$	0.03		$	0.13	(a)
Earnings per share—diluted—from discontinued operations	$	0.01		$	0.03		$	0.05		$	0.03		$	0.13	(a)
Earnings (loss) per share—basic	$	0.06		$	0.02		$	0.05		$	(0.08	)	$	0.04	(a)
Earnings (loss) per share—diluted	$	0.06		$	0.02		$	0.05		$	(0.08	)	$	0.04	(a)
Weighted average common shares outstanding—basic		13,300			13,338			13,366			13,381			13,346
Weighted average common shares outstanding—diluted		13,670			13,338			13,366			13,381			13,346

(a)

The sum of the quarterly earnings per share amounts may not equal the full year amount since the computations of the weighted average shares outstanding for each quarter and the full year are computed independently of each other.

F-32

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

17. Summary of Quarterly Financial Information (unaudited) (Continued)

	Year Ended December 31, 2009
	1st Qtr			2nd Qtr			3rd Qtr			4th Qtr			Total
Revenue	$	85,284		$	80,832		$	78,364		$	81,444		$	325,924
Cost of revenue		68,530			68,879			66,823			66,600			270,832
Gross margin		16,754			11,953			11,541			14,844			55,092
Operating expenses		8,420			9,138			8,334			8,099			33,991
Income from operations		8,334			2,815			3,207			6,745			21,101
Interest and other expense, net		(5,004	)		(4,962	)		(4,811	)		(4,898	)		(19,675	)
Gain (loss) related to derivative instruments		62			439			57			335			893
Income (loss) from continuing operations before provision for income taxes		3,392			(1,708	)		(1,547	)		2,182			2,319
Provision for income taxes		1,508			(704	)		(813	)		1,287			1,278
Income (loss) from continuing operations		1,884			(1,004	)		(734	)		895			1,041
Income from discontinued operations, net		357			136			348			233			1,074
Net income (loss)	$	2,241		$	(868	)	$	(386	)	$	1,128		$	2,115
Earnings (loss) per share—basic—from continuing operations	$	0.14		$	(0.07	)	$	(0.05	)	$	0.07		$	0.08	(a)
Earnings (loss) per share—diluted—from continuing operations	$	0.14		$	(0.07	)	$	(0.05	)	$	0.06		$	0.07	(a)
Earnings per share—basic—from discontinued operations	$	0.03		$	0.01		$	0.03		$	0.02		$	0.08	(a)
Earnings per share—diluted—from discontinued operations	$	0.03		$	0.01		$	0.03		$	0.02		$	0.08	(a)
Earnings (loss) per share—basic	$	0.17		$	(0.06	)	$	(0.03	)	$	0.08		$	0.16	(a)
Earnings (loss) per share—diluted	$	0.16		$	(0.06	)	$	(0.03	)	$	0.08		$	0.15	(a)
Weighted average common shares outstanding—basic		13,406			13,498			13,587			13,622			13,529
Weighted average common shares outstanding—diluted		13,612			13,498			13,587			14,018			13,940

(a)

The sum of the quarterly earnings per share amounts may not equal the full year amount since the computations of the weighted average shares outstanding for each quarter and the full year are computed independently of each other.

F-33

MAC-GRAY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands, except per share data)

18. Subsequent Events

        On January 4, 2010, the Company entered into an interest rate swap agreement to manage the interest rate risk associated with its debt. The swap agreement effectively converts a portion of our fixed rate senior notes to a variable rate. Under this agreement, we receive the fixed rate on our senior notes (7.625%) and pay a variable rate of LIBOR plus the applicable margin charged by the banks.

        On February 5, 2010, the Company sold its MicroFridge® (Intirion Corporation) business to Danby Products. The transaction is valued at approximately $11,500. Danby Products paid Mac-Gray $8,500 in cash, and assumed existing liabilities and financial obligations for MicroFridge totaling approximately $3,000. Concurrent with this transaction, the Company paid $8,000 on its Secured Term Loan.

        On February 5, 2010, the Company's Board of Directors approved the initiation of a quarterly dividend policy for its common stock. The Company declared a dividend of $0.05 per share payable on April 1, 2010 to shareholders of record of the Company's common stock as of the close of business on March 1, 2010.

F-34

MAC-GRAY CORPORATION

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2007, 2008, AND 2009

		Balance Beginning of Year		Charged to Cost and Expenses		Deductions		Balance at End of Year
Year Ended December 31, 2007:
	Accounts recevable reserves	$	301	$	75	$	80	$	296
	Inventory reserves	$	313	$	191	$	—	$	504
	Income tax valuation allowance	$	—	$	231	$	—	$	231
Year Ended December 31, 2008:
	Allowance for doubtful accounts	$	296	$	79	$	18	$	357
	Inventory reserves	$	504	$	60	$	299	$	265
	Income tax valuation allowance	$	231	$	119	$	—	$	350
Year Ended December 31, 2009:
	Allowance for doubtful accounts	$	357	$	90	$	249	$	198
	Inventory reserves	$	265	$	69	$	104	$	230
	Income tax valuation allowance	$	350	$	95	$	—	$	445

F-35

EX-10.44

Exhibit 10.44

MAC-GRAY CORPORATION

LONG TERM INCENTIVE PLAN

(Amended and Restated as of January 18, 2010)

1.             Purpose.  This Plan is intended to create incentives for certain executive officers and key employees of the Company and any Subsidiary to allow the Company to attract and retain in its employ persons who will contribute to the future success of the Company.  It is further the intent of the Company that awards made under this Plan be used to achieve the twin goals of (i) aligning executive incentive compensation with increases in stockholder value over the long term, and (ii) using equity compensation as a tool to retain executive officers and key employees.  In furtherance of the goals, it is the intention of the Company that, except in limited circumstances, fifty percent (50%) of each award made under this Plan will be made in the form of restricted stock units and the remaining fifty percent (50%) in the form of stock options.  Additional awards of restricted stock units only may be made for Annual Excess Awards.

2.             Definitions.  Capitalized terms not otherwise defined herein shall have the meanings set forth below:

2.1           “Annual Target Award” shall mean, for any Participant, a percentage of his or her base salary at the beginning of each Fiscal Year.

2.2           “Annual Excess Award” shall mean, for any Participant, a percentage of his or her Annual Target Award.

2.3           “Committee” shall mean those members of the Compensation Committee of the Board of Directors of the Company who are “non-employee directors” as such term is defined under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended.

2.4           “Company” shall mean Mac-Gray Corporation.

2.5           “Effective Date” shall mean February 27, 2006.

2.6           “Fiscal Year” shall mean the fiscal year of the Company, which is the 12-month period ending December 31 of each year.

2.7           “Participant” shall mean any executive officer or key employee recommended by the Chief Executive Officer and approved by the Committee pursuant to Section 4 to participate herein.

2.8           “Performance Measure” shall mean, for any Fiscal Year, the specific performance measure determined by the Committee for such Fiscal Year based on one or more of the following criteria (which shall be applicable to the organizational level specified by the Committee, including, but not limited to, the Company or any Subsidiary, a division, an operating unit or a business segment of the Company or any Subsidiary, or any combination of

the foregoing):  (i) earnings before interest, taxes, depreciation and amortization, with or without adjustments for interest expense, capital expenditures and non-recurring, non-operating or extraordinary items, including on a per share basis; (ii) return on equity, assets, capital or investment; (iii) changes in the market price of the Stock; (iv) economic value-added; (v) total stockholder returns; (vi) earnings (loss), including on a per share basis; (vii) revenue or sales, (viii) cost savings or realization of synergies; (ix) pre-tax or after-tax profit levels; (x) leverage or other financial ratios, (xi) market share.

2.9           “Plan” shall mean the Mac-Gray Corporation Long Term Incentive Plan, as amended from time to time.

2.10         “Stock” shall mean the common stock, par value $.01 per share, of the Company.

2.11         “Stock Option Plan” shall mean the Mac-Gray Corporation 2005 Stock Option and Incentive Plan, as amended or amended and/or restated from time to time.

2.12         “Subsidiary” shall mean any corporation or other entity in which the Company has a controlling interest, either directory or indirectly.

3.             Administration.  The Committee shall have sole discretionary power to determine the Performance Measure(s), their target amounts and their relative weightingeach year, to determine the vesting schedule for Annual Target Awards and Annual Excess Awards, to interpret the provisions of this Plan, to administer and make all decisions and exercise all rights of the Company with respect to this Plan.  The Committee shall have final authority to apply the provisions of the Plan and determine, in its sole discretion, the amount of the Annual Target Awards and Annual Excess Awards for Participants hereunder and shall also have the exclusive discretionary authority to make all other determinations (including, without limitation, the interpretation and construction of the Plan and the determination of relevant facts) regarding the entitlement to benefits hereunder and the amount of benefits to be paid from the Plan.  The Committee’s exercise of this discretionary authority shall at all times be in accordance with the terms of the Plan and shall be entitled to deference upon review by any court, agency or other entity empowered to review its decision, and shall be enforced provided that it is not arbitrary, capricious or fraudulent.

4.             Eligibility.  For each Fiscal Year, those executive officers and key employees recommended by the Chief Executive Officer and approved by the Committee shall be Participants.  The selection of an individual to be a Participant in any one Fiscal Year does not entitle the individual to be a Participant in any other Fiscal Year.

2

5.             Annual Target Awards and Annual Excess Awards.  The Committee shall determine the Annual Target Award and Annual Excess Award for each Participant.  It is expected that 50 percent of the value of the Annual Target Award shall be awarded annually in the form of stock options and 50 percent of the value of the Annual Target Award shall be awarded annually in the form of restricted stock units.  It is expected that 100 percent of the value of the Annual Excess Award shall be awarded annually in the form of restricted stock units.  Value for this purpose shall mean (a) in the case of stock options, the Black-Scholes value of such stock options, and (b) in the case of restricted stock units, the number of units subject to the award multiplied by the average closing price of the Stock for the ten trading days immediately preceding the award date.  Stock options shall have an exercise price equal to the fair market value of the Stock on the date of grant and shall become exercisable over a three-year period, at the rate of 331/3 percent each year, subject to continued employment of the Participant by the Company or a Subsidiary.  Up to 331/3 percent of the restricted stock units subject to an award shall become vested following each Fiscal Year on the date (the “Vesting Date”) on which the Committee makes a determination regarding the achievement of the Performance Measures for such Fiscal Year, subject to continued employment of the Participant by the Company or a Subsidiary.  The actual number of restricted stock units issued in respect of Annual Target Awards and Annual Excess Awards that will vest on a particular Vesting Date will depend on the percentage of each Performance Measure the Company achieved for the relevant Fiscal Year based on a vesting schedule determined by the Committee and included in the relevant restricted stock unit agreements .

The Committee shall review the Company’s audited financial statements promptly after their preparation each year to determine the percentage of each Performance Measure that was achieved for purposes of the Plan.  The Committee shall have full discretion to modify the target amount for any Performance Measure for any Fiscal Year at any time, including without limitation to take into account any acquisitions or other corporate transactions occurring during such Fiscal Year.  If on any Vesting Date all or some of the restricted stock units subject to an award do not vest because the applicable Performance Measure is not achieved at the requisite level, then such unvested restricted stock units shall be forfeited.

In view of the Chief Executive Officer’s significant ownership position in the Stock, he shall have the right, with respect to any award of restricted stock units, to elect to have such restricted stock units settled in cash rather than in Stock.  The Chief Executive Officer may make such election with respect to any award of restricted stock units at any time within fifteen (15) days following the grant date of such award.  If such election is timely made, such award will be settled in cash on each applicable Vesting Date with the payment amount equal to the aggregate number of restricted stock units that vest on such Vesting Date multiplied by the closing price of the Stock on such Vesting Date.  If no such election is timely made, such award will be settled in Stock.

3

6.             Forfeiture.  Unless otherwise determined by the Committee, a Participant whose employment with the Company terminates for any reason prior to fulfilling the vesting requirements for his or her stock options and restricted stock units hereunder shall forfeit all rights to his or her stock options and restricted stock units that remain unvested on his or her termination date.

7.             Amendment or Termination of Plan.  The Compensation Committee may amend or terminate this Plan at any time or from time to time; provided, however, that no such amendment or termination shall, without the written consent of the Participants, in any material adverse way affect the rights of a Participant with respect to benefits earned prior to the date of amendment or termination.

8.             Limitation of Company’s Liability.  Subject to its obligation to make payments as provided for hereunder, neither the Company nor any person acting on behalf of the Company shall be liable for any act performed or the failure to perform any act with respect to this Plan, except in the event that there has been a judicial determination of willful misconduct on the part of the Company or such person.  The Company is under no obligation to fund any of the payments required to be made hereunder in advance of their actual payment or to establish any reserves with respect to this Plan.  Any benefits which become payable hereunder shall be paid from the general assets of the Company.  No Participant, or his or her beneficiary or beneficiaries, shall have any right, other than the right of an unsecured general creditor, against the Company in respect of the benefits to be paid hereunder.

9.             Withholding of Tax.  Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder shall be subject to the withholding of such amounts as the Company reasonably may determine that it is required to withhold pursuant to applicable federal, state or local law or regulation.  Withholding can be made in the form of Stock up to the minimum withholding amount.

10.           Assignability.  Except as otherwise provided by law, no benefit hereunder shall be assignable, or subject to alienation, garnishment, execution or levy of any kind, and any attempt to cause any benefit to be so subject shall be void.

11.           No Contract for Continuing Services.  This Plan shall not be construed as creating any contract for continued services between the Company and any Participant and nothing herein contained shall give any Participant the right to be retained as an employee of the Company.

12.           Governing Law.  This Plan shall be construed, administered, and enforced in accordance with the laws of the Commonwealth of Massachusetts.

13.           Non-Exclusivity.  The Plan does not limit the authority of the Company, the Committee, or any subsidiary of the Company, to grant awards or authorize any other compensation under any other plan or authority, including, without limitation, awards or other compensation based on the same Performance Measures used under the Plan.  In addition, executives not selected to participate in the Plan may participate in other plans of the Company.

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EX-10.45

Exhibit 10.45

MAC-GRAY CORPORATION

2001 EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated January 1, 2010)

The purpose of the Mac-Gray Corporation 2001 Employee Stock Purchase Plan (“the Plan”) is to provide eligible employees of Mac-Gray Corporation (the “Company”) and certain of its subsidiaries with opportunities to purchase shares of the Company’s common stock, par value $.01 per share (the “Common Stock”).  Five Hundred Thousand (500,000) shares of Common Stock in the aggregate have been approved and reserved for this purpose.  The Plan is intended to constitute an “employee stock purchase plan” within the meaning of Section 423(b) of the Internal Revenue Code of 1986, as amended (the “Code”), and shall be interpreted in accordance with that intent.

1.             ADMINISTRATION.  The Plan will be administered by the person or persons (the “Administrator”) appointed by the Company’s Board of Directors (the “Board”) for such purpose.  The Administrator has authority to make rules and regulations for the administration of the Plan, and its interpretations and decisions with regard thereto shall be final and conclusive.  No member of the Board or individual exercising administrative authority with respect to the Plan shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder.

2.             OFFERINGS.  The Company will make one or more offerings to eligible employees to purchase Common Stock under the Plan (“Offerings”).  Unless otherwise determined by the Administrator, an Offering will begin on the first business day occurring on or after each January 1 and July 1 and will end on the last business day occurring on or before the following June 30 and December 31, respectively.  The Administrator may, in its discretion, designate a different period for any Offering, provided that no Offering shall exceed 27 months in duration or overlap any other Offering.

3.             ELIGIBILITY.  All employees of the Company (including employees who are also directors of the Company) and all employees of each Designated Subsidiary (as defined in Section 12) are eligible to participate in any one or more of the Offerings under the Plan, provided that as of the first day of the applicable Offering (the “Offering Date”) they are customarily employed by the Company or a Designated Subsidiary for more than 20 hours a week and for five months or more a year.

4.             PARTICIPATION.  An employee eligible on any Offering Date may participate in such Offering by submitting an enrollment form to his appropriate payroll location at least 15 business days before the Offering Date (or by such other deadline as shall be established for the Offering).  The form will (a) state a whole percentage to be deducted from his Compensation (as defined in Section 12) per pay period, (b) authorize the purchase of Common Stock for him in each Offering in accordance with the terms of the Plan and (c) specify the exact name or names in which shares of Common Stock purchased for him are to be issued pursuant to Section 10.  An employee who does not enroll in accordance with these procedures will be deemed to have waived his right to participate.  Unless an employee files a new enrollment form or withdraws

from the Plan, his deductions and purchases will continue at the same percentage of Compensation for future Offerings, provided he remains eligible.  Notwithstanding the foregoing, participation in the Plan will neither be permitted nor be denied contrary to the requirements of the Code.

5.             EMPLOYEE CONTRIBUTIONS.  Each eligible employee may authorize payroll deductions at a minimum of one percent (1%) up to a maximum of fifteen percent (15%) of his Compensation for each pay period.  The Company will maintain book accounts showing the amount of payroll deductions made by each participating employee for each Offering.  No interest will accrue or be paid on payroll deductions.

6.             DEDUCTION CHANGES.  Except as may be determined by the Administrator in advance of an Offering, an employee may discontinue his participation in the Plan as provided in Section 7, or, on one occasion only during an Offering Period, may decrease, but may not increase, the rate of his payroll deduction during the Offering Period (subject to the limitations of Section 5) by filing a new enrollment form.  The change in rate shall be effective at the earliest practicable time, as determined by the Administrator, but not before the first pay period after making the change.  The Administrator may, in advance of any Offering, establish additional rules permitting an employee to increase, decrease or terminate his payroll deduction during an Offering.

7.             WITHDRAWAL.  An employee may withdraw from participation in the Plan by delivering a written notice of withdrawal to his appropriate payroll location.  The employee’s withdrawal will be effective as of the next business day.  Following an employee’s withdrawal, the Company will promptly refund to him his entire account balance under the Plan (after payment for any Common Stock purchased before the effective date of withdrawal).  Partial withdrawals are not permitted.  The employee may not begin participation again during the remainder of the Offering, but may enroll in a subsequent Offering in accordance with Section 4.

8.             GRANT OF OPTIONS.  On each Offering Date, the Company will grant to each eligible employee who is then a participant in the Plan an option (“Option”) to purchase on the last day of such Offering (the “Exercise Date”), at the Option Price hereinafter provided for, (a) a number of shares of Common Stock determined by dividing such employee’s accumulated payroll deductions on such Exercise Date by the lower of (i) the Fair Market Value of the Common Stock on the Offering Date, or (ii) the Fair Market Value of the Common Stock on the Exercise Date, or (b) 2,500 shares, if less, or such other maximum number of shares as shall have been established by the Administrator in advance of the Offering; provided, however, that such Option shall be subject to the limitations set forth below.  The purchase price for each share purchased under each Option (the “Option Price”) will be the Fair Market Value of the Common Stock on the Offering Date or the Exercise Date, whichever is less.

Notwithstanding the foregoing, no employee may be granted an option hereunder if such employee, immediately after the option was granted, would be treated as owning stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Parent or Subsidiary (as defined in Section 12).  For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and all stock which the employee has a

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contractual right to purchase shall be treated as stock owned by the employee.  In addition, no employee may be granted an Option which permits his rights to purchase stock under the Plan, and any other employee stock purchase plan of the Company and its Parents and Subsidiaries, to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined on the Offering Date) for each calendar year in which the Option is outstanding at any time.  The purpose of the limitation in the preceding sentence is to comply with Section 423(b)(8) of the Code and shall be applied taking Options into account in the order in which they were granted.

9.             EXERCISE OF OPTION AND PURCHASE OF SHARES.  Each employee who continues to be a participant in the Plan on the Exercise Date shall be deemed to have exercised his Option on such date and shall acquire from the Company such number of whole shares of Common Stock reserved for the purpose of the Plan as his accumulated payroll deductions on such date will purchase at the Option Price, subject to any other limitations contained in the Plan.  Any amount remaining in an employee’s account at the end of an Offering solely by reason of the inability to purchase a fractional share will be carried forward to the next Offering; any other balance remaining in an employee’s account at the end of an Offering will be refunded to the employee promptly.

10.           ISSUANCE OF CERTIFICATES.  Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or in the name of a broker authorized by the employee to be his, or their, nominee for such purpose.

11.           REPURCHASE OPTION.  In the event that an employee (or a former employee) desires to sell or otherwise transfer the shares of Common Stock purchased under the Plan within six months of the Exercise Date on which such shares were purchased (the “Locked-Up Shares”), the employee (or former employee) shall give written notice to the Company of the employee’s (or former employee’s) intention to make such sale or transfer.  At any time within 10 days after the receipt of such notice by the Company, the Company may elect to repurchase the Locked-Up Shares for a price per share equal to the lesser of (i) the purchase price per share paid by the employee (or former employee) for the Locked-Up Shares under the Plan, or (ii) the Fair Market Value of the Common Stock on the date of such repurchase.  In the event the Company or its assigns do not elect to exercise such repurchase right within such 10 day period, the employee (or former employee) may sell or transfer the Locked-Up Shares.

12.           DEFINITIONS.

The term “Compensation” means the amount of total cash compensation, prior to salary reduction pursuant to either Section 125 or 401(k) of the Code, but excluding allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains on the exercise of Company stock options, and similar items.

The term “Designated Subsidiary” means any present or future Subsidiary (as defined below) that has been designated by the Board to participate in the Plan.  The Board may so designate any Subsidiary, or revoke any such designation, at any time and from time to time, either before or after the Plan is approved by the stockholders.

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The term “Fair Market Value of the Common Stock” on any given date means the closing price of the Common Stock as reported on the New York Stock Exchange.

The term “Parent” means a “parent corporation” with respect to the Company, as defined in Section 424(e) of the Code.

The term “Subsidiary” means a “subsidiary corporation” with respect to the Company, as defined in Section 424(f) of the Code.

13.           RIGHTS ON TERMINATION OF EMPLOYMENT.  If a participating employee’s employment terminates before the Exercise Date for any Offering for any reason, no payroll deduction will be taken from any pay due and owing to the employee and the balance in his account will be paid to him or, in the case of his death, to his designated beneficiary as if he had withdrawn from the Plan under Section 7.

An employee will be deemed to have terminated employment, for this purpose, if the corporation that employs him, having been a Designated Subsidiary, ceases to be a Subsidiary, or if the employee is transferred to any corporation other than the Company or a Designated Subsidiary.  An employee will not be deemed to have terminated employment, for this purpose, if the employee is on an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.

14.           SPECIAL RULES.  Notwithstanding anything herein to the contrary, the Administrator may adopt special rules applicable to the employees of a particular Designated Subsidiary, whenever the Administrator determines that such rules are necessary or appropriate for the implementation of the Plan in a jurisdiction where such Designated Subsidiary has employees; provided that such rules are consistent with the requirements of Section 423(b) of the Code.  Such special rules may include (by way of example, but not by way of limitation) the establishment of a method for employees of a given Designated Subsidiary to fund the purchase of shares other than by payroll deduction, if the payroll deduction method is prohibited by local law or is otherwise impracticable.  Any special rules established pursuant to this Section 14 shall, to the extent possible, result in the employees subject to such rules having substantially the same rights as other participants in the Plan.  Any grant of Options to employees of a Designated Subsidiary under this Section 14 shall be viewed as a separate offering under Section 423 of the Code.

15.           OPTIONEES NOT STOCKHOLDERS.  Neither the granting of an Option to an employee nor the deductions from his pay shall constitute such employee a holder of the shares of Common Stock covered by an Option under the Plan until such shares have been purchased by and issued to him.

16.           RIGHTS NOT TRANSFERABLE.  Rights under the Plan are not transferable by a participating employee other than by will or the laws of descent and distribution, and are exercisable during the employee’s lifetime only by the employee.

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17.           APPLICATION OF FUNDS.  All funds received or held by the Company under the Plan may be combined with other corporate funds and may be used for any corporate purpose.

18.           ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK.  In the event of a subdivision of outstanding shares of Common Stock, or the payment of a dividend in Common Stock, the number of shares approved for the Plan, and the share limitation set forth in Section 8, shall be increased proportionately, and such other adjustment shall be made as may be deemed equitable by the Administrator.  In the event of any other change affecting the Common Stock, such adjustment shall be made as may be deemed equitable by the Administrator to give proper effect to such event.

19.           AMENDMENT OF THE PLAN.  The Board may at any time, and from time to time, amend the Plan in any respect, except that without the approval, within 12 months of such Board action, by the stockholders, no amendment shall be made increasing the number of shares approved for the Plan or making any other change that would require stockholder approval in order for the Plan, as amended, to qualify as an “employee stock purchase plan” under Section 423(b) of the Code.

20.           INSUFFICIENT SHARES.  If the total number of shares of Common Stock that would otherwise be purchased on any Exercise Date plus the number of shares purchased under previous Offerings under the Plan exceeds the maximum number of shares issuable under the Plan, the shares then available shall be apportioned among participants in proportion to the amount of payroll deductions accumulated on behalf of each participant that would otherwise be used to purchase Common Stock on such Exercise Date.

21.           TERMINATION OF THE PLAN.  The Plan may be terminated at any time by the Board.  Upon termination of the Plan, all amounts in the accounts of participating employees shall be promptly refunded.

22.           GOVERNMENTAL REGULATIONS.  The Company’s obligation to sell and deliver Common Stock under the Plan is subject to obtaining all governmental approvals required in connection with the authorization, issuance, or sale of such stock.

The Plan shall be governed by Delaware law except to the extent that such law is preempted by federal law.

23.           ISSUANCE OF SHARES.  Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.

24.           TAX WITHHOLDING.  Participation in the Plan is subject to any minimum required tax withholding on income of the participant in connection with the Plan.  Each employee agrees, by entering the Plan, that the Company and its Subsidiaries shall have the right to deduct any such taxes from any payment of any kind otherwise due to the employee, including shares issuable under the Plan.

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25.           NOTIFICATION UPON SALE OF SHARES.  Each employee agrees, by entering the Plan, to give the Company prompt notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased.

26.           EFFECTIVE DATE.  The amended and restated Plan shall take effect on January 1, 2010.

MAC-GRAY CORPORATION
By:	/s/ Stewart G. MacDonald
	Name: Stewart Gray MacDonald
	Title: Chief Executive Officer

Originally Adopted by Board of Directors:  April 10, 2001

Originally Adopted by Shareholders:  At the May 23, 2001 Annual Meeting of Stockholders Amendment and Restatement approved by the Board of Directors:  March 5, 2008

Amendment and Restatement approved by the Shareholders:  At the May 22, 2008 Annual Meeting of Stockholders

Amendment and Restatement approved by the Board of Directors:  December 11, 2009

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EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-44117, No. 333-62936, No. 333-126583, No. 333-151378, and No. 333-159425) of Mac-Gray Corporation of our report dated March 16, 2010 relating to the financial statements, financial statement schedules and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
March 16, 2010

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

MAC-GRAY CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

        I, Stewart G. MacDonald, Jr., Chief Executive Officer, certify that:

1.

I have reviewed this report on Form 10-K of Mac-Gray Corporation (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2010

/s/ STEWART G. MACDONALD, JR.  

Stewart G. MacDonald, Jr.
Chief Executive Officer
(Principal Executive Officer)

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Exhibit 31.1

EX-31.2

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Exhibit 31.2

MAC-GRAY CORPORATION
CERTIFICATION PURSUANT TO SECTION 302 OF
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

        I, Michael J. Shea, Chief Financial Officer and Treasurer, certify that:

1.

I have reviewed this report on Form 10-K of Mac-Gray Corporation (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: March 15, 2010

/s/ MICHAEL J. SHEA  

Michael J. Shea
Chief Financial Officer and Treasurer
(Principal Financial Officer)

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Exhibit 31.2

EX-32.1

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Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Annual Report on Form 10-K for the fiscal period ended December 31, 2009 (the "Report"), of Mac-Gray Corporation (the "Company") each of the undersigned, as the Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

•

the Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and

•

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is provided solely pursuant to 18 U.S.C. § 1350 and Item 601(b)(32) of Regulation S-K ("Item 601(b)(32)") promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act. In accordance with clause (ii) of Item 601(b)(32), this certification (A) shall not be deemed "filed" for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Dated: March 15, 2010	/s/ STEWART G. MACDONALD, JR.
	Name: Stewart G. MacDonald, Jr. Title: Chief Executive Officer
Dated: March 15, 2010	/s/ MICHAEL J. SHEA
	Name: Michael J. Shea Title: Chief Financial Officer

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Exhibit 32.1