Document:

Exhibit 10.1

 

MAC-GRAY CORPORATION

2005 STOCK OPTION AND INCENTIVE PLAN

 

GENERAL PURPOSE OF THE PLAN; DEFINITIONS

 

The name of the
plan is the Mac-Gray Corporation 2005 Stock Option and Incentive Plan (the
“Plan”).  The purpose of the Plan is to
encourage and enable the officers, employees, Non-Employee Directors and other
key persons (including consultants and prospective employees) of Mac-Gray
Corporation (the “Company”) and its Subsidiaries upon whose judgment,
initiative and efforts the Company largely depends for the successful conduct
of its business to acquire a proprietary interest in the Company.  It is anticipated that providing such persons
with a direct stake in the Company’s welfare will assure a closer identification
of their interests with those of the Company and its shareholders, thereby
stimulating their efforts on the Company’s behalf and strengthening their
desire to remain with the Company.

 

The following terms shall be defined as set forth
below:

 

“Act” means the
Securities Act of 1933, as amended, and the rules and regulations
thereunder.

 

“Administrator” is
defined in Section 2(a).

 

“Award” or “Awards,” except where referring to a
particular category of grant under the Plan, shall include Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock
Awards, Restricted Stock Awards, Unrestricted Stock Awards and Dividend
Equivalent Rights.

 

“Board” means the
Board of Directors of the Company.

 

“Code” means the
Internal Revenue Code of 1986, as amended, and any successor Code, and related
rules, regulations and interpretations.

 

“Committee” means
the compensation committee of the Board or a similar committee performing the
functions of the compensation committee and which is comprised of not less than
two Non-Employee Directors who are independent.

 

“Covered Employee”
means an employee who is a “Covered Employee” within the meaning of
Section 162(m) of the Code.

 

“Deferred Stock Award”
means Awards granted pursuant to Section 8.

 

“Dividend Equivalent Right”
means Awards granted pursuant to Section 11.

 

 

“Effective Date”
means the date on which the Plan is approved by stockholders as set forth in
Section 19.

 

“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.

 

“Fair Market Value”
of the Stock on any given date means the fair market value of the Stock
determined in good faith by the Administrator; provided, however, that if the
Stock is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System (“NASDAQ”), NASDAQ National System or a
national securities exchange, the determination shall be made by reference to
market quotations.  If there are no
market quotations for such date, the determination shall be made by reference
to the last date preceding such date for which there are market quotations.

 

“Incentive Stock Option”
means any Stock Option designated and qualified as an “incentive stock option”
as defined in Section 422 of the Code.

 

 “Non-Employee Director”
means a member of the Board who is not also an employee of the Company or any
Subsidiary.

 

“Non-Qualified Stock Option”
means any Stock Option that is not an Incentive Stock Option.

 

“Option” or “Stock Option” means any option to
purchase shares of Stock granted pursuant to Section 5.

 

“Performance Cycle”
means one or more periods of time, which may be of varying and overlapping
durations, as the Administrator may select, over which the attainment of one or
more performance criteria will be measured for the purpose of determining a
grantee’s right to and the payment of a Restricted Stock Award or Deferred
Stock Award.

 

“Restricted Stock Award”
means Awards granted pursuant to Section 7.

 

“Section 409A” means
Section 409A of the Code and the regulations and other guidance
promulgated thereunder.

 

“Stock” means the
Common Stock, par value $0.01 per share, of the Company, subject to adjustments
pursuant to Section 3.

 

“Stock Appreciation Right”
means any Award granted pursuant to Section 6.

 

“Subsidiary” means
any corporation or other entity (other than the Company) in which the Company
has a controlling interest, either directly or indirectly.

 

“Ten Percent Owner” means an
employee who owns or is deemed to own (by reason of the attribution
rules of Section 424(d) of the Code) more than 10 percent of the

 

combined voting power of all classes of stock of the
Company or any parent or subsidiary corporation.

 

“Unrestricted Stock Award”
means any Award granted pursuant to Section 9.

 

ADMINISTRATION OF PLAN; ADMINISTRATOR
AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS

 

Committee.  The Plan shall be administered by either the
Board or the Committee (the “Administrator”).

 

Powers of
Administrator.  The
Administrator shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:

 

to select the
individuals to whom Awards may from time to time be granted;

 

to determine the
time or times of grant, and the extent, if any, of Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Deferred Stock Awards, Unrestricted Stock Awards and Dividend
Equivalent Rights, or any combination of the foregoing, granted to any one or
more grantees;

 

to determine the
number of shares of Stock to be covered by any Award;

 

to determine and
modify from time to time the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms and
conditions may differ among individual Awards and grantees, and to approve the
form of written instruments evidencing the Awards;

 

to accelerate at
any time the exercisability or vesting of all or any portion of any Award;

 

subject to the
provisions of Section 5(a)(ii), to extend at any time the period in which
Stock Options may be exercised; and

 

at any time to
adopt, alter and repeal such rules, guidelines and practices for administration
of the Plan and for its own acts and proceedings as it shall deem advisable; to
interpret the terms and provisions of the Plan and any Award (including related
written instruments); to make all determinations it deems advisable for the
administration of the Plan; to decide all disputes arising in connection with
the Plan; and to otherwise supervise the administration of the Plan.

 

All decisions and interpretations of the Administrator
shall be binding on all persons, including the Company and Plan grantees.

 

Delegation of
Authority to Grant Awards. 
The Administrator, in its discretion, may delegate to the Chief Executive
Officer of the Company all or part of the Administrator’s authority and duties
with respect to the granting of Awards, to individuals who are not subject to
the reporting and other provisions of Section 16 of the Exchange Act or
“covered employees” within the meaning of Section 162(m) of the Code.  Any such delegation by the Administrator
shall include a limitation as to the amount of Awards that

 

 

may be granted
during the period of the delegation and shall contain guidelines as to the
determination of the exercise price of any Stock Option or Stock Appreciation
Right, the conversion ratio or price of other Awards and the vesting
criteria.  The Administrator may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Administrator’s delegate or delegates that
were consistent with the terms of the Plan.

 

Indemnification.  Neither the Board nor the Committee, nor any
member of either or any delegate thereof, shall be liable for any act, omission,
interpretation, construction or determination made in good faith in connection
with the Plan, and the members of the Board and the Committee (and any delegate
thereof) shall be entitled in all cases to indemnification and reimbursement by
the Company in respect of any claim, loss, damage or expense (including,
without limitation, reasonable attorneys’ fees) arising or resulting therefrom
to the fullest extent permitted by law and/or under any directors’ and
officers’ liability insurance coverage which may be in effect from time to time
and/or any indemnification agreement between such individual and the Company.

 

STOCK ISSUABLE UNDER THE PLAN; MERGERS;
SUBSTITUTION

 

Stock Issuable.  The maximum number of shares of Stock
reserved and available for issuance under the Plan shall be 1,300,000 shares, subject to adjustment as provided in
Section 3(b); provided that not more than 1,300,000
shares shall be issued in the form of Incentive Stock Options.  For purposes of this limitation, the shares
of Stock underlying any Awards that are forfeited, canceled, held back upon
exercise of an Option or settlement of an Award to cover the exercise price or
tax withholding, reacquired by the Company prior to vesting, satisfied without
the issuance of Stock or otherwise terminated (other than by exercise) shall be
added back to the shares of Stock available for issuance under the Plan.  Subject to such overall limitations, shares
of Stock may be issued up to such maximum number pursuant to any type or types
of Award; provided, however, that Stock Options or Stock Appreciation Rights
with respect to no more than 150,000 shares
of Stock may be granted to any one individual grantee during any one calendar
year period.  The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or
shares of Stock reacquired by the Company.

 

Changes in Stock.  Subject to Section 3(c) hereof, if,
as a result of any reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar change in the
Company’s capital stock, the outstanding shares of Stock are increased or
decreased or are exchanged for a different number or kind of shares or other
securities of the Company, or additional shares or new or different shares or
other securities of the Company or other non-cash assets are distributed with
respect to such shares of Stock or other securities, or, if, as a result of any
merger or consolidation, sale of all or substantially all of the assets of the
Company, the outstanding shares of Stock are converted into or exchanged for a
different number or kind of securities of the Company or any successor entity
(or a parent or subsidiary thereof), the Administrator shall make an
appropriate or proportionate adjustment in (i) the maximum number of
shares reserved for issuance under the Plan, (ii) the maximum number of
Incentive Stock Options that may be issued under the Plan, (iii) the
number of Stock Options or Stock Appreciation Rights that can be granted to any
one individual grantee and the maximum

 

 

number of shares
that may be granted under a Performance-based Award, (iv) the number and
kind of shares or other securities subject to any then outstanding Awards under
the Plan, (v) the repurchase price, if any, per share subject to each
outstanding Restricted Stock Award, and (vi) the price for each share
subject to any then outstanding Stock Options and Stock Appreciation Rights
under the Plan, without changing the aggregate exercise price (i.e., the
exercise price multiplied by the number of Stock Options and Stock Appreciation
Rights) as to which such Stock Options and Stock Appreciation Rights remain
exercisable.  The adjustment by the
Administrator shall be final, binding and conclusive.  No fractional shares of Stock shall be issued
under the Plan resulting from any such adjustment, but the Administrator in its
discretion may make a cash payment in lieu of fractional shares.

 

The Administrator may also adjust the number of shares
subject to outstanding Awards and the exercise price and the terms of
outstanding Awards to take into consideration material changes in accounting
practices or principles, extraordinary dividends, acquisitions or dispositions
of stock or property or any other event if it is determined by the
Administrator that such adjustment is appropriate to avoid distortion in the
operation of the Plan, provided that no such adjustment shall be made in the
case of a Stock Option or Stock Appreciation Right, without the consent of the
grantee, if it would constitute a modification, extension or renewal of the
Option within the meaning of Section 424(h) of the Code.

 

Mergers and Other
Transactions.  In the
case of and subject to the consummation of (i) the dissolution or
liquidation of the Company, (ii) the sale of all or substantially all of
the assets of the Company on a consolidated basis to an unrelated person or
entity, (iii) a merger, reorganization or consolidation in which the
outstanding shares of Stock are converted into or exchanged for a different kind
of securities of the successor entity and the holders of the Company’s
outstanding voting power immediately prior to such transaction do not own a
majority of the outstanding voting power of the successor entity immediately
upon completion of such transaction, or (iv) the sale of all of the Stock
of the Company to an unrelated person or entity (in each case, a “Sale Event”),
all Options and Stock Appreciation Rights that are not exercisable immediately
prior to the effective time of the Sale Event shall become fully exercisable as
of the effective time of the Sale Event and all other Awards shall become fully
vested and nonforfeitable as of the effective time of the Sale Event, except as
the Administrator may otherwise specify with respect to particular Awards in
the relevant Award documentation, and Awards with conditions and restrictions
relating to the attainment of performance goals may become vested and
nonforfeitable in connection with a Sale Event in the Administrator’s
discretion.  Upon the effective time of
the Sale Event, the Plan and all outstanding Awards granted hereunder shall
terminate, unless provision is made in connection with the Sale Event in the
sole discretion of the parties thereto for the assumption or continuation of
Awards theretofore granted by the successor entity, or the substitution of such
Awards with new Awards of the successor entity or parent thereof, with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices, as such parties shall agree (after taking into
account any acceleration hereunder).  In
the event of such termination, each grantee shall be permitted, within a
specified period of time prior to the consummation of the Sale Event as
determined by the

 

 

Administrator, to
exercise all outstanding Options and Stock Appreciation Rights held by such
grantee, including those that will become exercisable upon the consummation of
the Sale Event; provided, however, that the exercise of Options and Stock
Appreciation Rights not exercisable prior to the Sale Event shall be subject to
the consummation of the Sale Event.

 

Notwithstanding anything to the contrary in this
Section 3(c), in the event of a Sale Event pursuant to which holders of
the Stock of the Company will receive upon consummation thereof a cash payment
for each share surrendered in the Sale Event, the Company shall have the right,
but not the obligation, to make or provide for a cash payment to the grantees
holding Options and Stock Appreciation Rights, in exchange for the cancellation
thereof, in an amount equal to the difference between (A) the value as
determined by the Administrator of the consideration payable per share of Stock
pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock
subject to outstanding Options and Stock Appreciation Rights (to the extent
then exercisable at prices not in excess of the Sale Price) and (B) the
aggregate exercise price of all such outstanding Options and Stock Appreciation
Rights.

 

Substitute Awards.  The Administrator may grant Awards under the
Plan in substitution for stock and stock based awards held by employees,
directors or other key persons of another corporation in connection with the
merger or consolidation of the employing corporation with the Company or a
Subsidiary or the acquisition by the Company or a Subsidiary of property or
stock of the employing corporation.  The
Administrator may direct that the substitute awards be granted on such terms
and conditions as the Administrator considers appropriate in the
circumstances.  Any substitute Awards
granted under the Plan shall not count against the share limitation set forth
in Section 3(a).

 

ELIGIBILITY

 

Grantees under the Plan will be such full or part-time
officers and other employees, Non-Employee Directors and key persons (including
consultants and prospective employees) of the Company and its Subsidiaries as
are selected from time to time by the Administrator in its sole discretion.

 

STOCK OPTIONS

 

Any Stock Option granted under the Plan shall be in
such form as the Administrator may from time to time approve.

 

Stock Options granted under the Plan may be either
Incentive Stock Options or Non-Qualified Stock Options.  Incentive Stock Options may be granted only
to employees of the Company or any Subsidiary that is a “subsidiary
corporation” within the meaning of Section 424(f) of the Code.  To the extent that any Option does not
qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock
Option.

 

Stock Options
Granted to Employees, Non-Employee Directors and Key Persons.  The Administrator in its discretion may grant
Stock Options to eligible employees, Non-Employee Directors and key persons of
the Company or any Subsidiary.  Stock
Options

 

 

granted pursuant
to this Section 5(a) shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable.  If the Administrator so
determines, Stock Options may be granted in lieu of cash compensation at the
optionee’s election, subject to such terms and conditions as the Administrator
may establish.

 

Exercise Price.  The exercise price per share for the Stock
covered by a Stock Option granted pursuant to this Section 5(a) shall
be determined by the Administrator at the time of grant but shall not be less
than 100 percent of the Fair Market Value on the date of grant.  In the case of an Incentive Stock Option that
is granted to a Ten Percent Owner, the option price of such Incentive Stock
Option shall be not less than 110 percent of the Fair Market Value on the grant
date.

 

Option Term.  The term of each Stock Option shall be fixed
by the Administrator, but no Stock Option shall be exercisable more than ten years
after the date the Stock Option is granted. 
In the case of an Incentive Stock Option that is granted to a Ten
Percent Owner, the term of such Stock Option shall be no more than five years
from the date of grant.

 

Exercisability;
Rights of a Stockholder. 
Stock Options shall become exercisable at such time or times, whether or
not in installments, as shall be determined by the Administrator at or after
the grant date.  The Administrator may at
any time accelerate the exercisability of all or any portion of any Stock
Option.  An optionee shall have the
rights of a stockholder only as to shares acquired upon the exercise of a Stock
Option and not as to unexercised Stock Options.

 

Method of Exercise.  Stock Options may be exercised in whole or in
part, by giving written notice of exercise to the Company, specifying the
number of shares to be purchased. 
Payment of the purchase price may be made by one or more of the
following methods to the extent provided in the Option Award agreement:

 

In cash, by
certified or bank check or other instrument acceptable to the Administrator;

 

Through the
delivery (or attestation to the ownership) of shares of Stock that have been
purchased by the optionee on the open market or that are beneficially owned by
the optionee and are not then subject to restrictions under any Company
plan.  Such surrendered shares shall be
valued at Fair Market Value on the exercise date; or

 

By the optionee
delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company cash or
a check payable and acceptable to the Company for the purchase price; provided
that in the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment procedure.

 

Payment instruments will be received subject
to collection.  The transfer to the
optionee on the records of the Company or the transfer agent of the shares of
Stock to be purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from

 

 

the optionee (or a purchaser acting in his
stead in accordance with the provisions of the Stock Option) by the Company of
the full purchase price for such shares and the fulfillment of any other
requirements contained in the Option Award agreement or applicable provisions
of laws (including the satisfaction of any withholding taxes that the Company
is obligated to withhold with respect to the optionee).  In the event an optionee chooses to pay the
purchase price by previously-owned shares of Stock through the attestation
method, the number of shares of Stock transferred to the optionee upon the
exercise of the Stock Option shall be net of the number of shares attested to.

 

Annual Limit on
Incentive Stock Options. 
To the extent required for “incentive stock option” treatment under
Section 422 of the Code, the aggregate Fair Market Value (determined as of
the time of grant) of the shares of Stock with respect to which Incentive Stock
Options granted under this Plan and any other plan of the Company or its parent
and subsidiary corporations become exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000.  To the extent that any Stock Option exceeds
this limit, it shall constitute a Non-Qualified Stock Option.

 

STOCK APPRECIATION RIGHTS

 

Nature of Stock
Appreciation Rights.  A
Stock Appreciation Right is an Award entitling the recipient to receive shares
of Stock having a value equal to the excess of the Fair Market Value of the
Stock on the date of exercise over the exercise price of the Stock Appreciation
Right, which price shall not be less than 100 percent of the Fair Market Value
of the Stock on the date of grant (or more than the option exercise price per
share, if the Stock Appreciation Right was granted in tandem with a Stock
Option) multiplied by the number of shares of Stock with respect to which the
Stock Appreciation Right shall have been exercised.

 

Grant and Exercise
of Stock Appreciation Rights. 
Stock Appreciation Rights may be granted by the Administrator in tandem
with, or independently of, any Stock Option granted pursuant to Section 5
of the Plan.  In the case of a Stock
Appreciation Right granted in tandem with a Non-Qualified Stock Option, such
Stock Appreciation Right may be granted either at or after the time of the
grant of such Option.  In the case of a
Stock Appreciation Right granted in tandem with an Incentive Stock Option, such
Stock Appreciation Right may be granted only at the time of the grant of the
Option.

 

A Stock Appreciation Right or applicable portion
thereof granted in tandem with a Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Option.

 

Terms and
Conditions of Stock Appreciation Rights.  Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined from time to time by the
Administrator, subject to the following:

 

Stock Appreciation
Rights granted in tandem with Options shall be exercisable at such time or
times and to the extent that the related Stock Options shall be exercisable.

 

Upon exercise of a
Stock Appreciation Right, the applicable portion of any related Option shall be
surrendered.

 

 

RESTRICTED STOCK AWARDS

 

Nature of
Restricted Stock Awards. 
A Restricted Stock Award is an Award entitling the recipient to acquire,
at such purchase price (which may be zero) as determined by the Administrator,
shares of Stock subject to such restrictions and conditions as the
Administrator may determine at the time of grant (“Restricted Stock”).  Conditions may be based on continuing employment
(or other service relationship) and/or achievement of pre-established
performance goals and objectives.  The
grant of a Restricted Stock Award is contingent on the grantee executing the
Restricted Stock Award agreement.  The
terms and conditions of each such agreement shall be determined by the
Administrator, and such terms and conditions may differ among individual Awards
and grantees.

 

Rights as a
Stockholder.  Upon
execution of a written instrument setting forth the Restricted Stock Award and
payment of any applicable purchase price, a grantee shall have the rights of a
stockholder with respect to the voting of the Restricted Stock, subject to such
conditions contained in the written instrument evidencing the Restricted Stock
Award.  Unless the Administrator shall
otherwise determine, (i) uncertificated Restricted Stock shall be
accompanied by a notation on the records of the Company or the transfer agent
to the effect that they are subject to forfeiture until such Restricted Stock
are vested as provided in Section 7(d) below, and (ii) certificated
Restricted Stock shall remain in the possession of the Company until such
Restricted Stock is vested as provided in Section 7(d) below, and the
grantee shall be required, as a condition of the grant, to deliver to the
Company such instruments of transfer as the Administrator may prescribe.

 

Restrictions.  Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein or in the Restricted Stock Award agreement.  Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 16
below, in writing after the Award agreement is issued, if any, if a grantee’s
employment (or other service relationship) with the Company and its Subsidiaries
terminates for any reason, any Restricted Stock that has not vested at the time
of termination shall automatically and without any requirement of notice to
such grantee from or other action by or on behalf of, the Company be deemed to
have been reacquired by the Company at its original purchase price from such
grantee or such grantee’s legal representative simultaneously with such
termination of employment (or other service relationship), and thereafter shall
cease to represent any ownership of the Company by the grantee or rights of the
grantee as a shareholder.  Following such
deemed reacquisition of unvested Restricted Stock that are represented by
physical certificates, a grantee shall surrender such certificates to the
Company upon request without consideration.

 

Vesting of
Restricted Stock.  The
Administrator at the time of grant shall specify the date or dates and/or the
attainment of pre-established performance goals, objectives and other
conditions on which the non-transferability of the Restricted Stock and the
Company’s right of repurchase or forfeiture shall lapse.  Subsequent to such date or dates
and/or the attainment of such pre-established performance goals, objectives and
other conditions, the shares on which all restrictions have lapsed shall no
longer be Restricted Stock and shall be deemed “vested.”  Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 16
below, in writing after the Award

 

 

agreement is
issued, a grantee’s rights in any shares of Restricted Stock that have not
vested shall automatically terminate upon the grantee’s termination of
employment (or other service relationship) with the Company and its
Subsidiaries and such shares shall be subject to the provisions of
Section 7(c) above.

 

DEFERRED STOCK AWARDS

 

Nature of Deferred
Stock Awards.   A
Deferred Stock Award is an Award of phantom stock units to a grantee, subject
to restrictions and conditions as the Administrator may determine at the time
of grant.  Conditions may be based on
continuing employment (or other service relationship) and/or achievement of
pre-established performance goals and objectives.  The grant of a Deferred Stock Award is
contingent on the grantee executing the Deferred Stock Award agreement.  The terms and conditions of each such
agreement shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees.  At the end of the deferral period,
the Deferred Stock Award, to the extent vested, shall be paid to the grantee in
the form of shares of Stock.

 

Election to
Receive Deferred Stock Awards in Lieu of Compensation.  The Administrator may, in its sole
discretion, permit a grantee to elect to receive a portion of the cash
compensation or Restricted Stock Award otherwise due to such grantee in the
form of a Deferred Stock Award.  Any such
election shall be made in writing and shall be delivered to the Company no
later than the date specified by the Administrator and in accordance with Section 409A
and such other rules and procedures established by the Administrator.  The Administrator shall have the sole right
to determine whether and under what circumstances to permit such elections and
to impose such limitations and other terms and conditions thereon as the
Administrator deems appropriate.

 

Rights as a
Stockholder.  During
the deferral period, a grantee shall have no rights as a stockholder; provided,
however, that the grantee may be credited with Dividend Equivalent Rights with
respect to the phantom stock units underlying his Deferred Stock Award, subject
to such terms and conditions as the Administrator may determine.

 

Termination.  Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 16
below, in writing after the Award agreement is issued, a grantee’s right in all
Deferred Stock Awards that have not vested shall automatically terminate upon
the grantee’s termination of employment (or cessation of service relationship)
with the Company and its Subsidiaries for any reason.

 

UNRESTRICTED STOCK AWARDS

 

Grant or Sale of Unrestricted Stock.  The Administrator may, in its sole
discretion, grant (or sell at par value or such higher purchase price
determined by the Administrator) an Unrestricted Stock Award to any grantee
pursuant to which such grantee may receive shares of Stock free of any
restrictions (“Unrestricted Stock”) under the Plan.  Unrestricted Stock Awards may be granted in
respect of past services or other valid consideration, or in lieu of cash
compensation due to such grantee.

 

 

PERFORMANCE-BASED AWARDS TO COVERED EMPLOYEES

 

Notwithstanding anything to the contrary contained
herein, to the extent that any Restricted Stock Award or Deferred Stock Award
granted to a Covered Employee is intended to qualify as “Performance-based
Compensation” under Section 162(m) of the Code and the regulations
promulgated thereunder (a “Performance-based Award”), such Award shall comply
with the provisions set forth below:

 

Performance
Criteria.  The
performance criteria used in performance goals governing Performance-based
Awards granted to Covered Employees may include any or all of the
following:  (i) return on equity,
assets, capital or investment of 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; (ii) revenue, pre-tax or after-tax profit
levels of 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; (iii) earnings before interest, taxes, depreciation and
amortization, cash flow or a similar measure of 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; (iv) total shareholder
return; (v) changes in the market price of the Stock; (vi) sales or
market share; (vii) earnings per share; or (viii) economic value
added; or such other similar performance measures as may be determined by the
Administrator.

 

Grant of
Performance-based Awards. 
With respect to each Performance-based Award granted to a Covered
Employee, the Committee shall select, within the first 90 days of a Performance
Cycle (or, if shorter, within the maximum period allowed under
Section 162(m) of the Code) the performance criteria for such grant, and
the achievement targets with respect to each performance criterion (including a
threshold level of performance below which no amount will become payable with
respect to such Award).  Each
Performance-based Award will specify the amount payable, or the formula for
determining the amount payable, upon achievement of the various applicable
performance targets.  The performance
criteria established by the Committee may be (but need not be) different for
each Performance Cycle and different goals may be applicable to
Performance-based Awards to different Covered Employees.

 

Payment of
Performance-based Awards. 
Following the completion of a Performance Cycle, the Committee shall
meet to review and certify in writing whether, and to what extent, the
performance criteria for the Performance Cycle have been achieved and, if so,
to also calculate and certify in writing the amount of the Performance-based
Awards earned for the Performance Cycle. 
The Committee shall then determine the actual size of each Covered
Employee’s Performance-based Award, and, in doing so, may reduce or eliminate
the amount of the Performance-based Award for a Covered Employee if, in its
sole judgment, such reduction or elimination is appropriate.

 

Maximum Award
Payable.  The maximum
Performance-based Award payable to any one Covered Employee under the Plan for
a Performance Cycle is 150,000 shares
(subject to adjustment as provided in Section 3(b) hereof).

 

 

DIVIDEND EQUIVALENT RIGHTS

 

Dividend
Equivalent Rights.  A
Dividend Equivalent Right is an Award entitling the grantee to receive credits
based on cash dividends that would have been paid on the shares of Stock
specified in the Dividend Equivalent Right (or other award to which it relates)
if such shares had been issued to and held by the grantee.  A Dividend Equivalent Right may be granted
hereunder to any grantee as a component of another Award or as a freestanding
award.  The terms and conditions of
Dividend Equivalent Rights shall be specified in the Award agreement.  Dividend equivalents credited to the holder
of a Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Stock, which may thereafter accrue
additional equivalents.  Any such
reinvestment shall be at Fair Market Value on the date of reinvestment or such
other price as may then apply under a dividend reinvestment plan sponsored by
the Company, if any.  Dividend Equivalent
Rights may be settled in cash or shares of Stock or a combination thereof, in a
single installment or installments.  A
Dividend Equivalent Right granted as a component of another Award may provide
that such Dividend Equivalent Right shall be settled upon exercise, settlement,
or payment of, or lapse of restrictions on, such other award, and that such
Dividend Equivalent Right shall expire or be forfeited or annulled under the
same conditions as such other award.  A
Dividend Equivalent Right granted as a component of another Award may also
contain terms and conditions different from such other award.

 

Interest
Equivalents.  Any Award
under this Plan that is settled in whole or in part in cash on a deferred basis
may provide in the grant for interest equivalents to be credited with respect
to such cash payment.  Interest
equivalents may be compounded and shall be paid upon such terms and conditions
as may be specified by the grant.

 

Termination.  Except as may otherwise be provided by the
Administrator either in the Award agreement or, subject to Section 16
below, in writing after the Award agreement is issued, a grantee’s rights in
all Dividend Equivalent Rights or interest equivalents granted as a component
of another Award that has not vested shall automatically terminate upon the
grantee’s termination of employment (or cessation of service relationship) with
the Company and its Subsidiaries for any reason.

 

Transferability of Awards

 

Transferability.  Except as provided in
Section 12(b) below, during a grantee’s lifetime, his or her Awards
shall be exercisable only by the grantee, or by the grantee’s legal
representative or guardian in the event of the grantee’s incapacity.  No Awards shall be sold, assigned,
transferred or otherwise encumbered or disposed of by a grantee other than by
will or by the laws of descent and distribution.  No Awards shall be subject, in whole or in
part, to attachment, execution, or levy of any kind, and any purported transfer
in violation hereof shall be null and void.

 

Committee Action.  Notwithstanding Section 12(a), the
Administrator, in its discretion, may provide either in the Award agreement
regarding a given Award or by subsequent written approval that the grantee (who
is an employee or director) may transfer his or her Awards (other than any
Incentive Stock Options) to his or her immediate family members, to trusts for
the benefit of such family members, or to partnerships in which

 

 

such family
members are the only partners, provided that the transferee agrees in writing
with the Company to be bound by all of the terms and conditions of this Plan
and the applicable Award.

 

Family Member.  For purposes of Section 12(b), “family
member” shall mean a grantee’s child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, any person sharing the
grantee’s household (other than a tenant of the grantee), a trust in which
these persons (or the grantee) have more than 50 percent of the beneficial
interest, a foundation in which these persons (or the grantee) control the
management of assets, and any other entity in which these persons (or the grantee)
own more than 50 percent of the voting interests.

 

Designation of
Beneficiary.  Each
grantee to whom an Award has been made under the Plan may designate a
beneficiary or beneficiaries to exercise any Award or receive any payment under
any Award payable on or after the grantee’s death.  Any such designation shall be on a form
provided for that purpose by the Administrator and shall not be effective until
received by the Administrator.  If no
beneficiary has been designated by a deceased grantee, or if the designated
beneficiaries have predeceased the grantee, the beneficiary shall be the
grantee’s estate.

 

TAX WITHHOLDING

 

Payment by Grantee.  Each grantee shall, no later than the date as
of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the grantee for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
income.  The Company and its Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the grantee.  The Company’s obligation to deliver evidence
of book entry (or stock certificates) to any grantee is subject to and
conditioned on tax obligations being satisfied by the grantee.

 

Payment in Stock.  Subject to approval by the Administrator, a
grantee may elect to have the minimum required tax withholding obligation
satisfied, in whole or in part, by (i) authorizing the Company to withhold
from shares of Stock to be issued pursuant to any Award a number of shares with
an aggregate Fair Market Value (as of the date the withholding is effected)
that would satisfy the withholding amount due, or (ii) transferring to the
Company shares of Stock owned by the grantee with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due.

 

Additional Conditions Applicable to
Nonqualified Deferred Compensation Under Section 409A.

 

In the event any Stock Option or Stock Appreciation
Right under the Plan is granted with an exercise price of less than 100 percent
of the Fair Market Value on the date of grant (regardless of whether or not
such exercise price is intentionally or

 

 

unintentionally priced at less than Fair Market Value), or such grant
is materially modified and deemed a new grant at a time when the Fair Market
Value exceeds the exercise price, or any other Award is otherwise determined to
constitute “nonqualified deferred compensation” within the meaning of
Section 409A (a “409A Award”), the following additional conditions shall
apply and shall supersede any contrary provisions of this Plan or the terms of
any agreement relating to such 409A Award.

 

Exercise and
Distribution.  Except
as provided in Section 14(b) hereof, no 409A Award shall be
exercisable or distributable earlier than upon one of the following:

 

Specified Time.  A specified time or a fixed schedule set
forth in the written instrument evidencing the 409A Award, but not later than
after the expiration of ten years from the date such Award was granted.

 

Separation from
Service.  Separation
from service (within the meaning of Section 409A) by the 409A Award
recipient; provided however, if the 409A Award recipient is a “key employee”
(as defined in Section 416(i) of the Code without regard to paragraph
(5) thereof) and any of the Company’s Stock is publicly traded on an established
securities market or otherwise, exercise or distribution under this
Section 14(a)(ii) may not be made before the date that is six months
after the date of separation from service.

 

Death.  The date of death of the 409A Award
recipient.

 

Disability.  The date the 409A Award recipient becomes
disabled (within the meaning of Section 14(c)(ii) hereof).

 

Unforeseeable
Emergency.  The
occurrence of an unforeseeable emergency (within the meaning of
Section 14(c)(iii) hereof), but only if the net value (after payment
of the exercise price) of the number of shares of Stock that become issuable
does not exceed the amounts necessary to satisfy such emergency plus amounts
necessary to pay taxes reasonably anticipated as a result of the exercise,
after taking into account the extent to which the emergency is or may be
relieved through reimbursement or compensation by insurance or otherwise or by
liquidation of the participant’s other assets (to the extent such liquidation
would not itself cause severe financial hardship).

 

Change in Control
Event.  The occurrence
of a Change in Control Event (within the meaning of
Section 14(c)(i) hereof), including the Company’s discretionary
exercise of the right to accelerate vesting of such grant upon a Change in
Control Event or to terminate the Plan or any 409A Award granted hereunder
within 12 months of the Change in Control Event.

 

No Acceleration.  A 409A Award may not be accelerated or
exercised prior to the time specified in Section 14(a) hereof, except
in the case of one of the following events:

 

Domestic Relations
Order.  The 409A Award
may permit the acceleration of the exercise or distribution time or
schedule to an individual other than the Participant as may be necessary
to comply with the terms of a domestic relations order (as defined in
Section 414(p)(1)(B) of the Code).

 

 

Conflicts of
Interest.  The 409A
Award may permit the acceleration of the exercise or distribution time or
schedule as may be necessary to comply with the terms of a certificate of
divestiture (as defined in Section 1043(b)(2) of the Code).

 

Change in Control
Event.  The
Administrator may exercise the discretionary right to accelerate the vesting of
such 409A Award upon a Change in Control Event or to terminate the Plan or any
409A Award granted thereunder within 12 months of the Change in Control Event
and cancel the 409A Award for compensation.

 

Definitions.  Solely for purposes of this Section 14
and not for other purposes of the Plan, the following terms shall be defined as
set forth below:

 

“Change in Control
Event” means the occurrence of a change in the ownership of the Company, a
change in effective control of the Company, or a change in the ownership of a
substantial portion of the assets of the Company (as defined in IRS Notice 2005-1,
Q&A-11, Q&A-12, Q&A-13 and Q&A-14).

 

“Disabled” means a
grantee (i) is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, or (ii) is, by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than 12
months, receiving income replacement benefits for a period of not less than
three months under an accident and health plan covering employees of the
Company or its Subsidiaries.

 

“Unforeseeable
Emergency” means a severe financial hardship to the grantee resulting from an
illness or accident of the grantee, the grantee’s spouse, or a dependent (as
defined in Section 152(a) of the Code) of the grantee, loss of the
grantee’s property due to casualty, or similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the grantee.

 

TRANSFER, LEAVE OF ABSENCE, ETC.

 

For purposes of the Plan, the following events shall
not be deemed a termination of employment:

 

a transfer to the
employment of the Company from a Subsidiary or from the Company to a
Subsidiary, or from one Subsidiary to another; or

 

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.

 

AMENDMENTS AND TERMINATION

 

The Board may, at any time, amend or discontinue the
Plan and the Administrator may, at any time, amend or cancel any outstanding
Award for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect

 

 

rights under any outstanding Award without the holder’s consent.  Except as provided in
Section 3(b) or 3(c), in no event may the Administrator exercise its
discretion to reduce the exercise price of outstanding Stock Options or Stock
Appreciation Rights or effect repricing through cancellation and re-grants.  Any material Plan amendments (other than
amendments that curtail the scope of the Plan), including any Plan amendments
that (i) increase the number of shares reserved for issuance under the
Plan, (ii) expand the type of Awards available under, materially expand the
eligibility to participate in, or materially extend the term of, the Plan, or
(iii) materially change the method of determining Fair Market Value, shall
be subject to approval by the Company stockholders entitled to vote at a
meeting of stockholders.  In addition, to
the extent determined by the Administrator to be required by the Code to ensure
that Incentive Stock Options granted under the Plan are qualified under
Section 422 of the Code or to ensure that compensation earned under Awards
qualifies as performance-based compensation under Section 162(m) of the
Code, Plan amendments shall be subject to approval by the Company stockholders
entitled to vote at a meeting of stockholders. 
Nothing in this Section 16 shall limit the Administrator’s
authority to take any action permitted pursuant to Section 3(c).

 

STATUS OF PLAN

 

With respect to the portion of any Award that has not
been exercised and any payments in cash, Stock or other consideration not
received by a grantee, a grantee shall have no rights greater than those of a
general creditor of the Company unless the Administrator shall otherwise
expressly determine in connection with any Award or Awards.  In its sole discretion, the Administrator may
authorize the creation of trusts or other arrangements to meet the Company’s
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.

 

GENERAL PROVISIONS

 

No Distribution;
Compliance with Legal Requirements.  The Administrator may require each person
acquiring Stock pursuant to an Award to represent to and agree with the Company
in writing that such person is acquiring the shares without a view to
distribution thereof.

 

No shares of Stock shall be issued pursuant to an
Award until all applicable securities law and other legal and stock exchange or
similar requirements have been satisfied. 
The Administrator may require the placing of such stop-orders and restrictive
legends on certificates for Stock and Awards as it deems appropriate.

 

Delivery of Stock
Certificates.  Stock
certificates to grantees under this Plan shall be deemed delivered for all
purposes when the Company or a stock transfer agent of the Company shall have
mailed such certificates in the United States mail, addressed to the grantee,
at the grantee’s last known address on file with the Company.  Uncertificated Stock shall be deemed
delivered for all purposes when the Company or a Stock transfer agent of the
Company shall have given to the grantee by electronic mail (with proof of
receipt) or by United States mail, addressed to the grantee, at the grantee’s
last known address on file with the Company, notice of issuance and recorded
the issuance in its records (which may include electronic “book entry”
records).

 

 

Other Compensation
Arrangements; No Employment Rights.  Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements,
including trusts, and such arrangements may be either generally applicable or
applicable only in specific cases.  The
adoption of this Plan and the grant of Awards do not confer upon any employee
any right to continued employment with the Company or any Subsidiary.

 

Trading Policy
Restrictions.  Option
exercises and other Awards under the Plan shall be subject to such Company’s
insider trading policy and procedures, as in effect from time to time.

 

Forfeiture of
Awards under Sarbanes-Oxley Act.  If the Company is required to prepare an
accounting restatement due to the material noncompliance of the Company, as a
result of misconduct, with any financial reporting requirement under the
securities laws, then any grantee, that is one of the individuals subject to
automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002,
shall reimburse the Company for the amount of any Award received by such
individual under the Plan during the 12-month period following the first
public issuance or filing with the United States Securities and Exchange
Commission, as the case may be, of the financial document embodying such
financial reporting requirement.

 

EFFECTIVE DATE OF PLAN

 

This Plan shall become effective upon approval by the
holders of a majority of the votes cast at a meeting of stockholders at which a
quorum is present.  Subject to such
approval by the stockholders and to the requirement that no Stock may be issued
hereunder prior to such approval, Stock Options and other Awards may be granted
hereunder on and after adoption of this Plan by the Board.  No grants of Stock Options and other Awards
may be made hereunder after the May 25,
2015 (the tenth (10th)
anniversary of the Effective Date) and no grants of Incentive Stock Options may
be made hereunder after April 4,
2015 (the tenth (10th)
anniversary of the date the Plan is approved by the Board).

 

GOVERNING LAW

 

This Plan and all Awards and actions taken thereunder
shall be governed by, and construed in accordance with, the laws of the State
of Delaware applied without regard to conflict of law principles.

 

DATE APPROVED BY BOARD OF DIRECTORS:  April 5, 2005

 

DATE APPROVED BY STOCKHOLDERS:  May 26, 2005Exhibit 10.2

 

FORM OF INCENTIVE STOCK OPTION
AGREEMENT

UNDER THE MAC-GRAY CORPORATION

2005 STOCK OPTION AND INCENTIVE PLAN

	
  Name of
  Optionee:

  	
   

  
	
  No. of Option
  Shares:

  	
   

  
	
  Option Exercise
  Price per Share:

  	
   

  
	
  Grant Date:

  	
   

  
	
  Expiration Date:

  	
   

  
						

 

 

 

                Pursuant to the Mac-Gray
Corporation 2005 Stock Option and Incentive Plan (the “Plan”) as amended
through the date hereof, Mac-Gray Corporation (the “Company”) hereby grants to
the Optionee named above an option (the “Stock Option”) to purchase on or prior
to the Expiration Date specified above all or part of the number of shares of
Common Stock, par value $0.01 per share (the “Stock”) of the Company specified
above at the Option Exercise Price per Share specified above subject to the
terms and conditions set forth herein and in the Plan.

 

                1.             Exercisability Schedule. No
portion of this Stock Option may be exercised until such portion shall have
become exercisable. Except as set forth below, and subject to the discretion of
the Administrator (as defined in Section 2 of the Plan) to accelerate the
exercisability schedule hereunder, this Stock Option shall be exercisable with
respect to the following number of Option Shares on the dates indicated:

 

	
  Number
  of

  Option Shares Exercisable*

  	
   

  	
  Exercisability Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (      %)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (      %)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (      %)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (      %)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (      %)

  	
   

  	
   

  

* Max. of $100,000 per yr.

Once exercisable, this Stock Option shall continue to
be exercisable at any time or times prior to the close of business on the
Expiration Date, subject to the provisions hereof and of the Plan.

 

 

 

2.             Manner of Exercise.

(a)           The
Optionee may exercise this Stock Option only in the following manner:  from time to time on or prior to the
Expiration Date of this Stock Option, the Optionee may give written notice to
the Administrator of his or her election to purchase some or all of the Option
Shares purchasable at the time of such notice. 
This notice shall specify the number of Option Shares to be purchased.

Payment of the purchase price for the Option Shares
may be made by one or more of the following methods:  (i) in cash, by certified or bank check
or other instrument acceptable to the Administrator; (ii) through the
delivery (or attestation to the ownership) of shares of Stock that have been
purchased by the Optionee on the open market or that have been beneficially
owned by the Optionee and are not then subject to any restrictions under any
Company plan; (iii) by the Optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company cash or a check payable and acceptable to the
Company to pay the option purchase price, provided that in the event the
Optionee chooses to pay the option purchase price as so provided, the Optionee
and the broker shall comply with such procedures and enter into such agreements
of indemnity and other agreements as the Administrator shall prescribe as a
condition of such payment procedure; or (iv) a combination of (i), (ii)
and (iii) above.  Payment instruments
will be received subject to collection.

The making of a book entry in the Optionee’s name by
the Company’s transfer agent representing the Option Shares will be contingent
upon the Company’s receipt from the Optionee of full payment for the Option
Shares, as set forth above and any agreement, statement or other evidence that
the Company may require to satisfy itself that the issuance of Stock to be
purchased pursuant to the exercise of Stock Options under the Plan and any
subsequent resale of the shares of Stock will be in compliance with applicable
laws and regulations.  In the event the
Optionee chooses to pay the purchase price by previously-owned shares of Stock
through the attestation method, the number of shares of Stock transferred to
the Optionee upon the exercise of the Stock Option shall be net of the shares
attested to.

(b)           A
book entry for the shares of Stock purchased upon exercise of this Stock Option
shall be made by the Company’s transfer agent in the name of the Optionee upon
compliance to the satisfaction of the Administrator with all requirements under
applicable laws or regulations in connection with such issuance and with the
requirements hereof and of the Plan.  The
determination of the Administrator as to such compliance shall be final and
binding on the Optionee.  The Optionee
shall not be deemed to be the holder of, or to have any of the rights of a
holder with respect to, any shares of Stock subject to this Stock Option unless
and until this Stock Option shall have been exercised pursuant to the terms
hereof, the Company shall have issued the shares to the Optionee, and the
Optionee’s name shall have been entered as the stockholder of record on the
books of the Company.  Thereupon, the
Optionee shall have full voting, dividend and other ownership rights with
respect to such shares of Stock.

(c)           The
minimum number of shares with respect to which this Stock Option may be
exercised at any one time shall be 100 shares, unless the number of shares with
respect to

 

2

 

which
this Stock Option is being exercised is the total number of shares subject to
exercise under this Stock Option at the time.

(d)           Notwithstanding
any other provision hereof or of the Plan, no portion of this Stock Option
shall be exercisable after the Expiration Date hereof.

3.             Termination of Employment.  If the
Optionee’s employment by the Company or a Subsidiary (as defined in the Plan)
is terminated, the period within which to exercise the Stock Option may be
subject to earlier termination as set forth below.

(a)           Termination
Due to Death.  If the Optionee’s
employment terminates by reason of death, any Stock Option held by the Optionee
shall become fully exercisable and may thereafter be exercised by the Optionee’s
legal representative or legatee for a period of 12 months from the date of
death or until the Expiration Date, if earlier.

(b)           Termination
Due to Disability.  If the Optionee’s
employment terminates by reason of disability (as determined by the
Administrator), any Stock Option held by the Optionee shall become fully
exercisable and may thereafter be exercised by the Optionee for a period of 12
months from the date of termination or until the Expiration Date, if earlier.  The death of the Optionee during the 12-month
period provided in this Section 3(b) shall extend such period for another
12 months from the date of death or until the Expiration Date, if earlier.

(c)           Termination
for Cause.  If the Optionee’s
employment terminates for Cause, any Stock Option held by the Optionee shall
terminate immediately and be of no further force and effect.  For purposes hereof, “Cause” shall mean a
vote by the Board resolving that the Optionee shall be dismissed as a result of
(i) any material breach by the Optionee of any agreement between the Optionee
and the Company; (ii) the conviction of or plea of nolo contendere by the
Optionee to a felony or a crime involving moral turpitude; or (iii) any
material misconduct or willful and deliberate non-performance (other than by
reason of disability) by the Optionee of the Optionee’s duties to the Company.

(d)           Other
Termination.  If the Optionee’s
employment terminates for any reason other than death, disability, or Cause,
and unless otherwise determined by the Administrator, any Stock Option held by
the Optionee may be exercised, to the extent exercisable on the date of
termination, for a period of three months from the date of termination or until
the Expiration Date, if earlier.  Any
Stock Option that is not exercisable at such time shall terminate immediately
and be of no further force or effect.

The Administrator’s determination of the reason for
termination of the Optionee’s employment shall be conclusive and binding on the
Optionee and his or her representatives or legatees.

4.             Incorporation of Plan. 
Notwithstanding anything herein to the contrary, this Stock Option shall
be subject to and governed by all the terms and conditions of the Plan,
including the powers of the Administrator set forth in Section 2(b) of the
Plan.  Capitalized terms in this
Agreement shall have the meaning specified in the Plan, unless a different
meaning is specified herein.

 

3

 

5.             Transferability.  This Agreement is personal to
the Optionee, is non-assignable and is not transferable in any manner, by
operation of law or otherwise, other than by will or the laws of descent and
distribution.  This Stock Option is
exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter,
only by the Optionee’s legal representative or legatee.

6.             Status of the Stock Option.  This Stock
Option is intended to qualify as an “incentive stock option” under Section 422
of the Internal Revenue Code of 1986, as amended (the “Code”), but the Company
does not represent or warrant that this Stock Option qualifies as such.  The Optionee should consult with his or her
own tax advisors regarding the tax effects of this Stock Option and the
requirements necessary to obtain favorable income tax treatment under
Section 422 of the Code, including, but not limited to, holding period
requirements.  If the Optionee intends to
dispose or does dispose (whether by sale, gift, transfer or otherwise) of any
Option Shares within the one-year period beginning on the date after the
transfer of such shares to him or her, or within the two-year period beginning
on the day after the grant of this Stock Option, he or she will notify the
Company within 30 days after such disposition.

7.             Tax Withholding.  The Optionee shall, not later
than the date as of which the exercise of this Stock Option becomes a taxable
event for Federal income tax purposes, pay to the Company or make arrangements
satisfactory to the Administrator for payment of any Federal, state, and local
taxes required by law to be withheld on account of such taxable event.  The Optionee may elect to have the minimum
required tax withholding obligation satisfied, in whole or in part, by (i)
authorizing the Company to withhold from shares of Stock to be issued, or (ii)
transferring to the Company, a number of shares of Stock with an aggregate Fair
Market Value that would satisfy the withholding amount due.

8.             Miscellaneous.

(a)           Notice
hereunder shall be given to the Company at its principal place of business, and
shall be given to the Optionee at the address set forth below, or in either
case at such other address as one party may subsequently furnish to the other
party in writing.

 

4

 

(b)           This Stock Option does not confer
upon the Optionee any rights with respect to continuance of employment by the
Company or any Subsidiary.

	
   

  	
  MAC-GRAY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

The foregoing
Agreement is hereby accepted and the terms and conditions thereof hereby agreed
to by the undersigned.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
  Optionee’s Signature

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Optionee’s name and address:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

 

 

5

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