-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V9Ym690tmiN+Ts9MXs3RCe0A1jsxMO5cs/x3QfEELIVS1hCsn/H6QC5lX9UhUaXC DWMgFqQWcII15dFD2WfPKg== /in/edgar/work/0000912057-00-042999/0000912057-00-042999.txt : 20000930 0000912057-00-042999.hdr.sgml : 20000930 ACCESSION NUMBER: 0000912057-00-042999 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: G&K SERVICES INC CENTRAL INDEX KEY: 0000039648 STANDARD INDUSTRIAL CLASSIFICATION: [7200 ] IRS NUMBER: 410449530 STATE OF INCORPORATION: MN FISCAL YEAR END: 0626 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-04063 FILM NUMBER: 731224 BUSINESS ADDRESS: STREET 1: 5995 OPUS PARKWAY SUITE 500 STREET 2: STE 455 CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129125500 MAIL ADDRESS: STREET 1: 5995 OPUS PARKWAY SUITE 500 STREET 2: STE 455 CITY: MINNETONKA STATE: MN ZIP: 55343 FORMER COMPANY: FORMER CONFORMED NAME: NORTHWEST LINEN CO DATE OF NAME CHANGE: 19681227 10-K 1 a2026391z10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual Report Pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 For the Fiscal Year Ended July 1, 2000 Transition Report Pursuant to Section 13 or 15(d) of the Securities --- Exchange Act of 1934 Commission file number 0-4063 G&K SERVICES, INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-0449530 - ------------------------ ------------------------------------ (State of incorporation) (I.R.S. Employer Identification No.) 5995 OPUS PARKWAY, STE. 500 MINNETONKA, MINNESOTA 55343 ---------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (952) 912-5500 ---------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on which Registered None ---- Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock (par value $0.50 per share) Class B Common Stock (par value $0.50 per share) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(b) 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 X No --- --- 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 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. --- The aggregate market value of the voting stock of registrant held by non-affiliates of registrant, on September 14, 2000, computed by reference to the closing sale price of such shares on such date, was approximately $570,022,962. On September 14, 2000, there were outstanding 19,066,372 and 1,474,996 shares of the registrant's Class A and Class B Common Stock, respectively. DOCUMENTS INCORPORATED BY REFERENCE PART OF 10-K INTO WHICH DOCUMENT DOCUMENT IS INCORPORATED - -------- ------------------------ Portions of proxy statement for the annual meeting of stockholders to be held October 26, 2000 Part III PART I ITEM 1. BUSINESS G&K Services, Inc. and its wholly owned subsidiaries (the Company or G&K) was formed in 1902. G&K operates in the corporate identity apparel programs and facility services industry. The Company rents uniforms (including cleanroom garments) to its customers and offers uniforms and other related products for sale. The corporate identity apparel programs and facility services business also includes the rental of nonapparel items such as floormats, dust mops and cloths, wiping towels and selected linen items. In addition, the Company manufactures uniform garments, which it uses to support rental customers and sells on a direct sale basis. During fiscal year 2000, the Company made three acquisitions. During the first quarter, the assets of 3-D Services, Inc. were purchased, which consisted of one facility in Boston. In the second quarter, the assets of Aladdin, Inc. were purchased, which included 4 facilities in Iowa. During the fourth quarter, Whistle Kleen Enterprises Ltd. was purchased with one facility in Ottawa, Canada. On July 14, 1997, the Company purchased the uniform rental assets and selected linen assets of National Linen Service (NLS), consisting of twenty industrial facilities and nine linen facilities. It was G&K's intent to hold for sale the nine linen facilities. During fiscal year 1998, the Company divested eight of these locations, along with three industrial facilities that were not compatible with the Company's strategic goals. During fiscal year 1999, G&K sold one linen location. This transaction completed the sale of the nine linen facilities acquired from NLS that were held for sale. The Company has been steadily expanding its operations into additional geographic markets. G&K currently has a presence in 31 states, serving customers in over 45 states from approximately 130 locations in the U.S. and Canada. By comparison, G&K operated from approximately 40 locations in 21 states in 1988. The Company targets its marketing efforts on those customers, industries and geographic locations that are expanding and are in need of a quality-oriented corporate identity program that provides high levels of product quality, customer service and communication. The Company's experience with both existing and potential customers confirms that a large segment of the market is willing to pay a premium price to a vendor that can consistently supply these features. PRODUCTS The Company's full-service rental program supplies a broad range of work garments, specialized uniforms for corporate identity programs, anti-static garments, particle-free garments, and dress clothing for supervisors, sales personnel and others needing upgraded work apparel. G&K serves customers of all sizes - from very small to very large - -in all industries. The current trend is towards the service sector; however, G&K's customers also include the industrial sector, hi-technology, automotive services, printing, warehousing, distribution, transportation and many others. The Company believes that customers use these programs to meet a variety of critical business needs. - Worker protection - uniforms help protect workers from difficult environments such as heavy soils, heat, flame or chemicals. - Product protection - uniforms help protect products against contamination in the food, pharmaceutical, electronics and health care industries. - Corporate identity - uniforms help identify employees working for a particular company or department. Uniformed employees are perceived as trained, competent and dependable. - Brand awareness - uniforms promote a company's brand identity and employees serve as a "walking billboard". 2 - Image - uniforms provide a professional image of employees by enhancing the public appearance of the employee and company. - Employee retention - uniforms enhance worker morale and help build a teamwork attitude. The Company provides its apparel-rental customers with a full range of services. Advice and assistance are offered in choosing fabrics, styles and colors appropriate to the customer's specific needs. A large stock of new and used garments are available to provide rapid response as customer needs change due to increases, decreases or turnover in their work force. Professional cleaning, finishing, repairs and replacement of uniforms in use is a normal part of the rental service. Soiled uniforms are picked up at the customer's location and returned clean on a weekly cycle. The Company also believes that uniform rental may provide customers with significant advantages over ownership. Renting eliminates investment in uniforms; offers flexibility in styles, colors and quantities as customer requirements change; assures consistent professional cleaning, finishing, repair and replacement of items in use; and provides freedom from the expense and management time necessary to administer a uniform program. Most of the Company's customers also rent items other than apparel, primarily floormats, dust mops, dust cloths, wiping towels and linens. Floormats are used to protect facilities from dust, grease, moisture and other hazards, and can also enhance decor, provide a corporate identity logo or improve traffic safety. Dust mops, cloths and wiping towels are chemically treated to attract and hold dirt, and are provided in a range of sizes. The Company's wiping towels are used by its customers for numerous wiping and cleaning tasks in varied settings. Selected linen items, primarily aprons and towels, are used for sanitary or cleaning purposes. CUSTOMERS The Company's customer base includes divisions of more than half of the Fortune 100 companies as well as over 100,000 smaller businesses. No one customer accounts for more than 1% of the Company's total revenues. COMPETITION The Company encounters a high level of competition from a number of companies in the geographic areas it serves. The Company ranks among the nation's largest garment rental suppliers. Major competitors include AraMark (a division of ARA Services, Inc.) and such publicly held companies as Unifirst Corporation and Cintas Corporation. The Company also competes with a multitude of regional and local competitors that varies by market. The Company believes that it competes effectively in its line of business because of the quality and breadth of its product line, and the comprehensive customer service programs it offers. ENVIRONMENTAL MATTERS The Company generates modest amounts of wastes in connection with its operations. The Company believes that all of these wastes have been disposed of properly. Some of these wastes may be classified as hazardous wastes under various state and federal environmental legislation. The Company has been identified as a potentially responsible party (PRP) pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or similar state laws, at a number of waste disposal sites. Under such laws, PRPs typically are jointly and severally liable for any investigation and remediation costs incurred with respect to such sites. The Company's ultimate responsibility, therefore, could be greater than the share of waste contributed by the Company would otherwise indicate. The Company has received a letter from the Minnesota Pollution Control Agency (MPCA), which claims that solvents have been detected in the soils near a facility that was owned by the Company from the late 1940s until the early 1970s. Neither the extent of the solvents in the soils nor the source of the solvents is known to the Company. The Company has agreed to participate in a Voluntary Investigation and Cleanup Program through the MPCA, but is unable to provide any estimate of the remediation costs at this time since the investigation has not been completed. The Company expects to reach an agreement with the MPCA with respect to a remediation plan. Therefore, no litigation is expected to be commenced against the Company in connection with this matter. 3 The Company has been placed on notice by the owners of a Wayzata, Minnesota, shopping center regarding the alleged presence of solvents in the ground water in the vicinity of the shopping center, where certain affiliates of the Company formerly operated a dry cleaning establishment in the shopping center. At this time, no demand has been made and no action has been commenced against the Company. The owners of the shopping center have informed the Company that they are pursuing cleanup through state funding mechanisms. Since little information is available at this time, the Company is unable to predict what, if any, liability the Company may have in this matter. EMPLOYEES The Company's U.S. operations had a total of 6,907 employees as of July 1, 2000, consisting of 3,945 production employees and 2,962 sales, office, route and management personnel. Approximately 16% of the Company's U.S. employees are represented by unions. Management believes its domestic employee relations are satisfactory. The Company's Canadian operations had a total of 1,006 employees as of July 1, 2000, consisting of 578 production employees and 428 sales, office, route and management personnel. Approximately 75% of the Company's Canadian employees are represented by unions. Management believes Canadian employee relations are satisfactory. FOREIGN AND DOMESTIC OPERATIONS Financial information relating to foreign and domestic operations is set forth in Note 8 of the G&K consolidated financial statements included in Item 8 of this Form 10-K. (THIS SPACE INTENTIONALLY LEFT BLANK) 4 ITEM 2. PROPERTIES The Company owns approximately 80% of its processing facilities, which average over 43,000 square feet in size. G&K cleans and supplies rental items principally from forty-five industrial garment, cleanroom garment, dust control and linen supply plants located in the following cities in the United States: City City - ------------------------------------- ------------------------------------- Albuquerque, New Mexico (two plants) Louisville, Kentucky Atlanta, Georgia (two plants) Memphis, Tennessee Augusta, Georgia Milwaukee, Wisconsin Charlotte, North Carolina Minneapolis, Minnesota (two plants) Chicago, Illinois Mobile, Alabama Dallas, Texas (two plants) Montgomery, Alabama Davenport, Iowa New Orleans, Louisiana Denver, Colorado (two plants) North Attleboro, Massachusetts Des Moines, Iowa Opa Locka, Florida Fort Dodge, Iowa Phoenix, Arizona Fort Worth, Texas Pittsburg, California Fort Lauderdale, Florida Portsmouth, Virginia Graham, North Carolina Rockford, Illinois Green Bay, Wisconsin St. Cloud, Minnesota Houston, Texas Salt Lake City, Utah Indianapolis, Indiana San Antonio, Texas Jonesboro, Arkansas San Jose, California Kansas City, Missouri Seattle, Washington Lakeland, Florida Tampa, Florida Los Angeles, California Tempe, Arizona The Company also operates principally from five plants located in the following cities in Canada: City City - ------------------------------------- ------------------------------------- Toronto, Ontario (Metro East) Windsor, Ontario Montreal, Quebec Sault Sainte Marie, Ontario Cambridge, Ontario ITEM 3. LEGAL PROCEEDINGS Except as set forth in Item 1. Business - Environmental Matters, the Company is not a party to any legal proceedings other than routine litigation incidental to the business of the Company, and is not aware of any threatened litigation that would have a material adverse effect on the Company's business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders of the Company during the fourth quarter of fiscal 2000. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Company's Class A Common Stock is quoted on Nasdaq National Market under the symbol "GKSRA". The Company's Class B Common Stock is not registered. The following table sets forth the high and low reported sales prices for the Class A Common Stock as quoted on the Nasdaq National Market for the periods indicated.
HIGH LOW - --------------------------------------------------------- FISCAL 2000 1st Quarter 54 37 3/4 2nd Quarter 42 15/16 29 3rd Quarter 33 14 3/4 4th Quarter 30 3/4 17 15/16 - --------------------------------------------------------- FISCAL 1999 1st Quarter 55 3/4 41 5/8 2nd Quarter 54 5/8 40 1/2 3rd Quarter 56 1/4 45 1/2 4th Quarter 52 5/16 39 3/4 - ---------------------------------------------------------
As of September 14, 2000, the Company had approximately 560 registered stockholders. The Company has declared cash dividends of $0.0175 per share in each of the quarters for the fiscal years ended July 1, 2000 and June 26, 1999. The Company's debt agreements contain various restrictive covenants, which, among other things, limit the payment of cash dividends. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth certain selected financial data. All amounts are in thousands, except per share data.
2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Revenues $577,392 $519,966 $502,593 $350,914 $305,414 Net Income 37,812 37,029 32,058 29,002 22,720 Per Share Data: Basic earnings per share 1.85 1.81 1.57 1.43 1.12 Diluted earnings per share 1.85 1.81 1.57 1.42 1.11 Dividends per share 0.07 0.07 0.07 0.07 0.07 Total Assets 594,952 541,432 531,842 311,965 282,520 Long-Term Debt 167,345 193,952 234,843 54,284 75,143 Stockholders' Equity 271,522 235,633 198,120 168,987 140,976 - --------------------------------------------------------------------------------
The fiscal 1998 results include the results of operations of facilities purchased from NLS. See Note 2 of the G&K consolidated financial statements included in Item 8 of this Form 10-K. (THIS SPACE INTENTIONALLY LEFT BLANK) 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes thereto which are included herein. The Company utilizes a 52-53 week fiscal year ending on the Saturday nearest June 30. The fiscal year ended July 1, 2000 was a 53-week year. In fiscal 2000, G&K, now the third largest competitor in the estimated $10.7 billion uniform and related services industry, achieved 11.0% revenue growth, 8.9% after excluding the impact of the 53rd week, a 2.1% increase in net income and realized a 14.9% return on average equity. G&K's record of strong financial performance results from an effective, consistent growth strategy designed to meet the diverse needs of customers in the industrial uniform market. During fiscal year 2000, the Company made three acquisitions. During the first quarter, the assets of 3-D Services, Inc. were purchased, which consisted of one facility in Boston. In the second quarter, the assets of Aladdin, Inc. were purchased, which included 4 facilities in Iowa. During the fourth quarter, Whistle Kleen Enterprises Ltd. was purchased with one facility in Ottawa, Canada. All acquisitions were accounted for using the purchase method. The total purchase price of these acquisitions was approximately $34.9 million in cash. The purchase price and related acquisition costs exceeded the fair values assigned to tangible assets by approximately $26.1 million. On July 14, 1997, the Company purchased the uniform rental assets and selected linen assets of NLS. The 20 uniform locations contributed $115.4 million in revenue during the fiscal year. The Company held for sale the nine linen facilities acquired in the NLS transaction. Losses from these nine facilities from the date of acquisition to the date of sale (not to exceed one year) of $659 thousand, including interest on incremental debt incurred during the holding period to finance the purchase of these facilities totaling $3.5 million and the proceeds from the sale were excluded from the earnings reported for fiscal 1998. Amounts excluded from earnings were included in the allocation to the purchase price of retained assets and liabilities. During fiscal 1998, the Company divested eight of the nine locations held for sale and three industrial locations that were not compatible with the Company's strategic goals. During fiscal 1999, G&K sold the remaining linen location held for sale. For the latest five-year period, revenues grew at a rate of 17.1%, compounded annually. This exceeds the Company's stated goal of maintaining a long-term growth rate of 15%. These results reflect the Company's strategies to attain increased market penetration and an expanded customer base through internal growth and acquisitions. The Company's five-year growth rate for net income was 15.6%, compounded annually. The Company's investments in new technologies have provided increased productivity and reduced labor expenses. Better merchandise control and lower processing costs have contributed to bottom-line growth, while garment manufacturing facilities have enhanced product quality and decreased merchandise costs. The percentage relationships to net sales of certain income and expense items for the three fiscal years ended July 1, 2000, June 26, 1999 and June 27, 1998, and the percentage changes in these income and expense items between years are presented in the following table: 7
PERCENTAGE OF NET SALES PERCENTAGE CHANGE YEARS ENDED BETWEEN YEARS ----------------------------------------- ---------------------------- FY 2000 vs. FY 1999 vs. Fiscal 2000 Fiscal 1999 Fiscal 1998 FY 1999 FY 1998 ----------------------------------------- ---------------------------- Revenues 100.0% 100.0% 100.0% 11.0% 3.5% Expenses: Cost of rental and direct sales 57.8 56.8 58.6 12.9 0.3 Selling and administrative 22.1 21.4 19.9 14.6 11.1 Depreciation 5.1 5.3 5.3 7.6 4.0 Amortization of intangibles 1.6 1.6 1.8 7.9 (7.1) ----------------------------------------- Income from operations 13.4 14.9 14.4 0.3 6.9 Interest expense 2.9 3.3 4.3 (3.0) (21.2) Other income, net (0.4) (0.2) (0.4) 105.8 (53.8) ----------------------------------------- Income before income taxes 10.9 11.8 10.5 3.0 16.0 Provision for income taxes 4.4 4.7 4.1 4.3 16.8 ----------------------------------------- Net income 6.5% 7.1% 6.4% 2.1% 15.5% =========================================
FISCAL 2000 COMPARED TO FISCAL 1999 Total revenues for fiscal 2000 rose 11.0% to $577.4 million from $520.0 million in fiscal 1999 (8.9% after excluding the impact of the 53rd week). Comparable revenues, after adjusting for the acquired and divested operations and adjusting for the additional week, were up 7.0% for fiscal 2000. Rental revenues rose $53.6 million in fiscal 2000, a 10.7% increase over fiscal 1999 (8.5% after excluding the impact of the 53rd week). The improvement in rental growth rates was influenced by several factors including the Company's focus on internal revenue growth, which includes increased sales and administrative costs designed to support planned growth, acquisitions and a stronger Canadian dollar compared to the U.S. dollar. Total direct sales to outside customers increased 22.7% to $20.7 million in fiscal 2000 from $16.9 million in fiscal 1999 (20.4% after excluding the impact of the 53rd week). Cost of direct sales, as a percent of direct sales, increased to 84.0% in fiscal 2000 from 70.6% in fiscal 1999. The increase in cost of direct sales is largely due to the addition of fixed fulfillment and embroidery costs to support the future growth in direct sales and catalog revenues. Cost of rental operations increased 11.5% to $316.1 million in fiscal 2000 from $283.4 million in fiscal 1999. As a percent of rental revenues, these costs increased to 56.8% in fiscal 2000 compared to 56.3% in fiscal 1999. The increase as a percent of revenue was primarily attributed to the closing of the Portland cleanroom facility, increased cost of employee benefits, specifically the cost of health care and workers' compensation and increases in delivery fuel costs. These increases were partially offset by the Company's success in increasing productivity and reducing labor costs. Selling and administrative expenses increased 14.6% to $127.5 million in fiscal 2000 from $111.2 million in fiscal 1999. As a percentage of total revenues, selling and administrative expenses increased to 22.1% in fiscal 2000 from 21.4% in fiscal 1999. The increase as a percent of revenue is due to several factors, including expenses related to the direct sale operation including a larger sales force, an expanded catalog and additional administrative personnel, as well as a larger rental sales force and expenses related to new product launches. Depreciation expense increased 7.6% to $29.5 million in fiscal 2000 from $27.4 million in fiscal 1999. As a percentage of revenues, depreciation expense decreased to 5.1% in fiscal 2000 compared to 5.3% in fiscal 1999. Capital expenditures for fiscal 2000, excluding acquisition of businesses, was $43.7 million compared to $38.0 million in fiscal 1999. The increase in capital expenditures is largely due to the acquisition of software in connection with the Company's strategic 8 information systems initiatives. Amortization expense increased to $9.3 million for fiscal 2000 from $8.6 million in fiscal 1999. As a percent of revenues, amortization expense remained consistent at 1.6% in fiscal 2000 compared to fiscal 1999. Income from operations increased 0.3% to $77.6 million in fiscal 2000 from $77.4 million in fiscal 1999. Operating margins decreased to 13.4% in fiscal 2000 from 14.9% in fiscal 1999. Interest expense was $16.7 million for fiscal 2000, down from $17.2 million in fiscal 1999. The decrease was driven by lower average debt levels partially offset by an increase in interest rates. Other income increased to $2.1 million in fiscal 2000, up from $1.0 million in fiscal 1999. This increase is largely due to a one-time gain of $1.7 million indirectly related to the adoption of the new Financial Accounting Standards Statement No. 133. Under this accounting standard, the Company changed its characterization of investments held in connection with deferred compensation plans to trading securities and recognized previously unrealized gains. The Company's effective tax rate increased to 40.0% in fiscal 2000 from 39.5% in fiscal 1999. Net income rose 2.1% to $37.8 million in fiscal 2000 from $37.0 million in fiscal 1999. Basic and diluted earnings per share for fiscal 2000 was $1.85 per share compared to basic and diluted earnings per share of $1.81 per share in fiscal 1999. Net income margins decreased to 6.5% for fiscal 2000 compared to 7.1% in fiscal 1999. FISCAL 1999 COMPARED TO FISCAL 1998 Total revenues for fiscal 1999 rose 3.5% to $520.0 million from $502.6 million in fiscal 1998. The first quarter of fiscal 1998 included only 11 weeks of revenues from assets acquired from NLS on July 14, 1997, including three industrial locations that were later sold in the fourth quarter of fiscal 1998. Adjusting for the timing of the NLS asset purchase and divested operations, total revenue growth was 4.2% for fiscal 1999. Rental revenues rose $19.5 million in fiscal 1999, a 4.0% increase over fiscal 1998. The growth in rental revenue, which is below historical patterns, was influenced by several factors, including lower growth rates in the southeastern part of the U.S. that were impacted by continuing NLS acquisition integration activities, a sharp downturn in the semiconductor industry and a decline in the value of the Canadian dollar. Total direct sales to outside customers decreased 11.4% to $16.9 million in fiscal 1999 from $19.1 million in fiscal 1998. This decrease is primarily the result of shifting garment manufacturing capacity from sales to external customers to internal use by the Company for rental customers. Cost of direct sales decreased 13.3% to $11.9 million in fiscal 1999 from $13.8 million in fiscal 1998. As a percent of direct sales, these costs improved to 70.6% compared to 72.2% in the prior year. Cost of rental operations increased 1.0% to $283.4 million in fiscal 1999 from $280.7 million in fiscal 1998. As a percent of rental revenues, these costs decreased to 56.3% in fiscal 1999 compared to 58.0% in fiscal 1998. The Company attributes this decrease as a percent of revenue to improvements in all components of rental operations (merchandise, production and delivery costs), primarily at locations acquired in the NLS transaction. Selling and administrative expenses increased 11.1% to $111.2 million in fiscal 1999 from $100.1 million in fiscal 1998. As a percentage of total revenues, selling and administrative expenses increased to 21.4% in fiscal 1999 from 19.9% in fiscal 1998. The increase as a percent of revenue is due to several factors, including higher selling expenses in the locations acquired in fiscal 1998, increased information technology costs, expenses associated with Year 2000 readiness, additions to corporate senior management and other corporate initiatives. Depreciation expense increased 4.0% to $27.4 million in fiscal 1999 from $26.4 million in fiscal 1998. As a percentage of revenues, depreciation expense remained constant at 5.3% in fiscal 1999 compared to 5.3% in fiscal 1998. Capital expenditures for fiscal 1999, excluding acquisition of businesses, was $38.0 million compared to $37.4 million in fiscal 1998. Amortization expense decreased to $8.6 million for fiscal 1999 from $9.2 million in fiscal 1998. This decrease is attributable to the sale of acquired industrial facilities and the related intangible assets during the third and fourth quarters of fiscal 1998 and third quarter of fiscal 1999. Income from operations increased 6.9% to $77.4 million in fiscal 1999 from $72.4 million in fiscal 1998. Operating margins increased to 14.9% in fiscal 1999 from 14.4% in fiscal 1998. 9 Interest expense was $17.2 million for fiscal 1999, down from $21.8 million in fiscal 1998, reflecting lower average debt levels and lower all-in borrowing rates. The Company's effective tax rate increased slightly to 39.5% in fiscal 1999 from 39.2% in fiscal 1998. Net income rose 15.5% to $37.0 million in fiscal 1999 from $32.1 million in fiscal 1998. Basic and diluted earnings per share for fiscal 1999 was $1.81 per share compared to basic and diluted earnings per share of $1.57 per share in fiscal 1998. Net income margins increased to 7.1% for fiscal 1999 compared to 6.4% in fiscal 1998. LIQUIDITY AND FINANCIAL RESOURCES Cash flow from operating activities was $83.3 million in fiscal 2000, $59.4 million in fiscal 1999 and $74.5 million in fiscal 1998. The increased cash flow in fiscal 2000 is largely due to increases in earnings before depreciation and amortization and increases in accounts payable and other current liabilities associated with acquired operations. The decrease in fiscal 1999 from fiscal 1998 resulted from the decrease in other current liabilities, primarily income taxes, during fiscal 1999 and the fiscal 1998 increase in accounts payable and other current liabilities in connection with the locations acquired from NLS. Working capital at July 1, 2000 was $49.7 million, down 32.1% from $73.2 million at June 26, 1999. The decrease in working capital is largely due to the scheduled payments of long-term debt. Cash used in investing activities was $84.6 million in fiscal 2000, $36.8 million in fiscal 1999 and $236.4 million in fiscal 1998. The increase in fiscal 2000 was due primarily to two key acquisitions and the increase in fiscal 1998 was due primarily to the acquisition of assets from NLS. In fiscal 2001, capital expenditures are anticipated to be approximately $45 million to $50 million. Financing activities provided cash of $1.5 million in fiscal 2000, used $28.3 million of cash in fiscal 1999 and provided $166.9 million in fiscal 1998. The fiscal 2000 cash provided by financing activities was used largely for the acquisition of business assets. The fiscal 1999 decrease was used for debt reduction. The fiscal 1998 cash provided by financing activities was used in the acquisition of selected assets of NLS. Total long-term debt, including current maturities, increased to $225.7 million at July 1, 2000 from $222.3 million at June 26, 1999. The Company paid dividends of $1.4 million in each of the fiscal years 2000, 1999 and 1998. The Company's ratio of debt to total capitalization decreased to 45.4% at the end of fiscal 2000 from 48.5% at the end of fiscal 1999. The Company has a $125.0 million line of credit and a $20.0 million discretionary credit facility, of which $21.4 million and $16.4 million, respectively, was outstanding at the end of fiscal 2000. The Company's credit facility contains various restrictive covenants that, among other matters, require the Company to maintain a minimum interest coverage ratio, minimum stockholders' equity and maximum leverage ratio, all as defined. The credit facility also limits additional indebtedness, investments, capital expenditures and cash dividends. As of July 1, 2000, the Company was in compliance with all debt covenants. Subsequent to the end of fiscal 2000, the Company completed a $50 million, 8.40% private placement debt transaction with certain institutional investors. The 10-year notes have a seven-year average life. According to the note purchase agreement, an initial take-down of $20.0 million was completed on July 20, 2000. Two additional take-downs of $15.0 million each will be made on or about September 15, 2000 and December 15, 2000. Each subsequent take-down will bear the same coupon of 8.40%. Stockholders' equity grew 15.2% to $271.5 million at July 1, 2000, compared with $235.6 million at the end of fiscal 1999. G&K's return on average equity decreased to 14.9% in fiscal 2000, compared with 17.1% and 17.5% for fiscal 1999 and fiscal 1998, respectively. Management believes that cash flows generated from operations and borrowing capability under its credit facilities should provide adequate funding for its current businesses and planned expansion of operations or any future acquisitions. YEAR 2000 READINESS DISCLOSURE The Company did not experience any significant system problems at the beginning of calendar year 2000. The Company believes its planning efforts were adequate to address its Year 2000 concerns and, as of the date of this filing, it did not have a material impact on its business, financial condition or its results of operations. Additionally, the Company is not aware of any material problems experienced by its suppliers. 10 The Company began to incur expenses during fiscal 1998 as it began to implement proposed solutions to resolve the Year 2000 issue. These expenses continued through fiscal year 2000. The Company has spent approximately $6.1 million related to the Year 2000 analysis; $2.1 million of these costs were capitalized. The Company continues to monitor its systems' performance and does not anticipate future issues related to Year 2000 matters. MARKET RISK SENSITIVITY The Company uses financial instruments, including fixed and variable rate debt, as well as interest rate swaps, to manage interest rate risk. The Company's earnings are affected by changes in short-term interest rates due to the use of variable rate notes and revolving credit facilities amounting to approximately $219 million. This exposure is limited by the use of interest rate swap agreements as a hedge against variability in short-term rates. The interest rate swap agreements are entered into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes, nor is it a party to any leveraged instrument. If short-term rates increase by one-half percent (or 50 basis points), the Company's interest expense would increase, and income before taxes would decrease, by approximately $0.6 million. Conversely, if short-term rates decrease by one-half percent (or 50 basis points), the Company's interest expense would decrease, and income before taxes would increase, by approximately $0.6 million. This estimated exposure considers the mitigating effects of interest rate swap agreements on the change in the cost of variable rate debt. This analysis does not consider the effects of a change in economic activity or a change in the Company's capital structure. The information below summarizes the Company's market risks associated with debt and interest rate swap obligations as of July 1, 2000. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected (contractual) maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.
EXPECTED MATURITY DATE BY FISCAL YEAR ----------------------------------------------------------------------- There- Fair (In thousands) 2001 2002 2003 2004 2005 after Total Value - --------------------------------------- ----------------------------------------------------------------------- Long-Term Debt, variable rate $ 58,355 $68,396 $47,189 $50,378 $1,286 $ 96 $225,700 $225,700 Average interest rate 7.28% 7.37% 7.40% 7.46% 7.54% 7.64% 7.41% -- Interest Rate Swaps, variable to fixed $100,000 -- -- -- -- -- $100,000 $100,171 Average pay rate 6.24% -- -- -- -- -- -- -- Average receive rate 6.78% -- -- -- -- -- -- --
Statements in this document regarding ongoing trends and expectations constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks and uncertainties include, but are not limited to, unforeseen operating risks; the availability of capital to finance planned growth; competition within the uniform and related services industry; and the effects of economic conditions. 11 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Following is a summary of the results of operations for each of the quarters within fiscal years ended July 1, 2000 and June 26, 1999. All amounts are in thousands, except per share data.
QUARTERLY FINANCIAL DATA G&K SERVICES, INC. AND SUBSIDIARIES (Unaudited) FIRST SECOND THIRD FOURTH - ------------------------------------------------------------------------------------- 2000 Revenues $134,960 $142,355 $143,433 $156,644 Gross Profit 58,066 59,678 60,670 65,412 Income from Operations 19,206 18,817 19,375 20,246 Net Income 9,583 8,631 9,161 10,437 Basic Earnings per Share 0.47 0.42 0.45 0.51 Diluted Earnings per Share 0.47 0.42 0.45 0.51 Dividends per Share 0.0175 0.0175 0.0175 0.0175 - ------------------------------------------------------------------------------------- 1999 Revenues $126,123 $129,864 $131,147 $132,832 Gross Profit 54,845 56,266 56,360 57,138 Income from Operations 18,807 19,874 19,171 19,550 Net Income 8,690 9,235 9,421 9,683 Basic Earnings per Share 0.43 0.45 0.46 0.47 Diluted Earnings per Share 0.42 0.45 0.46 0.47 Dividends per Share 0.0175 0.0175 0.0175 0.0175 - -------------------------------------------------------------------------------------
Reference is hereby made to the Consolidated Financial Statements and Notes thereto appearing on pages F-1 through F-15 hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None (THIS SPACE INTENTIONALLY LEFT BLANK) 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Title Since - ----------------------------------------------------------------------------------------------------------- Richard M. Fink 70 Chairman and Director 1968 Thomas Moberly 52 Chief Executive Officer, President and Director 1993 Robert G. Wood 52 Executive Vice President 2000 Jeffrey L. Wright 38 Chief Financial Officer, Treasurer and Secretary 1999 Michael F. Woodard 43 Controller 1996 Bruce G. Allbright 71 Director 1985 Paul Baszucki 60 Director 1994 Wayne M. Fortun 51 Director 1994 Donald W. Goldfus 66 Director 1989 William Hope 67 Director 1983 Bernard Sweet 76 Director 1975
RICHARD M. FINK has served as Chairman of the Board since 1981. Mr. Fink was also Chief Executive Officer of the Company from 1981 to January 1997. THOMAS MOBERLY has served as Chief Executive Officer since January 1999. President since September 1997. Chief Operating Officer of the Company from September 1997 to January 1999. From 1993 to 1997, Mr. Moberly served as Executive Vice President. Mr. Moberly held various other management positions since joining the Company in 1974. ROBERT G. WOOD has served as Executive Vice President since May 2000. He served as Canadian Operations President since 1998 and Regional Vice President since 1997. Mr. Wood joined the Company in 1995 as a General Manager. Prior to joining the Company, he was Vice President of Marketing and Director of Sales with Livingston International, Inc., where he spent 23 years in a variety of operating, sales, service and marketing positions. JEFFREY L. WRIGHT has served as Chief Financial Officer, Treasurer and Secretary since February 1999. Mr. Wright was Controller and Treasurer for BMC Industries, Inc. from 1996 to the time he joined the Company. From 1993 to 1996 Mr. Wright was Treasurer for Employee Benefit Plans, Inc. MICHAEL F. WOODARD joined the Company in September 1996 as Controller. Mr. Woodard was Treasurer of Dataserv, Inc. from 1993 to the time he joined the Company. BRUCE G. ALLBRIGHT has been a director of the Company since 1985. Retired since January 1990, formerly President of Dayton Hudson Corporation. Prior thereto, Mr. Allbright was Chairman and Chief Executive Officer of Target Stores, a Division of Dayton Hudson Corporation. PAUL BASZUCKI has been a director of the Company since 1994. Chief Executive Officer of Norstan, Inc. since December 1999, and Chairman of the Board of Directors of Norstan, Inc. since May 1997. Mr. Baszucki also served as Chief Executive Officer of that company from 1986 until May 1997. Mr. Baszucki is also a director and a member of the Compensation Committee of Washington Scientific Industries, Inc. WAYNE M. FORTUN has been a director of the Company since 1994. President, Chief Executive Officer, Chief Operating Officer and a director of Hutchinson Technology, Inc. DONALD W. GOLDFUS has been a director of the Company since 1989. Retired since June 1999. Formerly the Chairman of the Board of Directors of Apogee Enterprises, Inc. Mr. Goldfus continues as a director of Apogee Enterprises, Inc. and also served as Chief Executive Officer of that company from 1986 until January 1998. WILLIAM HOPE has been a director of the Company since 1983. Retired since January 1999. Formerly Chief Executive Officer of the Company from January 1997 until January 1999. From 1993 to 1997, Mr. Hope served as President and Chief Operating Officer of the Company. Mr. Hope is also a director of Minntech Corporation and is serving as the Chairman and Interim Chief Executive Officer of such company. 13 BERNARD SWEET has been a director of the Company since 1975. Retired since 1985, formerly President and Chief Executive Officer of Republic Airlines, Inc. ITEM 11. EXECUTIVE COMPENSATION Reference is made to information with respect to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is made to information with respect to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is made to information with respect to the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K. (THIS SPACE INTENTIONALLY LEFT BLANK) 14 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Reports filed on Form 8-K during the fourth quarter of fiscal year 2000: None (b) The following exhibits, as required by Item 601 of Regulation S-K are filed as a part of this report: EXHIBIT NO. 2(a) Asset Purchase Agreement, dated as of May 30, 1997, by and among National Service Industries, Inc., a Delaware corporation; National Service Industries, Inc., a Georgia corporation; NSI Enterprises, Inc., a California corporation and G&K Services, Inc. (incorporated herein by reference to the Registrant's Form 8-K filing dated July 14, 1997). 2(b) Side Letter dated as of July 14, 1997, by and among National Service Industries, Inc., a Delaware corporation; National Service Industries, Inc., a Georgia corporation; NSI Enterprises, Inc., a California corporation and G&K Services, Inc. (incorporated herein by reference to the Registrant's Form 8-K filing dated July 14, 1997). 2(c) Asset Purchase Agreement, dated as of April 25, 1998, by and among G&K Services Linen Co., G&K Services Co., G&K Services, Inc., and TTSI Services Acquisition Sub, Inc. and Tartan Textile Services, Inc. (incorporated herein by reference to the Registrant's Form 8-K filing dated May 14, 1998). 3(a) Restated Articles of Incorporation, as amended, as filed with the Secretary of State of Minnesota (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto, Registration No. 33-15456). Certificate of Amendment, as filed with the Secretary of State of Minnesota on November 12, 1987. 3(b) Bylaws, as amended, (incorporated herein by reference to the Registrant's Registration Statement on Form S-1 and Amendment No. 1 thereto, Registration No. 33-15456 and incorporated by reference to exhibit 3ii of the Registrant's Form 10-Q filed May 17, 1994). 10(a) Employment Agreement between the Registrant and Richard Fink dated January 6, 1987, (incorporated herein by reference to the Registrant's Registration No. 33-15456). ** 10(b) Stockholder Agreement by and among the Registrant, Richard Fink, William Hope, Stephen LaBelle, Daniel Nielsen, Phillip Oberg and Robert Stotts, dated June 14, 1985 (incorporated herein by reference to the Registrant's Schedule 13E-4 filing dated May 13, 1985). 10(c) 1989 Stock Option and Compensation Plan (incorporated herein by reference to the Registrant's definitive proxy statement for the 1989 Annual Meeting of Shareholders filed August 29, 1989). ** 10(d) 1996 Director Stock Option Plan (incorporated herein by reference to the Registrant's Form 10-K, for the fiscal year ended June 29, 1996). ** 10(e) Credit Agreement dated as of July 14, 1997, among G&K Services, Inc., Work Wear Corporation of Canada Ltd., as Borrowers, various banks, and Norwest Bank Minnesota, National Association, and NBD Bank and First Chicago NBD Bank, Canada (incorporated herein by reference to the Registrant's Form 8-K filing dated July 14, 1997). 10(f) 1998 Stock Option and Compensation Plan (incorporated herein by reference to the Registrant's definitive proxy statement for the 1998 Annual Meeting of Shareholders filed October 5, 1998). ** 10(g) First Amendment, dated December 30, 1998, to Credit Agreement dated July 14, 1997, among G&K Services, Inc., Work Wear Corporation of Canada Ltd., as Borrowers, various banks, and Norwest Bank Minnesota, National Association, and NBD Bank and First Chicago NBD Bank, Canada (incorporated herein by reference to the Registrant's Form 10-Q filed May 11, 1999). 15 10(h) Non-Competition and Confidentiality Agreement between Registrant and Jeffrey L. Wright dated February 8, 1999 (incorporated herein by reference to the Registrant's Form 10-Q filed May 11, 1999). ** 10(i) Form of Change of Control Agreement between Registrant and each of Richard Fink, Thomas Moberly, Robert G. Wood, Timothy W. Kuck and Jeffrey L. Wright, dated February 24, 1999 (incorporated herein by reference to the Registrant's Form 10-Q filed May 11, 1999). ** 10(j) Employment Agreement between Registrant and Thomas Moberly, dated January 2, 1998. *,** 10(k) Credit Agreement dated March 28, 2000 among G&K Services, Inc. and Norwest Bank Minnesota, National Association. * 10(l) Note Purchase Agreement dated July 20, 2000 among G&K Services, Inc. and seven institutional investors. * 21 Subsidiaries of G&K Services, Inc. * 23 Consent of Independent Public Accountants * 24 Power of Attorney dated as of August 31, 2000 * 27 Financial Data Schedule (FOR SEC USE ONLY) * Footnotes: - ---------- * Filed herewith ** Compensatory plan or arrangement (THIS SPACE INTENTIONALLY LEFT BLANK) 16 SIGNATURES Pursuant to the requirements of the 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. Date: September 28, 2000 G&K SERVICES, INC. (Registrant) By: /s/ Thomas Moberly --------------------------------------- Thomas Moberly, Chief Executive Officer (Principal Executive Officer) (THIS SPACE INTENTIONALLY LEFT BLANK) 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below on the 28th day of September 2000, by the following persons in the capacity indicated: /s/ Richard M. Fink Chairman of the Board and Director - ---------------------------- Richard M. Fink /s/ Thomas Moberly Chief Executive Officer, President - ---------------------------- and Director (Principal Executive Thomas Moberly Officer) /s/ Jeffrey L. Wright Chief Financial Officer, Treasurer - ---------------------------- and Secretary (Principal Financial Jeffrey L. Wright Officer) /s/ Michael F. Woodard Controller (Principal Accounting - ---------------------------- Officer) Michael F. Woodard * Director - ---------------------------- Bruce Allbright * Director - ---------------------------- Donald Goldfus * Director - ---------------------------- William Hope * Director - ---------------------------- Bernard Sweet * Director - ---------------------------- Wayne Fortun * Director - ---------------------------- Paul Baszucki * By /s/ Richard M. Fink ------------------------ Richard M. Fink Attorney-in-fact (THIS SPACE INTENTIONALLY LEFT BLANK) 18
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Income for the Fiscal Years Ended July 1, 2000, June 26, 1999 and June 27, 1998................................. F-2 Consolidated Balance Sheets as of July 1, 2000 and June 26, 1999......................... F-3 Consolidated Statements of Cash Flows for the Fiscal Years Ended July 1, 2000, June 26, 1999 and June 27, 1998................................. F-4 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Fiscal Years Ended July 1, 2000, June 26, 1999 and June 27, 1998.............. F-5 Notes to Consolidated Financial Statements............................................... F-6 Report of Independent Public Accountants................................................. F-15 F-1
CONSOLIDATED STATEMENTS OF INCOME G&K SERVICES, INC. AND SUBSIDIARIES For the Fiscal Years Ended --------------------------------------- July 1, June 26, June 27, (In thousands, except per share data) 2000 1999 1998 - -------------------------------------------------------------------------------------------------------- REVENUES Rental operations $556,646 $503,062 $483,516 Direct sales 20,746 16,904 19,077 - -------------------------------------------------------------------------------------------------------- Total revenues 577,392 519,966 502,593 - -------------------------------------------------------------------------------------------------------- OPERATING EXPENSES Cost of rental operations 316,131 283,419 280,680 Cost of direct sales 17,435 11,938 13,773 Selling and administrative 127,451 111,228 100,136 Depreciation 29,481 27,410 26,365 Amortization of intangibles 9,250 8,569 9,228 - -------------------------------------------------------------------------------------------------------- Total operating expenses 499,748 442,564 430,182 - -------------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 77,644 77,402 72,411 Interest expense 16,702 17,213 21,848 Other income, net (2,077) (1,009) (2,184) - -------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 63,019 61,198 52,747 Provision for income taxes 25,207 24,169 20,689 - -------------------------------------------------------------------------------------------------------- NET INCOME $ 37,812 $ 37,029 $ 32,058 ======================================================================================================== Basic weighted average number of shares outstanding 20,456 20,414 20,380 BASIC EARNINGS PER COMMON SHARE $ 1.85 $ 1.81 $ 1.57 ======================================================================================================== Diluted weighted average number of shares outstanding 20,487 20,509 20,454 DILUTED EARNINGS PER COMMON SHARE $ 1.85 $ 1.81 $ 1.57 ======================================================================================================== The accompanying notes are an integral part of these consolidated financial statements. F-2
CONSOLIDATED BALANCE SHEETS G&K SERVICES, INC. AND SUBSIDIARIES
July 1, June 26, ASSETS (In thousands, except share data) 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 6,420 $ 6,297 Accounts receivable, less allowance for doubtful accounts of $3,138 and $2,479 63,970 59,626 Inventories 89,975 83,892 Prepaid expenses 15,496 8,974 Prepaid income taxes 441 4,017 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 176,302 162,806 - ----------------------------------------------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land 25,845 26,038 Buildings and improvements 101,636 93,519 Machinery and equipment 206,033 181,968 Automobiles and trucks 39,208 39,447 Less accumulated depreciation (156,288) (142,537) - ----------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment 216,434 198,435 - ----------------------------------------------------------------------------------------------------------------------- OTHER ASSETS Goodwill, net 144,229 128,226 Restrictive covenants and customer lists, net 40,911 37,805 Other, principally retirement plan assets 17,076 14,160 - ----------------------------------------------------------------------------------------------------------------------- Total other assets 202,216 180,191 - ----------------------------------------------------------------------------------------------------------------------- $ 594,952 $ 541,432 ======================================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 15,892 $ 15,456 Accrued expenses Salaries and employee benefits 19,678 18,309 Other 18,300 13,504 Deferred income taxes 14,406 14,007 Current maturities of long-term debt 58,355 28,362 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 126,631 89,638 - ----------------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 167,345 193,952 DEFERRED INCOME TAXES 15,243 11,520 OTHER NONCURRENT LIABILITIES 14,211 10,689 - ----------------------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTES 6 AND 7) STOCKHOLDERS' EQUITY Common stock, $.50 par Class A, 50,000,000 shares authorized, 19,061,299 and 19,041,852 shares issued and outstanding 9,531 9,521 Class B, 10,000,000 shares authorized, 1,474,996 and 1,474,996 shares issued and outstanding 738 738 Additional paid-in capital 26,679 26,086 Retained earnings 246,629 210,253 Deferred compensation (2,464) (2,601) Accumulated other comprehensive income (9,591) (8,364) - ----------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 271,522 235,633 - ----------------------------------------------------------------------------------------------------------------------- $ 594,952 $ 541,432 ======================================================================================================================= The accompanying notes are an integral part of these consolidated financial statements.
F-3 CONSOLIDATED STATEMENTS OF CASH FLOWS G&K SERVICES, INC. AND SUBSIDIARIES
For the Fiscal Years Ended ------------------------------------------------------ July 1, June 26, June 27, (In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 37,812 $ 37,029 $ 32,058 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization 38,731 35,979 35,593 Deferred income taxes 3,995 3,008 2,747 Changes in current operating items, exclusive of acquisitions - Accounts receivable and prepaid expenses (4,450) (8,043) (8,585) Inventories (4,174) (6,577) (4,778) Accounts payable and other accrued expenses 10,485 (5,055) 16,413 Other, net 884 3,105 1,004 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 83,283 59,446 74,452 - --------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Property, plant and equipment additions, net (43,699) (37,974) (37,398) Acquisition of business assets (38,304) (155) (283,361) Cash generated from assets held for sale - - 7,693 Net proceeds from sale of assets - 2,074 77,107 Purchases of investments, net (2,611) (770) (438) - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (84,614) (36,825) (236,397) - --------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from debt financing 90,433 22,635 376,246 Repayments of debt financing (87,760) (50,032) (208,132) Cash dividends paid (1,436) (1,436) (1,434) Sale of common stock 217 534 254 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 1,454 (28,299) 166,934 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 123 (5,678) 4,989 CASH AND CASH EQUIVALENTS: Beginning of year 6,297 11,975 6,986 - --------------------------------------------------------------------------------------------------------------------------------- End of year $ 6,420 $ 6,297 $ 11,975 ================================================================================================================================= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest $ 15,521 $ 16,052 $ 22,395 ================================================================================================================================= Income taxes $ 16,921 $ 27,403 $ 19,025 ================================================================================================================================= The accompanying notes are an integral part of these consolidated financial statements.
F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME G&K SERVICES, INC. AND SUBSIDIARIES (In thousands, except per share data)
Common Stock ------------------------------- Class A Class B ------------------------------- Accumulated Number Number Additional Other of of Paid-In Retained Deferred Comprehensive Comprehensive Shares Amount Shares Amount Capital Earnings Compensation Income Income - ------------------------------------------------------------------------------------------------------------------------------ Balance June 28, 1997 18,987 $9,493 1,475 $738 $22,684 $144,036 $(2,029) $(5,935) - ---------------------------------------------------------------------------------------------------------------- Net income - - - - - 32,058 - - $32,058 Cash dividend $.07 per share - - - - - (1,434) - - - Stock issued for employee benefit plans 25 13 - - 960 - (468) - - Amortization of deferred compensation - - - - - - 524 - - Unrealized holding gains, net of tax - - - - - - - 507 507 Less: reclassification adjustment for gains included in net income, net of tax - - - - - - - (356) (356) Translation adjustment - - - - - - - (2,671) (2,671) ----------- Comprehensive income - - - - - - - - $29,538 - ----------------------------------------------------------------------------------------------------------------=========== Balance June 27, 1998 19,012 9,506 1,475 738 23,644 174,660 (1,973) (8,455) - ---------------------------------------------------------------------------------------------------------------- Net income - - - - - 37,029 - - $37,029 Cash dividend $.07 per share - - - - - (1,436) - - - Stock issued for employee benefit plans 30 15 - - 2,442 - (1,533) - - Amortization of deferred compensation - - - - - - 905 - - Unrealized holding gains, net of tax - - - - - - - 548 548 Less: reclassification adjustment for gains included in net income, net of tax - - - - - - - (140) (140) Translation adjustment - - - - - - - (317) (317) ----------- Comprehensive income - - - - - - - - $37,120 - ----------------------------------------------------------------------------------------------------------------=========== Balance June 26, 1999 19,042 9,521 1,475 738 26,086 210,253 (2,601) (8,364) - ---------------------------------------------------------------------------------------------------------------- Net income - - - - - 37,812 - - $37,812 Cash dividend $.07 per share - - - - - (1,436) - - - Stock issued for employee benefit plans 19 10 - - 593 - (386) - - Amortization of deferred compensation - - - - - - 523 - - Unrealized holding gains - - - - - - - 171 171 Less: reclassification adjustment for gains included in net income, net of tax - - - - - - - (865) (865) Translation adjustment - - - - - - - (533) (533) ----------- Comprehensive income - - - - - - - - $36,585 - ----------------------------------------------------------------------------------------------------------------=========== Balance July 1, 2000 19,061 $9,531 1,475 $738 $26,679 $246,629 $(2,464) $(9,591) ================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except share and per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS G&K Services, Inc. (the Company) is a full-service uniform rental provider, including the rental of cleanroom garments. The Company also provides rental of nonuniform items such as floormats, dust mops and cloths, wiping towels and selected linen items. In addition, the Company manufactures uniform garments for customers as well as uniforms for direct sale. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated in consolidation. INVENTORIES New goods inventories are stated at the lower of first-in, first-out (FIFO) cost or market. Rental merchandise in service is stated at cost less amortization, which is not in excess of market. The components of inventories as of July 1, 2000 and June 26, 1999 are as follows:
2000 1999 - -------------------------------------------------------------------------------------- New goods $21,206 $20,081 Rental merchandise in service 68,769 63,811 - -------------------------------------------------------------------------------------- $89,975 $83,892 ======================================================================================
PROPERTY, PLANT AND EQUIPMENT The Company provides for depreciation for financial reporting purposes over the estimated useful lives of property, plant and equipment as follows:
Life (Years) - ---------------------------------------------------------------------------- Automobiles and trucks 3 to 8 Machinery and equipment 3 to 10 Buildings 20 to 33 1/3 Building improvements 10 ============================================================================
Costs of significant additions, renewals and betterments, including external and certain internal computer software development costs, are capitalized. When an asset is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and the gain or loss on disposition is reflected in earnings. Maintenance and repairs are charged to expense when incurred. INTANGIBLE ASSETS ARISING FROM ACQUISITIONS The cost of acquisitions in excess of the fair value of the underlying net assets acquired (goodwill) is amortized over periods ranging from 8 to 40 years. Accumulated amortization of goodwill was $19,655 as of July 1, 2000 and $15,209 as of June 26, 1999. Restrictive covenants and acquired customer lists, stated at cost less accumulated amortization of $17,926 and $13,217 as of July 1, 2000 and June 26, 1999, are being amortized over the terms of the respective agreements and the estimated average life of an account, respectively. Impairment losses are recorded on goodwill and other long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Impairment losses are measured by comparing the fair value of the assets as determined by discounting the future cash flows at a market rate of interest to their carrying amounts. There were no impairments recognized during fiscal 2000, 1999 or 1998. RETIREMENT PLAN ASSETS Retirement plan assets consist primarily of mutual funds and cash equivalents, which are stated at their fair value as determined by quoted market prices and the cash surrender values of life insurance policies. FOREIGN CURRENCY Assets and liabilities of the Company's foreign operations are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments are recorded as a separate component of stockholders' equity. F-6 INCOME TAXES The Company and its subsidiaries file a consolidated federal income tax return and separate state and foreign returns. The Company accounts for income taxes using the liability method. Deferred income taxes are provided for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at currently enacted tax rates. PER SHARE DATA Basic earnings per common share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share was computed similar to the computation of basic earnings per share, except that the denominator is increased for the assumed exercise of dilutive options and other dilutive securities (including nonvested restricted stock) using the treasury stock method.
For the Fiscal Years Ended ---------------------------------------------------------- July 1, June 26, June 27, 2000 1999 1998 ---------------------------------------------------------- Weighted average number of common shares outstanding used in computation of basic earnings per share 20,456,000 20,414,000 20,380,000 Weighted average effect of nonvested restricted stock grants, exercise of options and other 31,000 95,000 74,000 ---------------------------------------------------------- Shares used in computation of diluted earnings per share 20,487,000 20,509,000 20,454,000 ==========================================================
USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Ultimate results could differ from those estimates. COMPREHENSIVE INCOME The Company has chosen to disclose comprehensive income, which consists of net income, foreign currency translation adjustment and unrealized gain on investments, in the consolidated statements of stockholders' equity and comprehensive income. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," was adopted by the Company in the fourth quarter of fiscal 2000. The statement requires the fair value of all derivatives, including swap agreements, to be recognized in the consolidated financial statements. The Company holds an interest rate swap agreement which has been designated as a highly effective cash flow hedge. Initial adoption resulted in the recording of a contra-liability of $138, with the offset recorded in equity as a component of accumulated other comprehensive income on the consolidated balance sheet. The Company uses an interest rate swap contract, which expires in September of 2000, to hedge against the effect of interest rate fluctuations on its variable rate term loan facility. The interest rate swap had a notional amount of $100,000 at July 1, 2000. Amounts to be paid or received under interest rate swap agreements are accrued as interest rates change and are recognized over the life of the swap agreements as an adjustment to interest expense. The related amounts payable to, or receivable from, the counterparties are included in other accrued expenses. Also, concurrently with the adoption of SFAS No. 133, the Company changed its designation of the investments associated with its deferred compensation plan to trading securities and recognized $1,725 in previously unrealized gains. 2. ACQUISITIONS During fiscal year 2000, the Company made three acquisitions. During the first quarter, the assets of 3-D Services, Inc. were purchased, which consisted of one facility in Boston. In the second quarter, the assets of Aladdin, Inc. were purchased, which included 4 facilities in Iowa. During the fourth quarter, Whistle Kleen Enterprises Ltd. was purchased with one facility in Ottawa, Canada. All acquisitions were accounted for using the purchase method. The total purchase price of F-7 these acquisitions was approximately $34,929 in cash. The purchase price and related acquisition costs exceeded the fair values assigned to tangible assets by approximately $26,055. The pro forma effects of these acquisitions are not deemed material to the Company. On July 14, 1997, the Company purchased the uniform rental assets and selected linen rental assets of National Linen Service (NLS) for approximately $283,400 in cash. The acquisition was accounted for using the purchase method and the purchase price was allocated to the acquired assets and assumed liabilities based on the fair values of the assets purchased and the liabilities assumed. The purchase price and related acquisition costs exceeded the fair values assigned to tangible assets by approximately $160,600, which was assigned to restrictive covenants ($1,100) to be amortized over the contract life of five years, purchased customer list ($41,600) to be amortized over eleven years and goodwill ($117,900) to be amortized over thirty-five years. In connection with the asset purchase from NLS, nine linen rental facilities purchased were identified as assets held for sale. Earnings or losses from these nine facilities have been excluded from the consolidated statement of income. During fiscal 1998, the Company sold selected linen assets and uniform rental assets of eight facilities for approximately $76,700 in cash. During fiscal 1999, the Company sold the remaining linen facility classified as held for sale for approximately $2,100 in cash. 3. LONG-TERM DEBT Debt as of July 1, 2000 and June 26, 1999 includes the following:
2000 1999 - ----------------------------------------------------------------------------------------------------------- Borrowings under term loan and revolving credit facility at rates ranging from 7.19% to 9.5% at July 1, 2000 and 5.50% to 6.74% at June 26, 1999 $202,118 $220,314 Borrowings under discretionary credit facility at rates of 7.41% at July 1, 2000 and 5.75% at June 26, 1999 16,400 2,000 Other debt arrangements including capital leases 7,182 - - ----------------------------------------------------------------------------------------------------------- 225,700 222,314 Less current maturities (58,355) (28,362) - ----------------------------------------------------------------------------------------------------------- Total long-term debt $167,345 $193,952 ===========================================================================================================
The Company maintains a $425,000 term loan and revolving credit facility. The credit facility includes (i) a $300,000 term loan facility with maturities of the remaining balance for the four years subsequent to July 1, 2000 of $41,425, $45,192, $45,192, $48,957, and (ii) a $125,000 revolving credit facility expiring on June 30, 2002. As of July 1, 2000, borrowings outstanding under the term loan were $180,766, and borrowings under the revolving credit facility were $21,352. The unused portion of the revolver may be used for working capital and to provide up to $10,000 in letters of credit. Borrowings under the term loan and revolving credit facility bear interest at 0.5% to 1.125% over the rate offered to major banks in the London Interbank Eurodollar market (Eurodollar Rate), or Canadian Prime for Canadian borrowings, based on a leverage ratio calculated on a quarterly basis. Advances outstanding as of July 1, 2000 bear interest at the Eurodollar Rate or Canadian Prime Rate plus 0.50%. The Company also pays a fee of 0.15% to 0.35% on the unused daily balance of the revolver based on a leverage ratio calculated on a quarterly basis. The fee as of July 1, 2000 was 0.15%. The Company also maintains a $20,000 discretionary credit facility. Borrowings under the discretionary credit facility bear interest at 0.65% to 1.275% over the Eurodollar Rate. Advances outstanding as of July 1, 2000 bear interest at the Eurodollar Rate plus 0.65%. On September 27, 1997, the Company entered into an interest rate swap agreement for the notional principal amount of $100,000 through September 12, 2000, that effectively fixed the interest rate on floating rate debt at a rate of 6.74%. If this swap agreement were to be terminated as of July 1, 2000, the Company would have incurred a gain on the contract of $171. The credit facility contains various restrictive covenants that among other matters require the Company to maintain a minimum interest coverage ratio, minimum stockholders' equity and maximum leverage ratio, all as defined. The credit agreement also limits additional indebtedness, investments, capital expenditures and cash dividends. As of July 1, 2000, the Company was in compliance with all debt covenants. The fair value of the Company's long-term debt, based on the quoted market prices for the same or similar issues or on F-5 the current rates offered to the Company for debt of the same remaining maturities, approximates carrying value as of July 1, 2000 and June 26, 1999. The Company entered into capital lease agreements in fiscal 2000. Future minimum lease payments under capital leases for fiscal years 2001 through 2005 are $1,122, $2,244, $2,244, $1,522 and $1,282. The present value of net minimum lease payments is $6,979 after excluding the amount representing interest of $1,435. 4. STOCKHOLDERS' EQUITY Each share of Class A common stock is entitled to one vote and is freely transferable. Each share of Class B is entitled to ten votes and can be converted to Class A common stock on a share-for-share basis. Until converted to Class A common stock, however, Class B shares are not freely transferable. No cash dividends can be paid on Class B common stock unless dividends of at least an equal amount per share are paid on Class A shares. Substantially all Class B shares are held by an officer of the Company. STOCK AWARD PLANS The Company maintains a 1989 and 1998 Stock Option and Compensation Plan (the Employee Plans) to grant certain stock awards, including stock options at fair market value and restricted shares, to key employees of the Company. The Company records compensation expense as the restrictions are removed from the stock for the difference between the par value and fair market value as of the grant date. A maximum of 2,400,014 and 1,500,000 stock awards can be granted under the 1989 and 1998 plans, respectively; 1,833,245 and 1,028,951 awards were available for grant as of July 1, 2000. The Company also maintains the 1996 Director Stock Option Plan (the Directors' Plan). The Directors' Plan provides for automatic grants of 3,000 nonqualified stock options to nonemployee directors of the Company as of the later of August 1996 or the date such individuals became directors of the Company and 1,000 nonqualified stock options on each subsequent annual shareholder meeting date. The Company has reserved 50,000 shares of Class A common stock for issuance under the Directors' Plan. These options expire within ten years of grant and are exercisable one year from the date of grant, except for the August 1996 grants, of which, one-third of the total options are exercisable each year beginning with the first anniversary of the date of grant. The option price will be the average market price of the Class A common stock during the ten business days preceding the date of grant. The following schedule summarizes activity in the plans:
Stock Options -------------------------- Employee Directors' Restricted Grant Plans Plan Stock Price - ----------------------------------------------------------------------------------------------------------- Outstanding at June 28, 1997 60,351 15,000 323,054 $7.17 - 37.00 Granted 24,651 5,000 21,403 32.00 - 41.88 Exercised (11,917) - - 7.17 - 37.00 Canceled (4,632) - (14,554) 37.00 - ----------------------------------------------------------------------------------------------------------- Outstanding at June 27, 1998 68,453 20,000 329,903 11.33 - 41.88 Granted 234,103 5,000 24,322 44.77 - 53.34 Exercised (7,013) - - 11.33 - 41.88 Canceled (36,868) - (7,881) 46.00 - ----------------------------------------------------------------------------------------------------------- Outstanding at June 26, 1999 258,675 25,000 346,344 16.00 - 53.34 Granted 452,183 6,000 28,388 25.00 - 45.50 Exercised - - - - Canceled (66,985) - (14,256) 41.56 - 49.63 - ----------------------------------------------------------------------------------------------------------- Outstanding at July 1, 2000 643,873 31,000 360,476 16.00 - 53.34 =========================================================================================================== Exercisable at July 1, 2000 28,710 25,000 - 16.00 - 53.34 ===========================================================================================================
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized in the F-9 accompanying consolidated statements of income except for shares issued under the Restricted Stock Plan. Had compensation cost been recognized based on the fair values of options at the grant dates consistent with the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and net income per common share would have been adjusted to the following pro forma amounts:
Fiscal Years - ----------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Net income: As reported $37,812 $37,029 $32,058 Pro forma 35,574 36,035 31,968 Basic net income per share: As reported $ 1.85 $ 1.81 $ 1.57 Pro forma 1.74 1.77 1.57 Diluted net income per share: As reported $ 1.85 $ 1.81 $ 1.57 Pro forma 1.74 1.76 1.56
Because the SFAS No. 123 method of accounting has not been applied to options granted prior to July 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The weighted average fair value of options granted in 2000, 1999 and 1998 was $15.96, $17.38 and $17.61, respectively. The weighted average exercise price was $33.74, $46.46 and $41.88, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used: risk-free interest rates of 6.43% for 2000, 4.83% for 1999 and 5.68% for 1998; expected dividends of $.07 per share; expected lives of seven years for 2000, 1999 and 1998; and expected volatility of 34.48% for 2000 grants, 23.90% for 1999 grants and 27.53% for 1998 grants. 5. INCOME TAXES The components of the provision for income taxes are as follows:
Fiscal Years - ----------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Current: Federal $11,366 $11,625 $11,261 State and local 1,310 1,118 1,211 Foreign 8,409 8,418 5,470 - ----------------------------------------------------------------------------------------------------------- 21,085 21,161 17,942 Deferred 4,122 3,008 2,747 - ----------------------------------------------------------------------------------------------------------- $25,207 $24,169 $20,689 ===========================================================================================================
The reconciliation between income taxes using the statutory federal income tax rate and the recorded income tax provision is as follows:
Fiscal Years - ----------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------- Federal taxes at the statutory rate $22,057 $21,419 $18,462 State taxes, net of federal tax benefit 1,071 944 988 Foreign taxes 1,332 1,155 884 Permanent differences and other, net 747 651 355 - ----------------------------------------------------------------------------------------------------------- Total provision $25,207 $24,169 $20,689 =========================================================================================================== Effective rate 40.0% 39.5% 39.2% ===========================================================================================================
F-10 Significant components of the Company's deferred tax assets and deferred tax liabilities as of July 1, 2000 and June 26, 1999 are as follows:
2000 1999 - ------------------------------------------------------------------------------------------------------------ Deferred tax liabilities: Inventory amortization differences $(20,064) $(18,435) Depreciation and property basis differences (12,849) (9,920) Other (4,653) (4,729) - ------------------------------------------------------------------------------------------------------------ Total deferred tax liabilities (37,566) (33,084) Deferred tax assets: Accruals, reserves and other 7,917 7,557 - ------------------------------------------------------------------------------------------------------------ Net deferred tax liability $(29,649) $(25,527) ============================================================================================================
6. EMPLOYEE BENEFIT PLANS PENSION PLAN The Company has a noncontributory defined benefit pension plan (the Plan) covering substantially all employees, except certain employees who are covered by union-administered plans. Benefits are based on number of years of service and each employee's compensation near retirement. The Company makes annual contributions to the Plan consistent with federal funding requirements. Plan assets consist primarily of common stocks and U.S. government and corporate obligations. UNION PENSION PLANS Certain employees of the Company are covered by union-sponsored, collectively bargained, multiemployer pension plans (Union Plans). The Company contributed and charged to expense $909 in 2000, $939 in 1999 and $851 in 1998 for such plans. These contributions are determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. The Company may be liable for its share of unfunded vested benefits, if any, related to the Union Plans. Information from the Union Plans' administrators is not available to permit the Company to determine its share, if any, of unfunded vested benefits. 401(K) PLAN All full-time nonunion employees are eligible to participate in a 401(k) plan. The Company matches a portion of the employee's salary reduction contributions and provides investment choices for the employee. The matching contributions under the 401(k) plan, which vest over a five-year employment period, were $608 in 2000, $534 in 1999 and $466 in 1998. EXECUTIVE RETIREMENT PLANS The Company has a nonqualified Supplemental Executive Retirement Plan (SERP) and a nonqualified Executive Deferred Compensation Plan (DEFCO) to provide designated executives and professional employees with retirement, death and disability benefits. Annual benefits under the SERP are based on years of service and individual compensation near retirement. The Company has purchased life insurance contracts that may be used to fund the retirement benefits. The net cash surrender value of the contracts as of July 1, 2000 and June 26, 1999 was $4,849 and $3,834, respectively, and is included in other assets in the accompanying consolidated balance sheets. Under the DEFCO plan, the Company matches a portion of the designated employees' contributions and provides a guaranteed investment return that is adjusted annually. The Company's matching contributions under the DEFCO plan were $327 in 2000, $265 in 1999 and $240 in 1998. The accumulated benefit obligation of $7,622 as of July 1, 2000 and $6,423 as of June 26, 1999, is included in other noncurrent liabilities in the accompanying consolidated balance sheets. The Company has purchased investments, including stable income and stock index managed funds, which may be used to fund the retirement benefits. The investments had an aggregate market value of $7,648 as of July 1, 2000 and $6,439 as of June 26, 1999, and are included in other assets in the accompanying consolidated balance sheets at these values. F-11 The changes in benefit obligation and plan assets consisted of the following for the years ended July 1, 2000 and June 26, 1999:
Supplemental Executive Pension Plan Retirement Plan 2000 1999 2000 1999 ------------------------------ ---------------------------- Change in benefit obligation: Projected benefit obligation, beginning of year $18,464 $15,836 $5,092 $5,241 Service cost 1,753 1,312 177 258 Interest cost 1,373 1,137 377 377 Actuarial (gain) loss (362) 669 1,241 (663) Benefits paid (537) (490) (193) (121) ------------------------------ ---------------------------- Projected benefit obligation, end of year $20,691 $18,464 $6,694 $5,092 ============================== ============================ Change in plan assets: Fair value of plan assets, beginning of year $23,386 $19,534 $ -- $ -- Actual return on plan assets 365 4,342 -- -- Employer contributions -- -- 193 121 Benefits paid (537) (490) (193) (121) ------------------------------ ---------------------------- Fair value of plan assets, end of year $23,214 $23,386 $ -- $ -- ============================== ============================ Net cash surrender value of life insurance contracts $4,849 $3,834 ============================
The funded status of the Company's plans were as follows as of July 1, 2000 and June 26, 1999:
Supplemental Executive Pension Plan Retirement Plan 2000 1999 2000 1999 ------------------------------ ---------------------------- Funded status $ 2,523 $ 4,922 $(6,694) $(5,092) Unrecognized transition amount -- (133) -- -- Unrecognized actuarial (gain) loss (5,576) (7,064) 2,054 627 Unrecognized prior service cost 475 528 562 846 Intangible asset -- -- 562 (495) ------------------------------ ---------------------------- Accrued pension liability $(2,578) $(1,747) $(3,516) $(4,114) ============================== ============================
The following average assumptions were used to account for the plans for the years ended July 1, 2000 and June 26, 1999:
Supplemental Executive Pension Plan Retirement Plan 2000 1999 2000 1999 ----------------------------- ----------------------------- Discount rate 7.75% 7.50% 7.75% 7.50% Expected return on plan assets 7.50% 7.50% N/A N/A Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
The components of net periodic pension cost are as follows for the years ended July 1, 2000, June 26, 1999 and June 27, 1998:
Supplemental Executive Pension Plan Retirement Plan 2000 1999 1998 2000 1999 1998 ------------------------------------- --------------------------------- Service cost $ 1,753 $ 1,312 $ 1,287 $ 177 $ 258 $ 158 Interest cost 1,373 1,137 1,154 377 377 301 Expected return on assets (1,742) (1,454) (2,629) -- -- -- Net transition asset (133) (133) -- -- -- -- Prior service cost 53 53 -- 65 65 65 (Gain) loss (473) (321) 916 34 60 8 ------------------------------------- --------------------------------- Net periodic pension cost $ 831 $ 594 $ 728 $ 653 $ 760 $ 532 ===================================== =================================
F-12 7. COMMITMENTS AND CONTINGENCIES LITIGATION The Company is a defendant in litigation arising in the ordinary course of business, including being named, along with other defendants, as a potentially responsible party at certain waste disposal sites where groundwater contamination has been detected, or is suspected. In the opinion of management, resolution of the litigation will not have a material effect on the Company's results of operations or financial position. LEASES The Company has noncancellable operating lease commitments for certain production and other equipment, vehicles, and delivery facilities that expire on various dates through 2008. Minimum annual rental commitments at July 1, 2000 for the fiscal years 2001 through 2005 and thereafter are $6,145, $5,475, $3,901, $1,970, $1,678 and $1,596. In accordance with the terms of certain lease agreements, the Company is required to pay real estate taxes and maintenance costs. Total lease expense was $10,786 in 2000, $7,896 in 1999 and $6,798 in 1998. 8. SEGMENT INFORMATION The Company has two operating segments under the guidelines of SFAS No. 131: United States and Canada. Each operating segment derives revenues from the uniform rental business which includes garment rental and nonuniform items such as floormats, dust mops and cloths, wiping towels and selected linen items. No one customer's transactions account for 10% or more of the Company's revenues. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 1). Financial information by geographic location is as follows:
United States Canada Elimination Total - ---------------------------------------------------------------------------------------------------------------------- 2000: Revenues $504,234 $73,158 $ - $577,392 Income from operations 56,570 21,074 - 77,644 Interest income 3,601 64 (1,423) 2,242 Interest expense 16,130 1,995 (1,423) 16,702 Total assets 586,875 72,385 (64,308) 594,952 Capital expenditures 41,886 1,813 - 43,699 Depreciation and amortization expense 34,352 4,379 - 38,731 Income tax expense 17,786 7,421 - 25,207 1999: Revenues $457,462 $62,504 $ - $519,966 Income from operations 60,029 17,373 - 77,402 Interest income 2,283 45 (1,430) 898 Interest expense 16,164 2,479 (1,430) 17,213 Total assets 525,973 69,656 (54,197) 541,432 Capital expenditures 35,091 2,883 - 37,974 Depreciation and amortization expense 31,903 4,076 - 35,979 Income tax expense 17,617 6,552 - 24,169 1998: Revenues $441,421 $61,172 $ - $502,593 Income from operations 56,892 15,519 - 72,411 Interest income 2,960 36 (1,211) 1,785 Interest expense 20,916 2,143 (1,211) 21,848 Total assets 509,423 68,726 (46,307) 531,842 Capital expenditures 31,589 5,809 - 37,398 Depreciation and amortization expense 31,552 4,041 - 35,593 Income tax expense 15,299 5,390 - 20,689 - ----------------------------------------------------------------------------------------------------------------------
F-13 9. SUBSEQUENT EVENT Subsequent to July 1, 2000, the Company completed a $50,000, 8.40% private placement debt transaction with certain institutional investors. The 10-year notes have a seven-year average life. According to the note purchase agreement, an initial take-down of $20,000 was completed on July 20, 2000. Two additional take-downs of $15,000 each will be made on or about September 15, 2000 and December 15, 2000. Each subsequent take-down will bear the same coupon of 8.40%. The Company intends to use the net proceeds from the sale of the notes to repay existing indebtedness under its term loan and revolving credit facility and for general corporate expenses. (THIS SPACE INTENTIONALLY LEFT BLANK) F-14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO G&K SERVICES, INC.: We have audited the accompanying consolidated balance sheets of G&K Services, Inc. (a Minnesota corporation) and Subsidiaries as of July 1, 2000 and June 26, 1999, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended July 1, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of G&K Services, Inc. and Subsidiaries as of July 1, 2000 and June 26, 1999, and the results of its operations and its cash flows for each of the three years in the period ended July 1, 2000, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective March 26, 2000, the Company adopted the new requirements of Statements of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." ARTHUR ANDERSEN LLP Minneapolis, Minnesota, August 11, 2000 (THIS SPACE INTENTIONALLY LEFT BLANK) F-15 EX-10.J 2 a2026391zex-10_j.txt EXHIBIT 10J EXHIBIT 10(j) EMPLOYMENT AGREEMENT THIS AGREEMENT, made and executed as of the 2nd day of January, 1998, by and between G&K SERVICES, INC., a Minnesota corporation (hereinafter referred to as "Employer") and Thomas Moberly (hereinafter referred to as "Employee"), WITNESSETH: WHEREAS, Employer is a member of a group of affiliated corporations which includes G&K Services, Inc., a Minnesota corporation, and all its subsidiaries whether now existing or hereafter formed or acquired, which group is hereinafter referred to as the "G&K Group"; WHEREAS, Employer has instituted the 1989 Stock Option and Compensation Plan to permit Employee to purchase shares of Employer's Class A Common Stock (the "Increased Benefits"); and WHEREAS, Employer and Employee have mutually rescinded and canceled all prior agreements between them with respect to Employee's employment, except those agreements applicable to all employees similarly situated with Employer; and WHEREAS, Employer desires to assure Employee's dedication by rewarding faithful and important contributions to Employer's business, and that of the G&K Group as a whole, and to preserve the value of such contributions by securing from Employee reasonable restriction against certain competitive activities; NOW, THEREFORE, in consideration of the foregoing, the mutual promises set forth in this Agreement and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee agree as follows: 1. EMPLOYMENT. Employer agrees to and does employ the Employee for an indefinite term, for such duties, compensation and other terms and conditions as shall be mutually agreed upon from time to time between Employer and Employee, including any Increased Benefits described above. Such employment may be terminated at any time by Employer or Employee for any reason and shall also terminate on death, disability or retirement of Employee. In connection with such employment, Employer agrees to acquaint Employee with any customers and accounts of Employer (or other members of the G&K Group) upon whom the Employee may be asked to call, solicit or otherwise serve. If Employee is or becomes a sales or service representative of Employer including a route driver, selling is a key duty which will require Employee to have extensive sales contacts with Employer's customers and potential customers. Employee agrees to solicit orders for, or assist in (or both) the delivery of towels, garments, mats, cleaning supplies, and other laundry and linen services provided by the Employer, and perform such other duties as the Employer may require of Employee from time to time. If so employed, Employee also agrees (1) to use his or her best efforts to obtain and retain trade for the Employer and (2) to faithfully work for the Employer in the performance of any assigned duties as a sales or service representative of the Employer. 2. EMPLOYEE BENEFITS. Employee shall receive medical and hospitalization insurance, pension and other benefits, to the extent such benefits are consistent with Employer's general practices and policies, or as otherwise agreed between Employer and Employee. 3. RESTRICTIVE COVENANTS. In consideration of the Employee's employment by Employer, or Employer's willingness to grant to Employee any Increased Benefits defined earlier in this Agreement, as the case may be, and the continued employment of Employee by Employer, Employee hereby covenants and agrees as follows: A. PROTECTION OF CONFIDENTIAL INFORMATION. While in the employ of any member of the G&K Group or at any time after termination of such employment, Employee shall not (1) directly or indirectly use for Employee's own benefit, or (2) disclose, provide any person or entity with, or permit any person or entity access to, any information concerning the G&K Group's customer lists or routes, pricing, purchasing, inventory, business methods, training manuals or other materials developed for G&K's employee training programs, or any other non-public material information, relating to the business of the G&K Group, except in the usual course of Employee's duties for a member of the G&K Group. Furthermore, except in the 19 usual course of Employee's duties for a member of the G&K Group, Employee shall not at any time (1) remove any data or material from the offices of any member of the G&K Group, (2) record any of the contents of said data or material or (3) use for Employee's own benefit or disclose to any one directly or indirectly competing with a member of the G&K Group any information, data or materials obtained from the files of the G&K Group. Upon termination of employment, Employee shall collect and return, to the member (or its authorized representative) of the G&K Group last employing Employee all original copies and all photocopies of customer lists, prospective customer lists, contracts, books, records, training manuals, correspondence, business and financial records, operations reports or any part thereof acquired by Employee in the course of employment by any member of the G&K Group. B. CONFLICTS DURING EMPLOYMENT. While in the employ of any member of the G&K Group, Employee shall not: (1) solicit, induce or encourage any other G&K Group Employee to violate any term of their employment contract. (2) be at the same time employed by a competing company. The foregoing restrictions shall survive both termination of this Agreement and termination of Employee's employment by any member of the G&K Group. C. COVENANT NOT TO COMPETE. During a period of eighteen (18) months from and after the date of termination of Employee's employment with the G&K Group for any reason, Employee shall not, anywhere within the geographic area in which Employer (or any other member of the G&K Group which employed Employee within three (3) years prior to such date) is conducting its businesses as of such date (the "Restricted Area"), directly or indirectly: (1) have any ownership interest in, financial participation in, or become employed by any competitor of any member of the G&K Group in the Restricted Area; or (2) call upon, solicit, or attempt to take away any customers or accounts of the G&K Group, with whom the Employee became acquainted as a result of employment of any member of the G&K Group; or (3) solicit, induce or encourage any employee of the G&K Group to violate any term of their employment contract with the G&K Group, or to assist any other person or entity to do so. The foregoing competitive restrictions shall survive termination of this Agreement and shall be effective and enforceable for eighteen (18) months following termination of Employee's employment with the member of the G&K Group last employing Employee, unless such period is extended for an additional length of time pursuant to this Agreement. D. REMEDIES. Employee acknowledges that irreparable harm will result to the G&K Group, its business and property, in the event of a breach of this Agreement by Employee, and that any remedy at law would be inadequate; and therefore, in the event this Agreement is breached by Employee, the affected members of the G&K Group shall be entitled, in addition to all other remedies or damages at law or in equity, to temporary and permanent injunctions and orders to restrain the violation hereof by Employee and all persons or entities acting for or with Employee. In the event of any breach of the foregoing restrictions, Employee agrees to pay the reasonable attorneys' fees incurred by Employer in pursuing any of its rights and remedies with respect to such breach, in addition to the actual damages sustained by Employer as a result thereof. Furthermore, in the event of a breach of Employee's covenant not to compete, the eighteen (18) month period stated therein shall be automatically extended and shall remain in full force during the period of time such breach continues. 4. SEVERABILITY. It is agreed that each of the provisions contained herein is severable and, if any provision hereof shall to any extent be invalid or unenforceable, the remainder of this Agreement, including such provision in circumstances other than those in which it is held invalid or unenforceable, shall not be affected thereby and shall be valid or enforceable to the fullest extent permitted by law; provided, however, that if any provision hereof is held to be invalid or unenforceable 20 because of its duration or the territory covered, Employee and Employer agree to be bound by any reasonable period of time or reasonable territory, or both, as the case may be, determined by a court of competent jurisdiction. 5. WAIVER. Any waiver by Employer, or any other member of the G&K Group, of one or more breaches of this Agreement by Employee shall not prevent subsequent enforcement of the Agreement by any of them or be deemed a waiver by any of them of any subsequent breach of this Agreement. 6. ENTIRE AGREEMENT. This instrument contains the entire agreement of the parties hereto and may not be modified orally, but only by an agreement in writing signed by both parties. 7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Employer and Employee and shall inure to the benefit of Employee, the legal representatives of Employee and the successors and assigns of Employer and each member of the G&K Group, but shall not be assignable by Employee. In the event Employee's employment is transferred between members of the G&K Group, this Agreement shall be deemed to have been assigned to the member currently employing Employee. 8. GOVERNING LAW. This Agreement will be governed by and interpreted under the laws of the State of Minnesota. 9. VOLUNTARY AGREEMENT. Employee enters into this Agreement voluntarily and after having had the opportunity to consult with an advisor of his/her choice. IN WITNESS WHEREOF, Employer and Employee have duly executed this Agreement as of the day and year first above written. G&K SERVICES, INC. a member of the G&K Group /s/ Thomas Moberly /s/ William Hope - ---------------------------- -------------------------- Thomas Moberly William Hope EMPLOYEE Chief Executive Officer - ---------------------------- -------------------------- (THIS SPACE INTENTIONALLY LEFT BLANK) 21 EX-10.K 3 a2026391zex-10_k.txt EXHIBIT 10K EXHIBIT 10(k) G&K Services, Inc. 5995 Opus Parkway, Suite 500 Minnetonka, MN 55343 Attention: Jeffrey L. Wright Dear Mr. Wright: Norwest Bank Minnesota, National Association (the "Bank") is pleased to offer G&K Services, Inc., a Minnesota corporation (the "Borrower"), a $20,000,000 discretionary credit facility, under which the Bank may (in its sole discretion) make loans on a revolving basis not to exceed $20,000,000 at any one time outstanding. This letter (the "Letter Agreement") outlines the terms and conditions upon which the Bank may extend credit to the Borrower. 1. DEFINITIONS. As used herein, "Multibank Credit Agreement" means the Credit Agreement dated July 14, 1997 among the Borrower, Work Wear Corporation of Canada Ltd., the Bank, as US Agent and as a Bank, and various other financial institutions, together with all amendments, modifications and restatements thereof, but without regard to whether such Credit Agreement has been terminated or the obligations arising thereunder have been paid. Capitalized terms defined in the Multibank Credit Agreement and not otherwise defined herein shall have the meanings given them in the Multibank Credit Agreement. 2. DIRECT ADVANCES. The Bank shall consider making advances (each, an "Advance") to the Borrower from the date hereof through March 27, 2001 (the "Facility Termination Date") in an amount at any time outstanding not to exceed $20,000,000. Each advance shall be in an amount equal to an integral multiple of $100,000 greater than or equal to $1,000,000. The Borrower may borrow such amount, repay and reborrow, always in the Bank's discretion, so long as no Advance causes that dollar limit to be exceeded. Each individual Advance hereunder will always be at the sole discretion of the Bank. Nothing herein should be interpreted as a promise to make any one or more Advances. The proceeds of each Advance shall be used by the Borrower for the Borrower's general corporate purposes. The Borrower's obligation to repay Advances will be evidenced by and payable on demand with interest in accordance with the Borrower's promissory note in the form of Exhibit A hereto (the "Note"). 3. PAYMENT. All payments of principal and interest under the Note shall be made in immediately available funds. The Borrower authorizes the Bank at any time and from time to time to charge against the Borrower's deposit accounts with the Bank any amount due and payable under the Note or this Letter Agreement. 4. DETERMINATION OF MARGIN. As used in the Note, "Margin" means an incremental amount used in determining certain interest rates under the Note. The initial Margin shall be 65 basis points. The Margin shall be adjusted each fiscal quarter of the Borrower on the basis of the Leverage Ratio of the G&K Group as at the end of the previous fiscal quarter, in accordance with the following table:
Leverage Ratio Margin (basis points) -------------- --------------------- 3.50 to 1 or more 127.5 3.00 to 1 or more, but less than 3.50 to 1 110 2.50 to 1 or more, but less than 3.00 to 1 90 2.00 to 1 or more, but less than 2.50 to 1 77.5 Less than 2.00 to 1 65
Reductions and increases in the Margin will be made quarterly within five business days following receipt of the Borrower's financial statements and quarterly certificates required under the Multibank Credit Agreement. Notwithstanding the foregoing, (i) if the Borrower fails to deliver any such financial statements or certificates when required under the Multibank Credit Agreement, the Bank may, by notice to the Borrower, increase the Margin to the highest rates set forth above until such time as the Bank has received all such financial statements and certificates, and (ii) no reduction in the Margin will be made if a Default or Event of Default has occurred and is continuing at the time that such reduction would otherwise be made. 22 5. ADDITIONAL COVENANTS. The Borrower shall at all times abide by each covenant set forth in the Multibank Credit Agreement, the provisions of which are hereby incorporated by reference as fully as if set forth at length herein. For purposes of this Agreement, such covenants shall survive termination of the Multibank Credit Agreement and payment of the obligations described therein. 6. COSTS AND EXPENSES. The Borrower shall pay on demand all reasonable costs and expenses incurred by the Bank in connection with the preparation, execution, administration, and enforcement of this Letter Agreement, the Note and the other instruments and documents delivered in connection herewith, including the reasonable fees and out-of-pocket expenses of counsel for the Bank with respect thereto. 7. OTHER AGREEMENTS. This Letter Agreement and the Note set forth the entire agreement of the Bank and the Borrower with respect to the matters treated herein and therein. This Letter Agreement cannot be modified except by a future amendment in writing. This Letter Agreement takes the place of any preliminary discussions between the Bank and the Borrower and supersedes any previous written agreements or understandings between the Bank and the Borrower with respect to the credit facility established hereunder. 8. DISCRETION OF BANK. THE BORROWER ACKNOWLEDGES THAT THE BANK IS NOT OBLIGATED HEREUNDER TO MAKE ANY ADVANCE, AND THAT THE BANK MAY REFUSE TO MAKE ANY ADVANCE REQUESTED BY THE BORROWER, AND MAY DEMAND PAYMENT OF THE NOTE IN FULL, AT ANY TIME AND FOR ANY REASON, WHETHER ARISING BEFORE, ON OR AFTER THE DATE HEREOF AND WHETHER OR NOT THE BORROWER IS IN COMPLIANCE WITH THE OTHER TERMS OF THIS LETTER AGREEMENT AND THE MULTIBANK CREDIT AGREEMENT, OR FOR NO REASON AT ALL. The Borrower's signature below indicates its approval of all of the terms of this Letter Agreement and its agreement to abide by those terms. Very truly yours, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Michael W. Krutsch ----------------------------------- Its Vice President ------------------------------ Accepted and agreed to as of the 28th day of March, 2000 G&K SERVICES, INC. By /s/ Jeffrey L. Wright ------------------------------- Its Chief Financial Officer ------------------------- M1:603547.01 23 EXHIBIT A PROMISSORY NOTE $20,000,000 Minneapolis, Minnesota March 28, 2000 For value received, G&K Services, Inc., a Minnesota corporation (the "Borrower"), promises to pay to the order of Norwest Bank Minnesota, National Association, a national banking association (the "Bank"), at its main office in Minneapolis, Minnesota, or at such other place as the holder hereof may hereafter from time to time designate in writing, ON DEMAND, or, if demand is not sooner made, on the Facility Termination Date (as defined in the Letter Agreement described below), in lawful money of the United States of America, the principal sum of Twenty Million Dollars ($20,000,000), or, if less, the aggregate unpaid principal amount of all advances made by the Bank to the Borrower pursuant to the letter agreement of even date herewith between the Borrower and the Bank (the "Letter Agreement"), and to pay interest on the principal balance of this Note outstanding from time to time (computed on the basis of the actual number of days elapsed in a 360-day year) from the date hereof until this Note is fully paid, at the Floating Rate, as defined below; provided, however, that any Eurodollar Rate Amount selected by the Borrower in accordance with the following paragraph shall bear interest at the applicable Eurodollar Rate for the Interest Period determined pursuant to the following paragraph, subject to fluctuations in the Margin, but after the Interest Period such Eurodollar Rate Amount shall bear interest at the Floating Rate. On any bank business day before 1:00 p.m., the Borrower may request telephonically that the Bank quote the Eurodollar Rate that would be applicable to the Eurodollar Rate Amount and for the Interest Period specified in such request. Immediately upon receipt of such quotation from the Bank, the Borrower may telephonically accept the Eurodollar Rate, whereupon the Eurodollar Rate Amount shall from the date the quotation is made bear interest at the Eurodollar Rate so selected. Acceptance of any Eurodollar Rate quotation shall be irrevocable. Failure immediately to accept such a quotation shall be deemed to be a rejection of such quotation. Absent manifest error, the records of the Bank shall be conclusive as to any Eurodollar Rate Amount and the Eurodollar Rate and Interest Period applicable thereto. As used herein, the following terms have the meaning set forth below: "Eurodollar Rate" means the annual rate equal to the sum of (i) the rate obtained by dividing (a) the rate (rounded up to the nearest 1/8 of 1%) determined by the Bank to be the average rate at which U.S. dollar deposits are offered to the Bank by major banks in the London interbank market for funds to be made available on the first day of any Interest Period in an amount approximately equal to the amount for which a Eurodollar Rate quotation has been requested and maturing at the end of such Interest Period, by (b) a percentage equal to 100% minus the Federal Reserve System requirement (expressed as a percentage) applicable to such deposits, and (ii) the then-applicable Margin. "Eurodollar Rate Amount" means any portion of the principal balance of this Note bearing interest at a Eurodollar Rate. Each Eurodollar Rate Amount must be equal to an integral multiple of $100,000 greater than or equal to $1,000,000. "Floating Rate" means, at any time, the rate of interest publicly announced from time to time by the Bank as its "prime" or "base" rate or, if the Bank ceases to announce a rate so designated, any similar successor rate designated by the Bank. The Floating Rate shall change when and as such prime, base or successor rate changes. "Interest Period" means a period of not less than 1 day and not more than 30 days that corresponds to the maturity of U.S. dollar deposits then offered to the Bank by major banks in the London interbank market. "Margin" has the meaning set forth in the Letter Agreement. Interest accruing on the principal balance of this Note each month at the Floating Rate shall be due and payable on the last day of that month, commencing on the last day of the month hereof, and on demand. Interest accruing on any Eurodollar Rate Amount shall be due and payable on the last day of the Interest Period applicable thereto. 24 This Note is issued pursuant to, and is subject to, the Letter Agreement. This Note may be prepaid at any time and from time without penalty or premium; provided, however, that the Borrower may not prepay any Eurodollar Rate Amount except upon payment of any compensation as required by the following paragraph. In addition to any interest payable hereunder and any fees or other amounts payable under this Note or the Letter Agreement, the Borrower shall compensate the Bank, upon written request by the Bank (which request shall set forth the basis for requesting such amounts), for all losses and expenses in respect of any interest or other consideration paid by the Bank to lenders of funds borrowed by it or deposited with it to maintain any Eurodollar Rate Amount at a Eurodollar Rate which the Bank may sustain to the extent not otherwise compensated for hereunder and not mitigated by the reemployment of such funds if any prepayment of any such Eurodollar Rate Amount occurs on a date that is not the expiration date of the applicable Interest Period. A certificate as to any such loss or expense (including calculations, in reasonable detail, showing how the Bank computed such loss or expense) shall be promptly submitted by the Bank to the Borrower and shall, in the absence of manifest error, be conclusive and binding as to the amount thereof. Any determination under this paragraph may be made as if the Bank had actually funded and maintained each Eurodollar Rate Amount during the Interest Period for such Eurodollar Rate Amount through the purchase of deposits having a maturity corresponding to such Interest Period and bearing an interest rate equal to the appropriate Eurodollar Rate for such Interest Period, whether or not the Bank in fact purchased such deposits. The Borrower shall pay all costs of collection, including reasonable attorneys' fees and legal expenses, if this Note is not paid on demand, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. THE BORROWER ACKNOWLEDGES THAT IN ACCEPTING THIS NOTE THE BANK HAS NOT UNDERTAKEN ANY OBLIGATION TO MAKE ANY ADVANCE TO THE BORROWER AND THAT THE BANK MAY REFUSE TO MAKE ANY ADVANCE REQUESTED BY THE BORROWER AND MAY DEMAND PAYMENT OF ADVANCES THAT IT HAS MADE UNDER THIS NOTE AT ANY TIME, WITH OR WITHOUT NOTICE AND FOR ANY REASON, WHETHER ARISING BEFORE, ON OR AFTER THE DATE HEREOF, WHETHER OR NOT THE BORROWER IS IN COMPLIANCE WITH THE TERMS OF THIS NOTE AND THE LETTER AGREEMENT, OR FOR NO REASON AT ALL. This Note has been executed as of the date and year first above-written, but actually on the date set forth under the Borrower's signatures below. G&K SERVICES, INC. By --------------------------------- Its ---------------------------- M1:603547.01 25 EX-10.L 4 a2026391zex-10_l.txt EXHIBIT 10L EXHIBIT 10(l) G&K SERVICES, INC. $50,000,000 8.40% Senior Notes due 2010 ------------- NOTE PURCHASE AGREEMENT ------------- Dated as of July 20, 2000 ================================================================================
TABLE OF CONTENTS SECTION PAGE - ------- ---- 1. AUTHORIZATION OF NOTES....................................................................................1 2. SALE AND PURCHASE OF NOTES................................................................................1 3. CLOSINGS..................................................................................................1 4. CONDITIONS TO CLOSINGS....................................................................................2 4.1. Representations and Warranties................................................................2 4.2. Performance; No Default.......................................................................2 4.3. Compliance Certificates.......................................................................2 4.4. Opinions of Counsel...........................................................................2 4.5. Purchase Permitted By Applicable Law, etc.....................................................2 4.6. Sale of Other Notes...........................................................................3 4.7. Payment of Special Counsel Fees...............................................................3 4.8. Private Placement Number......................................................................3 4.9. Changes in Corporate Structure................................................................3 4.10. Subsidiary Guarantee..........................................................................3 4.11. Proceedings and Documents.....................................................................3 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................3 5.1. Organization; Power and Authority.............................................................3 5.2. Authorization, etc............................................................................4 5.3. Disclosure....................................................................................4 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates..............................4 5.5. Financial Statements..........................................................................4 5.6. Compliance with Laws, Other Instruments, etc..................................................5 5.7. Governmental Authorizations, etc..............................................................5 5.8. Litigation; Observance of Agreements, Statutes and Orders.....................................5 5.9. Taxes.........................................................................................5 5.10. Title to Property; Leases.....................................................................5 5.11. Licenses, Permits, etc........................................................................6 5.12. Compliance with ERISA.........................................................................6 5.13. Private Offering by the Company...............................................................7 5.14. Use of Proceeds; Margin Regulations...........................................................7 5.15. Existing Indebtedness; Future Liens...........................................................7 5.16. Foreign Assets Control Regulations, etc.......................................................7 5.17. Status under Certain Statutes.................................................................7 5.18. Environmental Matters.........................................................................7 5.19. Subsidiary Guarantee..........................................................................8 6. REPRESENTATIONS OF THE PURCHASER..........................................................................8 6.1. Purchase for Investment.......................................................................8 6.2. Source of Funds...............................................................................8 7. INFORMATION AS TO COMPANY.................................................................................9 7.1. Financial and Business Information............................................................9 7.2. Officer's Certificate.........................................................................11 7.3. Inspection....................................................................................11 8. PREPAYMENT OF THE NOTES...................................................................................12 8.1. Required Prepayments..........................................................................12 8.2. Optional Prepayments with Make-Whole Amount...................................................12 8.3. Prepayment in Connection with a Change of Control.............................................12 8.4. Allocation of Partial Prepayments.............................................................13 8.5. Maturity; Surrender, etc......................................................................13 8.6. Purchase of Notes.............................................................................13 8.7. Make-Whole Amount.............................................................................13 9. AFFIRMATIVE COVENANTS.....................................................................................14 9.1. Compliance with Law...........................................................................14 9.2. Insurance.....................................................................................14 9.3. Maintenance of Properties.....................................................................14 i 9.4. Payment of Taxes and Claims...................................................................15 9.5. Corporate Existence, etc......................................................................15 9.6. Subsidiary Guarantors.........................................................................15 9.7. Lines of Business.............................................................................15 10. NEGATIVE COVENANTS.......................................................................................15 10.1. Transactions with Affiliates..................................................................16 10.2. Merger, Consolidation, etc....................................................................16 10.3. Limitation on Consolidated Indebtedness.......................................................17 10.4. Limitation on Subsidiary Indebtedness.........................................................17 10.5. Limitation on Liens...........................................................................17 10.6. Limitation on Sale and Leaseback Transactions.................................................18 10.7. Maintenance of Net Worth......................................................................19 11. EVENTS OF DEFAULT........................................................................................19 12. REMEDIES ON DEFAULT, ETC.................................................................................20 12.1. Acceleration..................................................................................20 12.2. Other Remedies................................................................................21 12.3. Rescission....................................................................................21 12.4. No Waivers or Election of Remedies, Expenses, etc.............................................21 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES............................................................21 13.1. Registration of Notes.........................................................................21 13.2. Transfer and Exchange of Notes................................................................22 13.3. Replacement of Notes..........................................................................22 14. PAYMENTS ON NOTES........................................................................................22 14.1. Place of Payment..............................................................................22 14.2. Home Office Payment...........................................................................22 15. EXPENSES, ETC............................................................................................23 15.1. Transaction Expenses..........................................................................23 15.2. Survival......................................................................................23 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.............................................23 17. AMENDMENT AND WAIVER.....................................................................................23 17.1. Requirements..................................................................................23 17.2. Solicitation of Holders of Notes..............................................................24 17.3. Binding Effect, etc...........................................................................24 17.4. Notes held by Company, etc....................................................................24 18. NOTICES..................................................................................................24 19. REPRODUCTION OF DOCUMENTS................................................................................25 20. CONFIDENTIAL INFORMATION.................................................................................25 21. SUBSTITUTION OF PURCHASER................................................................................25 22. MISCELLANEOUS............................................................................................26 22.1. Successors and Assigns........................................................................26 22.2. Payments Due on Non-Business Days.............................................................26 22.3. Severability..................................................................................26 22.4. Construction..................................................................................26 22.5. Counterparts..................................................................................26 22.6. Governing Law.................................................................................26 SCHEDULE A -- INFORMATION RELATING TO PURCHASERS SCHEDULE B -- DEFINED TERMS SCHEDULE 4.9 -- Changes in Corporate Structure SCHEDULE 5.3 -- Disclosure Materials SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary Stock SCHEDULE 5.5 -- Financial Statements ii SCHEDULE 5.8 -- Certain Litigation SCHEDULE 5.11 -- Patents, etc. SCHEDULE 5.14 -- Use of Proceeds SCHEDULE 5.15 -- Existing Indebtedness/Liens EXHIBIT 1 -- Form of 8.40% Senior Note due 2010 EXHIBIT 4.4(a) -- Form of Opinion of Special Counsel for the Company EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel for the Purchasers EXHIBIT 4.10 -- Form of Subsidiary Guarantee iii
G&K SERVICES, INC. 5995 Opus Parkway, Suite 500 Minnetonka, Minnesota 55343 8.40% Senior Notes due 2010 As of July 20, 2000 TO THE PURCHASER WHOSE NAME APPEARS IN THE ACCEPTANCE FORM AT THE END HEREOF: Ladies and Gentlemen: G&K SERVICES, INC., a Minnesota corporation (the "COMPANY"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $50,000,000 aggregate principal amount of its 8.40% Senior Notes due 2010 (the "NOTES", such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement or the Other Agreements (as hereinafter defined)). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closings provided for in Section 3, Notes in the principal amount specified opposite your name in Schedule A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into separate Note Purchase Agreements (the "OTHER AGREEMENTS") identical with this Agreement with each of the other purchasers named in Schedule A (the "OTHER PURCHASERS"), providing for the sale at such Closing to each of the Other Purchasers of Notes in the principal amount specified opposite its name in Schedule A. Your obligation hereunder and the obligations of the Other Purchasers under the Other Agreements are several and not joint obligations and you shall have no obligation under any Other Agreement and no liability to any Person for the performance or non-performance by any Other Purchaser thereunder. 3. CLOSINGS. The sale and purchase of the Notes to be purchased by you and the Other Purchasers shall occur at the offices of Milbank, Tweed, Hadley & McCloy LLP, One Chase Manhattan Plaza, New York, New York 10005, at 10:00 a.m., New York City time, at three closings (each a "CLOSING"), the first of which shall occur on July 20, 2000 (the "FIRST CLOSING DATE"), the second of which shall occur on September 15, 2000 and the third of which shall occur on December 15, 2000. At each Closing the Company will deliver to you the Notes to be purchased by you at such Closing (as specified in Schedule A) in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as you may request) dated the date of such Closing and registered in your name (or in the name of your nominee), against delivery by you to the Company or its order of immediately available funds in the amount of the purchase price therefor by wire transfer of immediately available funds for the account of the Company to account number 39036 at Norwest/Wells Fargo Bank, ABA No. 091000019. If at any Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 1 4. CONDITIONS TO CLOSINGS. Your obligation to purchase and pay for the Notes to be sold to you at each Closing is subject to the fulfillment to your satisfaction, prior to or at such Closing, of the following conditions: 4.1. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company in this Agreement shall be correct when made and (i) in connection with the first Closing, shall be correct on the First Closing Date and (ii) in connection with each subsequent Closing, shall be correct in all Material respects at the time of such Closing, provided that, the representations contained in (x) the third sentence of Section 5.3 with respect to the materials referred to in said sentence, (y) Section 5.4 with respect to Schedule 5.4 and (z) Section 5.15 with respect to Schedule 5.15 shall be deemed to be supplemented by all of the materials and disclosures furnished or made by the Company to the holders of the Notes prior to the date of such subsequent Closing. 4.2. PERFORMANCE; NO DEFAULT. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at such Closing and after giving effect to the issue and sale of the Notes on the date of such Closing (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. As of the First Closing Date, neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by Section 10.1 had such Section applied since such Date. 4.3. COMPLIANCE CERTIFICATES. (a) OFFICER'S CERTIFICATE. The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) SECRETARY'S CERTIFICATES. The Company and each Subsidiary Guarantor shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes, this Agreement and the Other Agreements (in the case of the Company) and the Subsidiary Guarantee (in the case of each Subsidiary Guarantor). 4.4. OPINIONS OF COUNSEL. You shall have received opinions in form and substance satisfactory to you, dated the date of such Closing (a) from Maslon Edelman Borman & Brand, counsel for the Company, covering the matters set forth in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs its counsel to deliver such opinion to you) and (b) from Milbank, Tweed, Hadley & McCloy LLP, your special New York counsel in connection with such transactions, substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC. On the date of such Closing your purchase of Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 2 4.6. SALE OF OTHER NOTES. Contemporaneously with such Closing the Company shall sell to the Other Purchasers and the Other Purchasers shall purchase the Notes to be purchased by them at such Closing as specified in Schedule A. 4.7. PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of Section 15.1, the Company shall have paid on or before such Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4 to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to such Closing. 4.8. PRIVATE PLACEMENT NUMBER. A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 4.9. CHANGES IN CORPORATE STRUCTURE. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, (i) in the case of the First Closing Date, at any time following the date of the most recent financial statements referred to in Schedule 5.5 and (ii) in the case of each subsequent Closing, if such event or transaction would have been prohibited by Section 10.2 or any of the other provisions of this Agreement. 4.10. SUBSIDIARY GUARANTEE. You shall have received a true and complete copy of the Subsidiary Guarantee, duly executed and delivered by each Subsidiary Guarantor identified in Schedule 5.4, and the Subsidiary Guarantee shall be in full force and effect. 4.11. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you that: 5.1. ORGANIZATION; POWER AND AUTHORITY. The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreements and the Notes and to perform the provisions hereof and thereof. 3 5.2. AUTHORIZATION, ETC. This Agreement and the Other Agreements and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3. DISCLOSURE. The Company, through its agent, Credit Suisse First Boston, has delivered to you and each Other Purchaser a copy of a Direct Placement Memorandum, dated June 2000 (the "MEMORANDUM"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since June 26, 1999, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 5.4. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists (i) of the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, the percentage of shares of each class of its capital stock or similar equity interests outstanding owned by the Company and each other Subsidiary and whether, as of the First Closing Date, such Subsidiary shall be a Subsidiary Guarantor, (ii) of the Company's Affiliates, other than Subsidiaries, and (iii) of the Company's directors and senior officers. (b) All of the outstanding shares of capital stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed on Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of capital stock or similar equity interests of such Subsidiary. 5.5. FINANCIAL STATEMENTS. The Company has delivered to each Purchaser copies of the financial statements of the Company and its Subsidiaries listed on Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly 4 present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 5.6. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by the Company of this Agreement and the Notes will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.8. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. (a) Except as disclosed in Schedule 5.8, there are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including without limitation Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9. TAXES. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (i) the amount of which is not individually or in the aggregate Material or (ii) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended June 2, 1994. 5.10. TITLE TO PROPERTY; LEASES. 5 The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that the Company or any Subsidiary is party to as lessee and that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11. LICENSES, PERMITS, ETC. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product of the Company or any of its Subsidiaries infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12. COMPLIANCE WITH ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $100,000 in the case of any single Plan and by more than $100,000 in the aggregate for all Plans. The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning specified in section 3 of ERISA. (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. 6 5.13. PRIVATE OFFERING BY THE COMPANY. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more than ten other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of Section 5 of the Securities Act. 5.14. USE OF PROCEEDS; MARGIN REGULATIONS. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 5% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 5% of the value of such assets. As used in this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings assigned to them in said Regulation U. 5.15. EXISTING INDEBTEDNESS; FUTURE LIENS. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of all outstanding Indebtedness of the Company and its Subsidiaries as of March 25, 2000, since which date there has been no Material change in the amounts, interest rates, sinking funds, installment payments or maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal or interest on any Indebtedness of the Company or such Subsidiary and no event or condition exists with respect to any Indebtedness of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Indebtedness to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.5. 5.16. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17. STATUS UNDER CERTAIN STATUTES. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended. 5.18. ENVIRONMENTAL MATTERS. 7 Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 5.19. SUBSIDIARY GUARANTEE. The representations and warranties of each Subsidiary Guarantor in the Subsidiary Guarantee will be true and correct as of the date of each Closing. 6. REPRESENTATIONS OF THE PURCHASER. 6.1. PURCHASE FOR INVESTMENT. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, PROVIDED that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2. SOURCE OF FUNDS. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "SOURCE") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" (as the term is defined in PTE 95-60 (issued July 12, 1995)) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the "NAIC ANNUAL STATEMENT")) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with your state of domicile; or (b) the Source is a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has 8 any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (b), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source constitutes assets of a "plan(s)" (within the meaning of Section IV of PTE 96-23 (the "INHAM Exemption")) managed by an "in-house asset manager" or "INHAM" (within the meaning of Part IV of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of "control" in Section IV(h) of the INHAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this paragraph (e); or (f) the Source is a governmental plan; or (g) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (g); or (h) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1. FINANCIAL AND BUSINESS INFORMATION. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) QUARTERLY STATEMENTS -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (ii) consolidated statements of income and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, 9 setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, PROVIDED that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) ANNUAL STATEMENTS -- within 105 days after the end of each fiscal year of the Company, duplicate copies of, (i) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, stockholders' equity and comprehensive income, and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), PROVIDED that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b); (c) SEC AND OTHER REPORTS -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA MATTERS -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: 10 (i) with respect to any Plan, any reportable event, as defined in section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (g) REQUESTED INFORMATION -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes. 7.2. OFFICER'S CERTIFICATE. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) COVENANT COMPLIANCE -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Section 10.3 through Section 10.7 hereof, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) EVENT OF DEFAULT -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review shall not have disclosed the existence during such period of any condition or event that constitutes an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3. INSPECTION. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) NO DEFAULT -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent 11 of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) DEFAULT -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PREPAYMENT OF THE NOTES. 8.1. REQUIRED PREPAYMENTS. On July 20, 2004 and on each July 20 thereafter to and including July 20, 2009 the Company will prepay $7,142,857 principal amount (or such lesser principal amount as shall then be outstanding) of the Notes at par and without payment of the Make-Whole Amount or any premium, PROVIDED that upon any partial prepayment of the Notes pursuant to Section 8.2 or 8.3 or purchase of the Notes permitted by Section 8.6 the principal amount of each required prepayment of the Notes becoming due under this Section 8.1 on and after the date of such prepayment or purchase shall be reduced in the same proportion as the aggregate unpaid principal amount of the Notes is reduced as a result of such prepayment or purchase. 8.2. OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 10% of the aggregate principal amount of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.4), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 8.3. PREPAYMENT IN CONNECTION WITH A CHANGE OF CONTROL. (a) Promptly and in any event within five Business Days after any Responsible Officer has knowledge of the occurrence of a Change of Control, the Company shall give written notice thereof to each holder of a Note, which notice shall (i) refer specifically to this Section 8.3 and describe the Change of Control in reasonable detail (including the Persons party thereto), (ii) specify a Business Day not less than 30 days and not more than 45 days after the date of such notice (the "CONTROL PREPAYMENT DATE") and specify the Control Response Date (as defined below) and (iii) offer to prepay on the Control Prepayment Date the Notes of such holder, at 100% of the principal amount thereof, together with interest accrued thereon to the Control Prepayment Date. Each holder of a Note shall notify the Company of such holder's acceptance or rejection of such offer by giving written notice of such acceptance or rejection to the Company on a date at least 10 days prior to the Control Prepayment Date (such date 10 days prior to the Control Prepayment Date being the "CONTROL RESPONSE DATE"), and the Company shall prepay on the Control Prepayment Date all Notes held by each holder that has accepted such offer in accordance with this Section 8.3(a) at a price in respect of each such Note held by such holder equal to 100% of the principal amount thereof, together with interest accrued thereon to the Control Prepayment Date. (b) A "CHANGE OF CONTROL" will be deemed to have occurred for purposes of Section 8.3(a) if any Person or two or more Persons acting in concert acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of more than 35% of the Company's Voting Stock, PROVIDED, however, that no acquisition of any of the Company's Voting Stock by Richard M. Fink, his spouse, any direct or indirect lineal descendant and/or any trust created 12 primarily for the benefit of any or all of such persons shall constitute or be considered in determining whether or not a Change of Control has occurred. 8.4. ALLOCATION OF PARTIAL PREPAYMENTS. In the case of each partial prepayment of the Notes pursuant to Section 8.1 or 8.2, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.5. MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.6. PURCHASE OF NOTES. The Company will not and will not permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or (b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 20 Business Days. If the holders of more than 50% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least five Business Days from its receipt of such notice to accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Agreement and no Notes may be issued in substitution or exchange for any such Notes. 8.7. MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "CALLED PRINCIPAL" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "DISCOUNTED VALUE" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "REINVESTMENT YIELD" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service of Bridge Information Services (or such other display as may replace Page 678 on the Telerate Service 13 of Bridge Information Services) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury security with the maturity closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the maturity closest to and less than the Remaining Average Life. "REMAINING AVERAGE LIFE" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "REMAINING SCHEDULED PAYMENTS" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "SETTLEMENT DATE" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1. COMPLIANCE WITH LAW. The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2. INSURANCE. The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3. MAINTENANCE OF PROPERTIES. The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the 14 business carried on in connection therewith may be properly conducted at all times, PROVIDED that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4. PAYMENT OF TAXES AND CLAIMS. The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, PROVIDED that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes, assessments and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5. CORPORATE EXISTENCE, ETC. Subject to Sections 10.2, the Company will at all times preserve and keep in full force and effect its corporate existence, and the Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect the corporate existence of any Subsidiary or any such right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 9.6. SUBSIDIARY GUARANTORS. (a) The Company will ensure that each Subsidiary that has outstanding a Guaranty with respect to any Indebtedness of the Company or any of its Subsidiaries outstanding under any Credit Facility (or is otherwise a co-obligor or jointly liable with respect to any such Indebtedness) is a Subsidiary Guarantor. (b) Upon notice by the Company to each holder of a Note (which notice shall contain a certification by the Company as to the matters specified in clauses (x) and (y) below), a Subsidiary Guarantor shall cease to be a Subsidiary Guarantor and shall be released from its obligations under its Subsidiary Guarantee if (x) such Subsidiary Guarantor shall not have outstanding any Guaranty with respect to any Indebtedness (other than the Notes) of the Company or any of its Subsidiaries outstanding under any Credit Facility (and shall not otherwise be a co-obligor or jointly liable with respect to any such other Indebtedness) and (y) both immediately before and after giving effect to such release no Default or Event of Default shall have occurred and be continuing. If a Subsidiary again guarantees any Indebtedness of the Company or any of its Subsidiaries outstanding under any Credit Facility (or otherwise becomes a co-obligor or jointly liable with respect to any such Indebtedness), then the Company will cause such Subsidiary to become a Subsidiary Guarantor in accordance with the provisions of Subsection (a) above. 9.7. LINES OF BUSINESS. The Company and its Subsidiaries taken as a whole will continue to engage in the business in which they are engaged on the date of Closing as described in the Memorandum and business reasonably related or complementary thereto or in furtherance thereof, except for lines of business which are insignificant when viewed in the overall context of the business then engaged in by the Company and its Subsidiaries. 10. NEGATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 15 10.1. TRANSACTIONS WITH AFFILIATES. The Company will not and will not permit any Subsidiary to enter into directly or indirectly any Material transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 10.2. MERGER, CONSOLIDATION, ETC. The Company will not, and will not permit any Subsidiary Guarantor to, consolidate with or merge with any Person or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to any Person except: (a) a Subsidiary Guarantor may consolidate or merge with, or convey or transfer all or substantially all of its assets to: (i) the Company (PROVIDED that the Company shall be the continuing, surviving or acquiring corporation (the "SURVIVING CORPORATION")) or a then-existing Wholly-Owned Subsidiary; or (ii) any other Person PROVIDED that: (i) if such Subsidiary Guarantor is not the surviving corporation, the surviving corporation shall have: (A) executed and delivered to each holder of a Note its assumption of the due and punctual performance and observance of all obligations of such Subsidiary under its Subsidiary Guarantee, and (y) caused to be delivered to each holder of a Note an opinion of counsel reasonably satisfactory to the Required Holders to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms of this Agreement and such Subsidiary Guarantee; and (B) in any case, immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (b) the Company may consolidate or merge with any other corporation or convey or transfer all or substantially all of its assets to a corporation organized and existing under the laws of the United States or any State thereof (including the District of Columbia) or any member of the OECD (except Greece or Turkey), PROVIDED that: (i) if the Company is not the surviving corporation, the surviving corporation shall have: (A) executed and delivered to each holder of a Note its assumption of the due and punctual performance and observance of all obligations of the Company under this Agreement and the Notes, and (B) caused to be delivered to each holder of a Note an opinion of counsel reasonably satisfactory to the Required Holders to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms of this Agreement; and (ii) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing. 16 No such conveyance, transfer or lease of substantially all of the assets of the Company shall have the effect of releasing the Company or any successor corporation that shall theretofore have become such in the manner prescribed in this Section 10.2 from its liability under this Agreement or the Notes. 10.3. LIMITATION ON CONSOLIDATED INDEBTEDNESS. The Company will not, at any time, permit the Consolidated Indebtedness to EBITDA Ratio to exceed 3.50 to 1.00, PROVIDED, however, that the Consolidated Indebtedness to EBITDA Ratio may exceed 3.50 to 1.00 with respect to a period or periods not in excess of three years on a cumulative basis during the term of the Notes as a direct result of the Company or any Subsidiary creating, assuming, incurring, guaranteeing or otherwise become liable in respect of Acquisition Indebtedness so long as the Consolidated Indebtedness to EBITDA Ratio shall not exceed 4.00 to 1.00 at any time. 10.4. LIMITATION ON SUBSIDIARY INDEBTEDNESS. The Company will not permit any Subsidiary to create, assume, incur, guarantee or otherwise become liable in respect of any Indebtedness except: (a) Indebtedness secured by Liens permitted by Section 10.5(b) or (c); (b) guarantees by any Subsidiary Guarantor (including the Subsidiary Guarantees) in respect of unsecured Indebtedness of the Company; (c) in the case of any Person that after First Closing Date becomes a Subsidiary or is consolidated with or merged with or into a Subsidiary or sells, leases or otherwise disposes of all of its property to a Subsidiary, Indebtedness outstanding at the time such Person becomes a Subsidiary or is so consolidated or merged or effects such sale, lease or other disposition of property (and not created in anticipation thereof); (d) Indebtedness owing to the Company or a Wholly-Owned Subsidiary; and (e) other Indebtedness, PROVIDED that immediately after giving effect thereto and to the application of the proceeds thereof the sum (without duplication) of: (i) the aggregate unpaid principal amount of Indebtedness (including Capital Lease Obligations) of the Company secured by Liens permitted by Section 10.5(e); PLUS (ii) the aggregate unpaid principal amount of Indebtedness of all Subsidiaries (other than Indebtedness permitted by clauses (a) through (d) above); PLUS (iii) the aggregate Attributable Debt in connection with all sale and leaseback transactions of the Company and its Subsidiaries entered into after the First Closing Date in accordance with Section 10.6(a), does not exceed 15% of Consolidated Capitalization. 10.5. LIMITATION ON LIENS. The Company will not, and will not permit any Subsidiary to, create, assume, incur or suffer to exist any Lien upon or with respect to any property or assets, whether now owned or hereafter acquired, securing any Indebtedness, without making effective provision (pursuant to documentation in form and substance reasonably satisfactory to the Required Holders) whereby the Notes shall be secured by such Lien equally and ratably with or prior to any and all Indebtedness to be secured thereby, provided that nothing in this Section 10.5 shall prohibit: (a) Liens in respect of property of the Company or a Subsidiary existing on the First Closing Date and identified in Schedule 5.15 and extensions, renewals and replacements of such Liens (including successive extensions, renewals and replacements), PROVIDED that the principal amount of Indebtedness (or the maximum 17 commitment therefor) secured by any such Lien is not increased and such Lien does not extend to or cover any property other than the property covered by such Lien on the First Closing Date; (b) Liens in respect of property acquired or constructed by the Company or a Subsidiary after the First Closing Date that are created at the time of or within 180 days after acquisition or completion of construction of such property to secure Indebtedness assumed or incurred to finance all or any part of the purchase price or cost of construction of such property, PROVIDED that in any such case: (i) no such Lien shall extend to or cover any other property of the Company or such Subsidiary, as the case may be, and (ii) the aggregate principal amount of Indebtedness secured by all such Liens in respect of any such property shall not exceed the cost of such property and any improvements then being financed; (c) Liens in respect of property acquired by the Company or a Subsidiary after the First Closing Date, existing on such property at the time of acquisition thereof (and not created in anticipation thereof), or, in the case of any Person that after the First Closing Date becomes a Subsidiary or is consolidated with or merged with or into the Company or a Subsidiary or sells, leases or otherwise disposes of all or substantially all of its property to the Company or a Subsidiary, Liens existing at the time such Person becomes a Subsidiary or is so consolidated or merged or effects such sale, lease or other disposition of property (and not created in anticipation thereof), PROVIDED that in any such case no such Lien shall extend to or cover any other property of the Company or such Subsidiary, as the case may be; (d) Liens securing Indebtedness owed by a Subsidiary to the Company or to a Wholly-Owned Subsidiary; and (e) Liens that would otherwise not be permitted by clauses (a) through (d) above, securing additional Indebtedness of the Company or a Subsidiary, PROVIDED that after giving effect thereto and to the application of the proceeds of such Indebtedness, the sum (without duplication) of: (i) the aggregate unpaid principal amount of Indebtedness (including Capital Lease Obligations) of the Company secured by Liens (other than Liens permitted by clauses (a) through (d) above); PLUS (ii) the aggregate unpaid principal amount of Indebtedness of Subsidiaries (other than Indebtedness permitted by Section 10.4(a), (b), (c) or (d)); PLUS (iii) the aggregate Attributable Debt in connection with all sale and leaseback transactions of the Company and its Subsidiaries entered into after the First Closing Date in accordance with the provisions of Section 10.6(a), does not exceed 15% of Consolidated Capitalization. 10.6. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company will not, and will not permit any Subsidiary to, sell, transfer or otherwise dispose of (collectively, a "TRANSFER") any asset on terms whereby the asset or a substantially similar asset is or will be leased or reacquired by the Company or any Subsidiary over a period in excess of three years, unless either: (a) after giving effect to such transaction and the incurrence of Attributable Debt in respect thereof and to the application of the proceeds of such Attributable Debt, the sum (without duplication) of: (i) the aggregate unpaid principal amount of Indebtedness (including Capital Lease Obligations) of the Company secured by Liens permitted by Section 10.5(e); PLUS (ii) the aggregate unpaid principal amount of Indebtedness of Subsidiaries (other than Indebtedness permitted by Section 10.4(a), (b), (c) or (d)); PLUS 18 (iii) the aggregate Attributable Debt in connection with all sale and leaseback transactions of the Company and its Subsidiaries entered into after the First Closing Date in accordance with the provisions of this clause (a), does not exceed 15% of Consolidated Capitalization; or (b) the net proceeds realized from such transfer are applied within 180 days after the receipt thereof to (x) the reinvestment in similar categories of property or assets for use in the business of the Company and its Subsidiaries or (y) the repayment of unsubordinated Funded Indebtedness of the Company or a Subsidiary, PROVIDED that in connection with any such repayment of Funded Indebtedness the Company shall offer to apply a PRO RATA portion of such net proceeds to the purchase of the Notes pursuant to Section 8.6 at a price of not less than 100% of the principal amount of the Notes so to be purchased together with accrued interest thereon to the purchase date, such PRO RATA portion of such net proceeds to be calculated by multiplying (A) the aggregate amount of such net proceeds by (B) a fraction, the numerator of which is the aggregate principal amount of the Notes then outstanding and the denominator of which is the aggregate unpaid principal amount of all Funded Indebtedness (including the Notes) all or a portion of which is so to be repaid. 10.7. MAINTENANCE OF NET WORTH. The Company will not at any time permit Consolidated Net Worth to be less than the sum of (a) $197,000,000 PLUS (b) an amount equal to 35% of Consolidated Net Income for (i) the fiscal quarter of the Company ended June 30, 2000 and (ii) each completed fiscal year of the Company ending on or after June 29, 2001 (but only if Consolidated Net Income for such fiscal quarter or year is a positive number). 11. EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in Sections 10.2 through 10.6, inclusive; or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and (in the case of any default arising under Section 10.7, so long as the Company is proceeding diligently and in good faith to remedy such default (by issuing securities or otherwise) during such 30-day period) such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note (any such written notice to be identified as a "notice of default" and to refer specifically to this paragraph (d) of Section 11); or (e) any representation or warranty made in writing by or on behalf of the Company or any Subsidiary Guarantor or by any officer of the Company or any Subsidiary Guarantor in this Agreement or any Subsidiary Guarantee or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole amount or interest on any Indebtedness that is outstanding in an aggregate principal amount of at least $10,000,000 beyond any period of grace provided with respect thereto, or (ii) the Company or any Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness in an aggregate outstanding principal amount of at least $10,000,000 or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such 19 Indebtedness has become, or has been declared (or one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (x) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $10,000,000, or (y) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness; or (g) the Company or any Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any of its Subsidiaries, a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any of its Subsidiaries, or any such petition shall be filed against the Company or any of its Subsidiaries and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $10,000,000 are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within 60 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 60 days after the expiration of such stay; or (j) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $10,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect; or (k) any Subsidiary Guarantee shall cease to be in full force and effect (other than as contemplated by Section 9.6(b)) or any Subsidiary Guarantor or any Person acting on behalf of any Subsidiary Guarantor shall contest in any manner the validity, binding nature or enforceability of any Subsidiary Guarantee. As used in Section 11(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 12. REMEDIES ON DEFAULT, ETC. 12.1. ACCELERATION. (a) If an Event of Default with respect to the Company described in paragraph (g) or (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact 20 that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, the Required Holders may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (X) all accrued and unpaid interest thereon and (Y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2. OTHER REMEDIES. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3. RESCISSION. At any time after any Notes have been declared due and payable pursuant to paragraph (b) or (c) of Section 12.1, the Required Holders, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement, by any Note upon any holder thereof or by any Subsidiary Guarantee shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1. REGISTRATION OF NOTES. 21 The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2. TRANSFER AND EXCHANGE OF NOTES. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in Section 6.2. 13.3. REPLACEMENT OF NOTES. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (PROVIDED that if the holder of such Note is, or is a nominee for, an original Purchaser or another holder of a Note with a minimum net worth of at least $10,000,000 in excess of the outstanding principal amount of such Note, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1. PLACE OF PAYMENT. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in New York, New York at the principal office of The Bank of New York in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 14.2. HOME OFFICE PAYMENT. 22 So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1. TRANSACTION EXPENSES. Whether or not the transactions contemplated hereby are consummated, the Company will pay all reasonable costs and expenses (including reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and each Other Purchaser or holder of a Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the reasonable costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement, the Notes or any Subsidiary Guarantee or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement, the Notes or any Subsidiary Guarantee, or by reason of being a holder of any Note, and (b) the reasonable costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2. SURVIVAL. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1. REQUIREMENTS. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the 23 provisions of Section 12 relating to acceleration or rescission, change the amount or time of any prepayment or payment of principal of, or change the rate or the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20. 17.2. SOLICITATION OF HOLDERS OF NOTES. (a) SOLICITATION. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) PAYMENT. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3. BINDING EFFECT, ETC. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "THIS AGREEMENT" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4. NOTES HELD BY COMPANY, ETC. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Treasurer, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given only when actually received. 24 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, PROVIDED that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, PROVIDED that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes or this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 25 22. MISCELLANEOUS. 22.1. SUCCESSORS AND ASSIGNS. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. 22.3. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4. CONSTRUCTION. Each covenant contained herein shall be construed (absent express provision to the contrary) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6. GOVERNING LAW. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of the law of such State that would require the application of the laws of a jurisdiction other than such State. * * * * * 26 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, G&K SERVICES, INC. By /s/ Jeffrey L. Wright ---------------------------------- Title: Chief Financial Officer The foregoing is hereby agreed to as of the date thereof. THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY By: /s/ J. Lueken ------------------------------------- Its Authorized Representative THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY for its Group Annuity Separate Account By: /s/ J. Lueken ------------------------------------- Its Authorized Representative MINNESOTA LIFE INSURANCE COMPANY By: Advantus Capital Management, Inc. By: /s/ Marilyn Froelich ------------------------- Title: Vice President AMERICAN REPUBLIC INSURANCE COMPANY By: Advantus Capital Management, Inc. By: /s/ Loren Haugland ------------------------- Title: Vice President NATIONAL TRAVELERS LIFE COMPANY By: Advantus Capital Management, Inc. By: /s/ Loren Haugland ------------------------- Title: Vice President 27 MTL INSURANCE COMPANY By: Advantus Capital Management, Inc. By: /s/ Loren Haugland ------------------------- Title: Vice President GREAT WESTERN INSURANCE COMPANY By: Advantus Capital Management, Inc. By: /s/ Loren Haugland ------------------------- Title: Vice President 28
SCHEDULE A INFORMATION RELATING TO PURCHASERS ---------- Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- THE NORTHWESTERN MUTUAL First Closing Second Closing Third Closing LIFE INSURANCE COMPANY ------------- -------------- ------------- $13,200,000 $9,900,000 $9,900,000
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- THE NORTHWESTERN MUTUAL First Closing Second Closing Third Closing LIFE INSURANCE COMPANY ------------- -------------- ------------- For Its Group Annuity Separate Account $800,000 $600,000 $600,000
2
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- MINNESOTA LIFE INSURANCE First Closing Second Closing Third Closing COMPANY ------------- -------------- ------------- $3,600,000 $2,700,000 $2,700,000
3
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- First Closing Second Closing Third Closing ------------- -------------- ------------- AMERICAN REPUBLIC INSURANCE COMPANY $800,000 $600,000 $600,000 (Notes to be registered in the name of "EMSEG & Co.")
4
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- First Closing Second Closing Third Closing ------------- -------------- ------------- NATIONAL TRAVELERS LIFE COMPANY $400,000 $300,000 $300,000 (Notes to be registered in the name of "Var & Co.")
5
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- First Closing Second Closing Third Closing ------------- -------------- ------------- MTL INSURANCE COMPANY $800,000 $600,000 $600,000 (Notes to be registered in the name of "ELL & Co.")
6
Principal Amount of Name and Address of Purchaser Notes to be Purchased - ----------------------------- --------------------- First Closing Second Closing Third Closing ------------- -------------- ------------- GREAT WESTERN INSURANCE COMPANY $400,000 $300,000 $300,000 (Notes to be registered in the name of "Merrill Lynch for Great Western Insurance Company")
7 SCHEDULE B DEFINED TERMS As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "AFFILIATE" means, at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "ATTRIBUTABLE DEBT" means, as to any particular lease relating to a sale and leaseback transaction occurring after the First Closing Date, the total amount of rent (discounted semiannually from the respective due dates thereof at the interest rate implicit in such lease) required to be paid by the lessee under such lease during the remaining term thereof. "ACQUISITION INDEBTEDNESS" means Indebtedness incurred in connection with the acquisition by the Company or any Subsidiary of any Person or line of business (in compliance with Section 9.7). "BUSINESS DAY" means (a) for the purposes of Section 8.7 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City or Minneapolis, Minnesota are required or authorized to be closed. "CAPITAL LEASE" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "CAPITAL LEASE OBLIGATIONS" means, with respect to any Person, all outstanding obligations of such Person in respect of Capital Leases, taken at the capitalized amount thereof, accounted for as indebtedness in accordance with GAAP. "CLOSING" is defined in Section 3. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMPANY" means G&K Services, Inc., a Minnesota corporation, or any successor thereto that shall have become such in the manner prescribed in Section 10.2. "CONFIDENTIAL INFORMATION" is defined in Section 20. "CONSOLIDATED CAPITALIZATION" means, at any date, the sum of (a) Consolidated Indebtedness plus (b) Consolidated Net Worth plus (c) deferred taxes, all as determined as of such date on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP. "CONSOLIDATED INDEBTEDNESS" means, at any date, all Indebtedness of the Company and its Subsidiaries determined as of such date on a consolidated basis in accordance with GAAP. "CONSOLIDATED INDEBTEDNESS TO EBITDA RATIO" means, at any date, the ratio of (a) Consolidated Indebtedness as at such date to (b) EBITDA for the four consecutive fiscal quarters then most recently ended determined on 1 a pro forma basis (i.e., giving effect to acquisitions and dispositions occurring during such four-quarter period as of the beginning of such period). "CONSOLIDATED INTEREST EXPENSE" means, for any period, the sum for the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, of all amounts which would be deducted in computing Consolidated Net Income for such period on account of interest on Indebtedness (including imputed interest in respect of Capital Lease Obligations and amortization of debt discount and expense). "CONSOLIDATED NET INCOME" means, for any period, the net income of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP, excluding: (a) the proceeds of any life insurance policy, (b) any gains arising from (i) the sale or other disposition of any assets (other than current assets) to the extent that the aggregate amount of the gains during such period from the sale or other disposition of assets (other than current assets) exceeds the aggregate amount of the losses during such period from the sale, abandonment or other disposition of assets (other than current assets), (ii) any write-up of assets or (iii) the acquisition of outstanding securities of the Company or any Subsidiary, (c) any amount representing any interest in the undistributed earnings of any Person other than a Subsidiary, (d) any earnings, prior to the date of acquisition, of any Person acquired in any manner, and any earnings of any Subsidiary acquired prior to its becoming a Subsidiary (unless used in the computation of EBITDA for purposes of the calculation of the Consolidated Indebtedness to EBITDA Ratio on a pro forma basis), (e) any earnings of a successor to or transferee of the assets of the Company prior to its becoming such successor or transferee, (f) any deferred credit (or amortization of a deferred credit) arising from the acquisition of any Person, and (g) any extraordinary gains not covered by clause (b) above. "CONSOLIDATED NET WORTH" means, at any date, on a consolidated basis for the Company and its Subsidiaries, (a) the sum of (i) capital stock taken at par or stated value PLUS (ii) capital in excess of par or stated value relating to capital stock PLUS (iii) retained earnings (or minus any retained earning deficit) MINUS (b) the sum of treasury stock, capital stock subscribed for and unissued and other contra-equity accounts, all determined in accordance with GAAP. "CREDIT FACILITY" means any indenture, mortgage, deed of trust, loan, purchase or credit agreement or any other agreement pursuant to which debt for borrowed money shall be incurred or any note, bond, debenture or other instrument evidencing any such debt. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DEFAULT RATE" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced by The Chase Manhattan Bank in New York, New York as its "base" or "prime" rate. "EBITDA" means, for any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (a) Consolidated Interest Expense, (b) depreciation and amortization expenses and other non-cash charges and (c) income and profit taxes. "ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. 2 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EVENT OF DEFAULT" is defined in Section 11. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "FIRST CLOSING DATE" is defined in Section 3. "FUNDED INDEBTEDNESS" means, with respect to any Person, all Indebtedness of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more from, the date of creation thereof. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United States of America or any State or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or which asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "GUARANTY" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including (without limitation) obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (I) for the purchase or payment of such indebtedness or obligation, or (II) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). 3 "HOLDER" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 13.1. "INDEBTEDNESS" with respect to any Person means, at any time, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); (c) its Capitalized Lease Obligations; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAKE-WHOLE AMOUNT" is defined in Section 8.7. "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement, the Notes or any Subsidiary Guarantee. "MEMORANDUM" is defined in Section 5.3. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTES" is defined in Section 1. "OECD" means the Organization of Economic Cooperation and Development. 4 "OFFICER'S CERTIFICATE" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "OTHER AGREEMENTS" is defined in Section 2. "OTHER PURCHASERS" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "PREFERRED STOCK" means any class of capital stock of a corporation that is preferred over any other class of capital stock of such corporation as to the payment of dividends or the payment of any amount upon liquidation or dissolution of such corporation. "PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "PTE" means a Prohibited Transaction Exemption issued by the Department of Labor. "QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14 issued by the United States Department of Labor. "REQUIRED HOLDERS" means, at any time, the holders of greater than 50% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this agreement. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "SUBSIDIARY GUARANTEE" means a guarantee of a Subsidiary Guarantor of the obligations of the Company under this Agreement and the Notes, substantially in the form of Exhibit 4.10. "SUBSIDIARY GUARANTOR" means (a) as of the First Closing Date, those Subsidiaries identified as such on Schedule 5.4, and (b) thereafter, the Persons referred to in clause (a) and each other Person which from time to time executes and delivers a counterpart of the Subsidiary Guarantee or otherwise enters into a Subsidiary Guarantee (unless such Person shall be released from its obligations under its Subsidiary Guarantee pursuant to Section 9.6(b)). 5 "SWAPS" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "VOTING STOCK" means, with respect to any Person, any shares of stock or other equity interests of any class or classes of such Person whose holders are entitled under ordinary circumstances (irrespective of whether at the time stock or other equity interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency) to vote for the election of a majority of the directors, managers, trustees or other governing body of such Person. "WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one hundred percent (100%) of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other Wholly-Owned Subsidiaries at such time. 6 SCHEDULE 4.9 CHANGES IN CORPORATE STRUCTURE None. 1 SCHEDULE 5.3 DISCLOSURE MATERIALS None. 1 SCHEDULE 5.4 Subsidiaries, etc. ------------------
PERCENTAGE SUBSIDIARY (i) SUBSIDIARIES JURISDICTION OWNERSHIP GUARANTOR - ------------------------------------------------------------------------------------------------------------------------ G&K Services, Co. Minnesota, USA 100% yes G&K Services Linen Co. Minnesota, USA 100% yes Northwest Linen Co. Minnesota, USA 100% yes Gross Industrial Towel & Garment Service, Inc. Minnesota, USA 100% yes G&K Services of Canada, Inc. Ontario, Canada 100% no 912489 Ontario Limited Ontario, Canada 100% no Work Wear Corporation of Canada, Ltd Ontario, Canada 100% no La Corporation Work Wear du Quebec Quebec, Canada 100% no (ii) AFFILIATES - ---------------------------------------------------------- None (iii) COMPANY DIRECTORS AND SENIOR OFFICERS POSITION - ------------------------------------------------------------------------------------------------------------------------ Bruce G. Allbright Director Paul Baszucki Director Wayne M. Fortun Director Donald W. Goldfus Director William Hope Director Bernard Sweet Director Richard M. Fink Chairman of the Board Thomas Moberly President and Chief Executive Officer Robert Wood Executive Vice President Jeffrey Wright Chief Financial Officer John Schmerler Vice President - Corporate Development Sally Bredehoft Vice President - Human Resources Richard Stutz Vice President - Operations Kathryn Trickey Vice President - Sales
1 SCHEDULE 5.5 FINANCIAL STATEMENTS The consolidated financial statements of the Company and its Subsidiaries for the fiscal year ended June 26, 1999 and for the fiscal period ended March 25, 2000. 1 SCHEDULE 5.8 CERTAIN LITIGATION None. 1 SCHEDULE 5.11 PATENTS, ETC. None. 1 SCHEDULE 5.14 USE OF PROCEEDS The net proceeds from the sale of the Notes will be used to repay existing indebtedness and for general corporate purposes. 1 SCHEDULE 5.15
OFF-BALANCE SHEET FINANCIAL STATEMENT INDEBTEDNESS AT 3/25/2000 AMOUNT AMOUNT (US$) - -------------------------------------------------------------------------------- Term Loan $ - $ 187,356,529 Revolver $ - $ 35,000,000 Non-compete Agreement $ - $ 386,433 NBD Bank Loan ($500,000 Canadian) $ - $ 342,000 US Guarantee on Canadian Revolver $ 25,000,000 $ - Letters of Credit $ 3,187,345 $ - Interest Rate Swap $ (137,759) $ - ----------------------------------------- $ 28,049,586 $ 223,084,962 =========================================
1 EXHIBIT 1 [FORM OF NOTE] G&K SERVICES, INC. 8.40% SENIOR NOTE DUE 2010 No. [_____] [Date] $[_______] PPN 361268 A@ 4 FOR VALUE RECEIVED, the undersigned, G&K SERVICES, INC. (herein called the "Company"), a corporation organized and existing under the laws of the State of Minnesota, hereby promises to pay to [_____________], or registered assigns, the principal sum of [______________] DOLLARS (or so much thereof as shall not have been prepaid) on July 20, 2010, with interest (computed on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of 8.40% per annum from the date hereof, payable semiannually, on the 20th day of January and July in each year, commencing with the January 20 or July 20 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) to the extent permitted by law, on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 10.40% or (ii) 2% over the rate of interest publicly announced by The Chase Manhattan Bank from time to time in New York, New York as its "base" or "prime" rate. Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at the principal office of The Bank of New York in New York, New York or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of July 20, 2000 (as from time to time amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 20 of the Note Purchase Agreements and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder" attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. This Note shall be construed and enforced in accordance with the laws of the State of New York. G&K SERVICES, INC. By --------------------------- Title: 1 EXHIBIT 4.4(a) FORM OF OPINION OF SPECIAL COUNSEL TO THE COMPANY [To come] 2 EXHIBIT 4.4(b) FORM OF OPINION OF SPECIAL COUNSEL TO THE PURCHASERS 3 EXHIBIT 4.10 FORM OF SUBSIDIARY GUARANTEE GUARANTEE dated as of ____________, in favor of each person who is from time to time a holder of one or more of any of the 8.40% Senior Notes due 2010 (together with all notes delivered in substitution or exchange thereof, the "NOTES"), issued or to be issued by G&K Services, Inc. (the "ISSUER") in an initial aggregate principal amount of up to $50,000,000 pursuant to the Note Purchase Agreement dated as of July 20, 2000 (as amended, modified or supplemented from time to time, the "NOTE PURCHASE AGREEMENT") among the Issuer and each of the Purchasers listed in Schedule A to the Note Purchase Agreement. Section 1. DEFINITIONS. Except as otherwise provided herein, terms defined in the Note Purchase Agreement are used herein as defined therein. Section 2. THE GUARANTEE. 2.01 THE GUARANTEE. The Issuer will use the proceeds from the sale of the Notes to repay indebtedness and for general corporate purposes of the group of Persons comprised of the Issuer and its Subsidiaries, and the undersigned (individually, a "SUBSIDIARY GUARANTOR," and collectively, the "SUBSIDIARY GUARANTORS") are Subsidiaries of the Issuer. For such valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Subsidiary Guarantor hereby jointly and severally guarantees to each holder of a Note (each, a "HOLDER") the prompt payment in full when due (whether at stated maturity, by acceleration, by optional prepayment or otherwise) of the principal of, Make-Whole Amounts (if any), and interest on the Notes (including, without limitation, interest on any overdue principal, Make-Whole Amount and, to the extent permitted by applicable law, on any overdue interest) and all other amounts from time to time owing by the Issuer under the Note Purchase Agreement and under the Notes (including, without limitation, costs, expenses and taxes) (such obligations being herein collectively called the "GUARANTEED OBLIGATIONS"). Each Subsidiary Guarantor hereby further agrees that if the Issuer shall default in the payment of any of the Guaranteed Obligations, such Subsidiary Guarantor will (x) promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration, by optional prepayment or otherwise) in accordance with the terms of such extension or renewal and (y) pay to any holder such amounts, to the extent lawful, as shall be sufficient to pay the reasonable out-of-pocket costs and expenses of collection or of otherwise enforcing any of such holder's rights under the Note Purchase Agreement to which such holder is a party, including, without limitation, reasonable counsel fees. All obligations of each Subsidiary Guarantor under this Section 2.01 shall survive the transfer of any Note. 2.02 OBLIGATIONS UNCONDITIONAL. (a) The obligations of each Subsidiary Guarantor under Section 2.01 constitute a present and continuing guaranty of payment and not collectibility and are absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Issuer under the Note Purchase Agreement, the Notes or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 2.02 that the obligations of each Subsidiary Guarantor hereunder shall be absolute and unconditional, under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of any Subsidiary Guarantor hereunder which shall remain absolute and unconditional as described above: (1) any amendment or modification of any provision of the Note Purchase Agreement, the Notes or any assignment or transfer thereof, including without limitation the renewal or extension of the time of payment of the Notes or the granting of time in respect of such payment thereof, or of any furnishing or acceptance of security or any additional guarantee or any release of any security or guarantee (including any release of any other Subsidiary Guarantor) so furnished or accepted for the Notes; 4 (2) any waiver, consent, extension, granting of time, forbearance, indulgence or other action or inaction under or in respect of the Note Purchase Agreement or the Notes, or any exercise or non-exercise of any right, remedy or power in respect hereof or thereof; (3) any bankruptcy, receivership, insolvency, reorganization, arrangement, readjustment, composition, liquidation or similar proceedings with respect to the Issuer or any other Person or the properties or creditors of any of them; (4) the occurrence of any Default or Event of Default under, or any invalidity or any unenforceability of, or any misrepresentation, irregularity or other defect in, the Note Purchase Agreement, the Notes or any other agreement; (5) any transfer of any assets to or from the Issuer, including without limitation any transfer or purported transfer to the Issuer from any Person, any invalidity, illegality of, or inability to enforce, any such transfer or purported transfer, any consolidation or merger of the Issuer with or into any Person, any change in the ownership of any shares of capital stock of the Issuer, or any change whatsoever in the objects, capital structure, constitution or business of the Issuer; (6) any default, failure or delay, willful or otherwise, on the part of the Issuer or any other Person to perform or comply with, or the impossibility or illegality of performance by the Issuer or any other Person of, any term of the Note Purchase Agreement, the Notes or any other agreement; (7) any suit or other action brought by, or any judgment in favor of, any beneficiaries or creditors of, the Issuer or any other Person for any reason whatsoever, including without limitation any suit or action in any way attacking or involving any issue, matter or thing in respect of the Note Purchase Agreement, the Notes or any other agreement; (8) any lack or limitation of status or of power, incapacity or disability of the Issuer or any trustee or agent thereof; or (9) any other thing, event, happening, matter, circumstance or condition whatsoever, not in any way limited to the foregoing. (b) Each Subsidiary Guarantor hereby unconditionally waives diligence, presentment, demand of payment, protest and all notices whatsoever and any requirement that any holder exhaust any right, power or remedy against the Issuer under the Note Purchase Agreement to which such holder is a party or the Notes or any other agreement or instrument referred to herein or therein, or against any other Subsidiary Guarantor, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations. (c) In the event that any Subsidiary Guarantor shall at any time pay any amount on account of the Guaranteed Obligations or take any other action in performance of its obligations hereunder, such Subsidiary Guarantor shall not exercise any subrogation or other rights hereunder or under the Notes and such Subsidiary Guarantor hereby waives all rights it may have to exercise any such subrogation or other rights, and all other remedies that it may have against the Issuer, in respect of any payment made hereunder unless and until the Guaranteed Obligations shall have been paid in full. If any amount shall be paid to any Subsidiary Guarantor on account of any such subrogation rights or other remedy, notwithstanding the waiver thereof, such amount shall be received in trust for the benefit of the holders and shall forthwith be paid to the holders to be credited and applied upon the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof. Each Subsidiary Guarantor agrees that its obligations under this Guarantee shall be automatically reinstated if and to the extent that for any reason any payment (including payment in full) by or on behalf of the Issuer is rescinded or must be otherwise restored by any holder, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, all as though such amount had not been paid. The guarantee in this Section 2 is a continuing guarantee and shall apply to the Guaranteed Obligations whenever arising. Each default in the payment or performance of any of the Guaranteed Obligations shall give rise to a separate 5 claim and cause of action hereunder, and separate claims or suits may be made and brought, as the case may be, hereunder as each such default occurs. If an event permitting the acceleration of the maturity of the principal amount of the Notes shall at any time have occurred and be continuing, and such acceleration (and the effect thereof on the Guaranteed Obligations) shall at such time be prevented by reason of the pendency against the Issuer or any other Person of a case or proceeding under a bankruptcy or insolvency law, each Subsidiary Guarantor agrees that, for purposes of this Guarantee and its obligations hereunder, the maturity of the principal amount of the Notes shall be deemed to have been accelerated (with a corresponding effect on the Guaranteed Obligations) with the same effect as if the holders had accelerated the same in accordance with the terms of the Note Purchase Agreement, and such Subsidiary Guarantor shall forthwith pay such principal amount, any interest thereon, any Make-Whole Amount, and any other amounts guaranteed hereunder without further notice or demand. Section 3. REPRESENTATIONS AND WARRANTIES. Each Subsidiary Guarantor represents and warrants to the Holders that: 3.01 ORGANIZATION; POWER AND AUTHORITY. Such Subsidiary Guarantor is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Such Subsidiary Guarantor has the corporate or other requisite power and authority to execute and deliver this Guarantee and to perform the provisions hereof. 3.02 AUTHORIZATION, ETC. This Guarantee has been duly authorized by all necessary action on the part of such Subsidiary Guarantor, and this Guarantee constitutes a legal, valid and binding obligation of such Subsidiary Guarantor enforceable against such Subsidiary Guarantor in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.03 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The execution, delivery and performance by such Subsidiary Guarantor of this Guarantee will not (i) contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of such Subsidiary Guarantor under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws or other organizational document, or any other agreement or instrument to which such Subsidiary Guarantor is bound or by which such Subsidiary Guarantor or any of its properties may be bound or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to such Subsidiary Guarantor or (iii) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to such Subsidiary Guarantor. 3.04 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by such Subsidiary Guarantor of this Guarantee 1including, without limitation, any thereof required in connection with the obtaining of Dollars to make payments under this Subsidiary Guarantee and the payment of such Dollars to Persons resident in the United States of America. It is not necessary to ensure the legality, validity, enforceability or admissibility into evidence in [insert jurisdictions of incorporation of Subsidiary Guarantors] of this Subsidiary Guarantee that this Subsidiary Guarantee or any other document be filed, recorded or enrolled with any Governmental Authority, or that any such agreement or document be stamped with any stamp, registration or similar transaction tax. For purposes of this Subsidiary Guarantee, "Dollar" means lawful money of the United States of America. 3.05. SOLVENCY. Upon the execution and delivery hereof, such Subsidiary Guarantor will be solvent, will be able to pay its debts as they mature and will have capital sufficient to carry on its business. - ------------------------------- (1) The remainder of this Section is not necessary in relation to Subsidiary Guarantors that are U.S. persons. 6 3.06. RANKING. All liabilities of each Subsidiary Guarantor under this Subsidiary Guarantee constitute direct, unconditional and general obligations of such Subsidiary Guarantor and rank in right of payment either PARI PASSU or senior to all other Indebtedness of such Subsidiary Guarantor, except for such Indebtedness which is preferred as a result of being secured (but then only to the extent of such security). 3.07 TAXES.(2) No liability for any tax (whether income, documentary, sales, stamp, registration, issue, capital, property, excise or otherwise), duty, levy, impost, fee, charge or withholding (each a "TAX" and collectively "TAXES"), directly or indirectly, imposed, assessed, levied or collected by or for the account of any Governmental Authority of or in [insert jurisdictions of incorporation of Subsidiary Guarantors] or any political subdivision thereof or therein (an "APPLICABLE TAXING AUTHORITY") will be incurred by any Subsidiary Guarantor or any holder of a Note as a result of the execution or delivery of this Subsidiary Guarantee and, based on present law, no deduction or withholding in respect of Taxes imposed by or for the account of any Applicable Taxing Authority or any jurisdiction (other than the United States of America) by or through which payments with respect to the Notes are made by or for such Subsidiary Guarantor is required to be made from any payment by the Subsidiary Guarantor under this Subsidiary Guarantee except for any such withholding or deduction arising out of the conditions described in the proviso to Section 4(a). Section 4. TAX INDEMNITY.(3) (a) Any and all payments under this Subsidiary Guarantee to or for the account of any holder of a Note shall be made free and clear of, and without deduction or withholding for or on account of, any Tax, except to the extent such deduction or withholding is required by law. If any Tax is required by law to be deducted or withheld from any such payments by any Subsidiary Guarantor, such Subsidiary Guarantor will make such deductions or withholding and pay to the relevant taxing authority the full amount deducted or withheld before penalties attach thereto or interest accrues thereon. In the event of the imposition by or for the account of any Applicable Taxing Authority or of any Governmental Authority of any jurisdiction in which any Subsidiary Guarantor resides for tax purposes or any jurisdiction from or through which such Subsidiary Guarantor is making any payment in respect of this Subsidiary Guarantee, other than any Governmental Authority of or in the United States of America or any political subdivision thereof or therein, of any Tax upon or with respect to any payments in respect of this Subsidiary Guarantee, whether by withholding or otherwise, such Subsidiary Guarantor hereby agrees to pay forthwith from time to time in connection with each payment on this Subsidiary Guarantee to each holder of a Note such amounts as shall be required so that every payment received by such holder in respect of the Notes and every payment received by such holder under this Subsidiary Guarantee will not, after such withholding or deduction or other payment for or on account of such Tax and any interest or penalties relating thereto, be less than the amount due and payable to such holder in respect of such Note or under this Subsidiary Guarantee before the assessment of such Tax; PROVIDED, however, that such Subsidiary Guarantor shall not be obliged to pay such amounts to any holder of a Note in respect of Taxes to the extent such Taxes exceed the Taxes that would have been payable: (i) had such holder not had any connection with in [insert jurisdictions of incorporation of Subsidiary Guarantors] or any territory or political subdivision thereof other than the mere holding of a Note with the benefit of this Guarantee (or the receipt of any payments in respect thereof) or activities incidental thereto (including enforcement thereof); or (ii) but for the delay or failure by such holder (following a written request by such Subsidiary Guarantor) in the filing with an appropriate Governmental Authority or otherwise of forms, certificates, documents, applications or other reasonably required evidence (collectively "FORMS"), that is required to be filed by such holder to avoid or reduce such Taxes and that in the case of any of the foregoing would not result in any confidential or proprietary income tax return information being revealed, either directly or indirectly, to any Person and such delay or failure could have been lawfully avoided by such holder, provided that such holder shall be deemed to have satisfied the requirements of this clause (ii) upon the good faith completion and submission of such Forms as may be specified in a written request of such Subsidiary Guarantor no later than 45 days after receipt by such holder of such written request. (b) Within 60 days after the date of any payment by any Subsidiary Guarantor of any Tax in respect of any payment under the Notes or this Section 4, such Subsidiary Guarantor shall furnish to each holder of a Note the original tax - ------------------------------- (2) This section is not necessary in relation to Subsidiary Guarantors that are U.S. persons. (3) This section is not necessary in relation to Subsidiary Guarantors that are U.S. persons. 7 receipt for the payment of such Tax (or if such original tax receipt is not available, a duly certified copy of the original tax receipt), together with such other documentary evidence with respect to such payments as may be reasonably requested from time to time by any holder of a Note. (c) The obligations of the Subsidiary Guarantors under this Section 4 shall survive the transfer or payment of any Note. Section 5. MISCELLANEOUS. 5.01 AMENDMENTS, ETC. This Guarantee may be amended, and the observance of any term hereof may be waived (either retroactively or prospectively), with (and only with) the written consent of the Subsidiary Guarantors and the Required Holders, except that no such amendment or waiver may, without the written consent of each holder affected thereby, amend any of Section 2.01, 2.02 or this Section 5.01. 5.02 NOTICES. All notices and communications provided for hereunder shall be in writing and sent as provided in Section 18 of the Note Purchase Agreement (i) if to any holder, to the address specified for such holder in the Note Purchase Agreement to which such holder is a party and (ii) if to any Subsidiary Guarantor, to the address for such Subsidiary Guarantor set forth on the signature pages hereof. 5.03 JURISDICTION AND PROCESS.(4) EACH SUBSIDIARY GUARANTOR AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTEE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY LEGAL ACTION OR PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT OBTAINED AGAINST SUCH SUBSIDIARY GUARANTOR FOR BREACH HEREOF OR THEREOF, OR AGAINST ANY OF ITS PROPERTIES, MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK BY OR ON BEHALF OF ANY HOLDER OF A NOTE, AS SUCH HOLDER MAY ELECT, AND SUCH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH LEGAL ACTION OR PROCEEDING. EACH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY APPOINTS AND DESIGNATES CT CORPORATION SYSTEM, WHOSE ADDRESS IS 111 EIGHTH AVENUE, NEW YORK, NY 10011, OR ANY OTHER PERSON HAVING AND MAINTAINING A PLACE OF BUSINESS IN THE STATE OF NEW YORK WHOM THE SUBSIDIARY GUARANTOR MAY FROM TIME TO TIME HEREAFTER DESIGNATE (HAVING GIVEN 30 DAYS' NOTICE THEREOF TO EACH HOLDER OF A NOTE THEN OUTSTANDING), AS THE TRUE AND LAWFUL ATTORNEY AND DULY AUTHORIZED AGENT FOR ACCEPTANCE OF SERVICE OF LEGAL PROCESS OF THE SUBSIDIARY GUARANTOR. EACH SUBSIDIARY GUARANTOR HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AS ITS ADDRESS SPECIFIED IN SECTION 5.02 OR AT SUCH OTHER ADDRESS OF WHICH EACH HOLDER OF A NOTE SHALL HAVE BEEN NOTIFIED PURSUANT THERETO. IN ADDITION, EACH SUBSIDIARY GUARANTOR HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SUBSIDIARY GUARANTEE OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 5.04 SUCCESSORS AND ASSIGNS. All covenants and other agreements of each Subsidiary Guarantor in this Guarantee shall bind its successors and assigns and shall inure to the benefit of the holders and their respective successors and assigns. - ------------------------------- (4) This section is not necessary in relation to Subsidiary Guarantors that are U.S. persons. 8 5.05 SEVERABILITY. Any provision of this Guarantee that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 5.06 CONSTRUCTION. Each agreement contained herein shall be construed (absent express provision to the contrary) as being independent of each other agreement contained herein, so that compliance with any one agreement shall not (absent such an express contrary provision) be deemed to excuse compliance with any other agreement. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 5.07 EXPENSES. Each Subsidiary Guarantor shall indemnify each holder on demand in respect of all costs and expenses (including reasonable legal fees) incurred by it in connection with the enforcement of this Guarantee or the preservation of the rights of such holder as a result of any breach by such Subsidiary Guarantor of its obligations hereunder. 5.08 GOVERNING LAW. This Guarantee shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choice-of-law principles of such State that would require the application of the laws of a jurisdiction other than such State. 5.09 COUNTERPARTS; ADDITIONAL PARTIES. This Guarantee may be executed in any number of counterparts and by the different parties hereto on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Guarantee. At any time after the date of this Guarantee, one or more additional persons or entities may become parties hereto by executing and delivering to the holders a counterpart of this Guarantee. Immediately upon such execution and delivery (and without any further action), each such additional person or entity will become a party to, and will be bound by all of the terms of, this Guarantee. 9 IN WITNESS WHEREOF, this Guarantee has been duly executed by the Subsidiary Guarantors as of the day and year first above written. [NAME OF SUBSIDIARY GUARANTOR] By ------------------------- Title: Address: [NAME OF SUBSIDIARY GUARANTOR] By ------------------------- Title: Address: 10 EX-21 5 a2026391zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES OF G&K SERVICES, INC. G&K Services, Co. (incorporated in Minnesota, U.S.A.) G&K Services Linen, Co. (incorporated in Minnesota, U.S.A.) Northwest Linen Co. (incorporated in Minnesota, U.S.A.) Gross Industrial Towel & Garment Service, Inc. (incorporated in Minnesota, U.S.A.) G&K Services of Canada, Inc. (incorporated in Ontario, Canada) 912489 Ontario Limited (incorporated in Ontario, Canada) Work Wear Corporation of Canada, Ltd. (incorporated in Ontario, Canada) La Corporation Work Wear du Quebec (incorporated in Quebec, Canada) Whistle Kleen Enterprises Ltd. (incorporated in Ontario, Canada) (THIS SPACE INTENTIONALLY LEFT BLANK) 27 EX-23 6 a2026391zex-23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statement File Nos. 033-63359, 333-64977 and 333-66419. /s/ Arthur Andersen LLP ------------------------------------ ARTHUR ANDERSEN LLP Minneapolis, Minnesota, September 28, 2000 (THIS SPACE INTENTIONALLY LEFT BLANK) 28 EX-24 7 a2026391zex-24.txt EXHIBIT 24 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of G&K SERVICES, INC., a Minnesota corporation (the Company), hereby constitute and appoint RICHARD M. FINK and JEFFREY L. WRIGHT, and each or any of them, his true and lawful attorneys-in-fact and agents, for him and on his behalf and in his name, place and stead, in any and all capacities, to sign, execute and file the Annual Report of the Company and Form 10-K for the fiscal year ended July 1, 2000, to be filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 including any amendment or amendments, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority, granting unto said attorneys full power and authority to do and perform each and every thing, requisite and necessary to be done in and about the premises in order to execute the same as fully to all intents and purposes as he, himself, might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or could cause to be done by virtue hereof. IN WITNESS WHEREOF, G&K SERVICES, INC. has caused this Power of Attorney to be executed in its name by its directors this 31st day of August 2000. /s/ Richard Fink /s/ Donald Goldfus - ---------------------------- ---------------------------- Richard Fink Donald Goldfus /s/ Bruce Allbright /s/ William Hope - ---------------------------- ---------------------------- Bruce Allbright William Hope /s/ Paul Baszucki /s/ Bernard Sweet - ---------------------------- ---------------------------- Paul Baszucki Bernard Sweet /s/ Wayne Fortun - ---------------------------- Wayne Fortun (THIS SPACE INTENTIONALLY LEFT BLANK) 29 EX-27 8 a2026391zex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUL-01-2000 JUN-27-1999 JUL-01-2000 6,420 0 67,108 3,138 89,975 176,302 372,722 156,288 594,952 126,631 0 0 0 10,269 261,253 594,952 577,392 577,392 333,566 499,748 (2,077) 2,883 16,702 63,019 25,207 37,812 0 0 0 37,812 1.85 1.85
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